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COMPAQ COMPUTER CORPORATION
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Fast Facts
Percent of employees who hold stock options | Over 90% |
Percent of employees who typically receive an annual grant | 35% (~50% of professional employees) |
Last all-employee grant | December, 1999 |
Percent of options granted to 16b officers | 3% |
Percent of options granted to non-16b executives | 34% |
Percent of options granted to non-executives | 63% |
Average annual grant rate for last 3 years | ~5.4% |
Average annual exercise rate for last three years | ~1.5% |
Average annual cancellation rate for last three years | ~1.4% |
Background
• Compaq has had above average option grant rate (~7% per year) in lasttwo years due to:
– Low stock price (requires more shares to maintain competitive grant levels)
– Significant retention issues due to high tech & dot com recruiting practices
• Overhang is high due to grant rate in last two years and low number
of shares being exercised in the same period
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2001 Stock Option Plan Overview
• Up to 80 million shares of Common Stock• Approval requires majority shareholder vote
• Not an evergreen plan
• Exercise price can be no lower than fair market value of stock on day of grant
• No re-pricing of outstanding option grants
– Plan does permit Compaq to offer “exchange” of options at FMV
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Shares Issued and Available for Stock
Incentives (+80M Share Request)
% of Common# of Shares Shares Outstanding
Outstanding as Stock Incentives 300m 17.7%
Available for Future Grants 38m 2.2%
Total Overhang 338m 19.9%
Shares Requested 80m 4.7%
Total Overhang if Approved 418m 24.6%
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Importance of 2001 Stock Option Plan
• Attracting / Retaining exceptional employees in an aggressive recruiting environment• Managing overall compensation cost (maintain moderate cash compensation
position by offering upside leverage with stock options)
• Motivating employees to achieve long term performance goals
• Enabling employees to participate in long term growth and success of Compaq
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Competitive Stock Option Overview
Company | Stock Option Overhang | Shares Available for Grant | 2000 Option Grant Rate |
50th %ile | 75th %ile | 50th %ile | 75th %ile | 50th %ile | 75th %ile |
Computer / Computer Peripheral Companies 1 | 13.6% | 15.8% | na | na | 5.1% | 7.2% |
Tech Companies with Revenue Greater than $5B 2 | 10.2% | 13.6% | na | na | 2.9% | 4.0% |
| 15.8% | 20.1% | 6.7% | 11.0% | 6.9% | 11.0% |
Compaq | 300M | 38M | 7% |
(1) From 2000 iQuantic Equity Practices Survey for the High Technology Industries. Companies in Computer/
Computer Peripherals survey sample are Adaptec, American Power Conversion, Apple, Compaq, Dell,
Hewlett-Packard, IBM, Imation, Komag, Logitech, Maxtor, NCR, Quantum, Radisys, Seagate,
Silicon Graphics, Solectron, Splash Technology, Storage Technology, Sun Microsystems
(2) From 2000 iQuantic Equity Practices Survey for the High Technology Industries. Companies in survey
with Revenues greater than $5B are 3Com, Agilent, Apple, ADP, Cisco, Compaq, Dell, EDS,
Ericsson, GTE Services, Hewlett-Packard, IBM, Intel, Lucent, Microsoft, Motorola, NCR,
Nokia Americas, Nortel Networks, Oracle, Qualcomm, Seagate Technology, Solectron,
ST Microelectronics, Sun Microsystems
(3) Companies in 2000 iQuantic Equity Practices Survey for the High Technology Industries.
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Conclusion
• 80M shares requested, no evergreen clause• Allow shareholders to measure us again before approving any subsequent plan
• Imperative for retention and morale
• Required to allow parity versus our peers
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