This excerpt taken from the HPQ DEF 14A filed Jan 23, 2006.
MAXIMUM POTENTIAL AWARDS UNDER THE PAY-FOR-RESULTS PROGRAM
FEDERAL INCOME TAX CONSIDERATIONS
All amounts paid pursuant to the PfR Plan constitute taxable income to the employee when received. If a participant elects to defer a portion of the bonus, the participant may be entitled to defer the recognition of income. Generally, and subject to Section 162(m) of the Code, HP will be entitled to a federal income tax deduction when amounts paid under the PfR Plan are included in employee income. Subject to stockholder approval of the PfR Plan, the failure of any aspect of the PfR Plan to satisfy Section 162(m) shall not void any action taken by the Committee under the PfR Plan.
As stated above, the PfR Plan is being submitted for stockholders approval at the annual meeting so that payments under the PfR Plan can qualify for deductibility by HP under Section 162(m) of the Code. However, stockholder approval of the PfR Plan is only one of several requirements under Section 162(m) of the Code that must be satisfied for amounts payable under the PfR Plan to qualify for the "performance-based" compensation exemption under Section 162(m) of the Code, and submission of the PfR Plan to stockholder approval should not be viewed as a guarantee that all amounts paid under the PfR Plan will in practice be deductible by HP.
The foregoing is only a summary of the effect of federal income taxation upon employees and HP with respect to amounts paid pursuant to the PfR Plan. It does not purport to be complete and does not discuss the tax consequences arising in the context of the employee's death or the income tax laws of any municipality, state or foreign country in which the employee's income or gain may be taxable.
INCORPORATION BY REFERENCE
The foregoing is only a summary of the PfR Plan and is qualified in its entirety by reference to the full text of the PfR Plan, a copy of which is attached hereto as Appendix D.
HP has received a stockholder proposal from The United Brotherhood of Carpenters and Joiners of America ("United Brotherhood of Carpenters"), 101 Constitution Avenue, N.W., Washington, D.C. 20001. The United Brotherhood of Carpenters has requested that HP include the following proposal and supporting statement in its proxy statement for the 2006 annual meeting of stockholders, and if properly presented this proposal will be voted on at the annual meeting. The United Brotherhood of Carpenters beneficially owns 49,700 shares of HP common stock. The stockholder proposal is quoted verbatim in italics below.
Management of HP does not support the adoption of the resolution proposed below and asks stockholders to consider management's response, which follows the stockholder proposal.
Our Board recommends a vote AGAINST Proposal No. 4.