Hewlett-Packard (HPQ)

Option Granting Process

        Stock options are part of the Total Rewards Program for many HP employees, and options are typically granted in January of each year in connection with the annual performance appraisal cycle. Grant approval occurs either at a regularly-scheduled Committee meeting or by unanimous written consent of the Committee. Grants to executive officers are made at the same time as grants are made to all other eligible employees. The timing of grants is not coordinated with the release of material non-public information. For grants made during fiscal 2006 all grants were made at fair market value, defined as the average of the high and low trading price of HP common stock on the date of grant. During fiscal 2007, HP's plans will be amended to define fair market value as the closing market price of HP common stock on the date of the grant.

        In addition to grants made each year in connection with the annual performance appraisal cycle, options grants are made during the year to newly-hired employees as part of the in-hire package, as well as to existing employees for purposes of retention or in recognition of special achievements. In order to address the need to grant options at other times of year, the Committee has delegated authority to the HP Plan Committee to make grants to employees other than Section 16 officers, subject to certain guidelines and an overall share limitation. The Plan Committee is authorized to identify the award recipient and the number of shares subject to the option grant; the Committee sets all other terms of the awards. The members of Plan Committee are the following officers of HP: the Executive Vice President of Human Resources and Workforce Development, the General Counsel, the Treasurer and the Controller. Plan Committee members serve at the pleasure of the Committee. The Plan Committee meets quarterly in person and takes action by the unanimous written consent on a monthly basis. All grants are made at fair market value, currently defined as the average of the high and the low trading price of HP common stock, on the day that the last Plan Committee member signs the consent. In addition to duties associated with option grants, the Plan Committee's responsibilities include administration of HP's equity plans and non-equity plans, such as approving amendments to HP's qualified retirement plans and hearing retirement plan appeals.

        The undersigned members of the HR and Compensation Committee have submitted this Report to the Board of Directors and approved its inclusion in HP's 2007 proxy statement.