April 16, 2002

U.S. Agencies Looking Into Hewlett Vote
By JOHN MARKOFF

SAN FRANCISCO, April 15 — The Hewlett-Packard Company said today that two 
federal agencies were looking into its relationships with investment banks 
that cast crucial votes on its proposal to merge with Compaq Computer.

Hewlett-Packard has declared a narrow victory in the shareholder vote, held 
March 19, in which several large institutions switched their votes at the 
last minute. The final counting of ballots has continued in the face of a 
lawsuit by the dissident board member Walter B. Hewlett that challenges the 
company's dealings during the proxy battle.

In a filing with the Securities and Exchange Commission released Sunday 
evening, the company said that it had received a subpoena on April 10 from 
the United States attorney's office for the Southern District of New York 
seeking information about the votes of Deutsche Bank and Northern Trust in 
connection with the proposed merger.

Hewlett-Packard, which is based in Palo Alto, Calif., also said that it had 
received an informal request from the San Francisco office of the Securities 
and Exchange Commission for documents and other information about its 
relationships and communications with Deutsche Bank in connection with the 
merger proposal.

Deutsche Bank's money-management unit said in a statement today that the 
company had voted for the merger based on the "independent judgment" of its 
proxy committee and the "interest of its clients."

Hewlett-Packard played down the investigations, saying they had been 
generated by press reports concerning the vote on the merger.

Nevertheless, the two federal investigations have increased concerns that the 
company's chief executive, Carleton S. Fiorina, may have won a costly victory 
in her bitter struggle with Mr. Hewlett, a son of the company's co-founder. 

Several technology leaders and a number of the company's former executives 
said they saw the investigations and leaks of potentially damaging 
information as further evidence of a company that is still deeply divided 
internally.

"This is highly disruptive to both employees and to customers," said Regis 
McKenna, a longtime Silicon Valley publicist who has consulted for the 
company but says he is not in either camp in the dispute. "Will the company 
get itself untangled? These are not things to be taken lightly." 

Last Tuesday, a potentially damaging voice mail message from Ms. Fiorina to 
Robert Wayman, the company's chief financial officer, was forwarded 
anonymously to a reporter at The San Jose Mercury News. In the message Ms. 
Fiorina expressed concern about the votes of Deutsche Bank and Northern Trust 
and is heard saying, "We may have to do something extraordinary for those two 
to bring 'em over the line here."

A company spokeswoman said in a statement today: "We have longstanding 
relationships with Deutsche Bank as well as with many other institutional 
shareholders. We never acted improperly. We remain optimistic that we can 
close the merger on our current schedule."

But Mr. Hewlett's lawsuit, filed in Delaware Chancery Court, contends that 
Deutsche Bank was planning to vote its shares in opposition to the merger but 
changed its position on at least 17 million shares at the last minute. The 
suit also contends that the shift came after pressure from Hewlett-Packard's 
management led the bank to believe that it would lose Hewlett-Packard 
business if it voted against the merger.

Mr. Hewlett has said that 66 percent of the company's employees who were 
shareholders voted against the merger.

Last week Mr. Wayman sent an e-mail message to Hewlett-Packard employees 
defending his and Ms. Fiorina's actions in the merger battle. "Frankly, I 
find these allegations both insulting and infuriating," he wrote. "Neither 
Carly nor I would ever act improperly in any business matter — much less use 
business assets to secure votes."

Today, financial analysts on both sides of the proposed merger said that the 
federal investigations were potentially harmful for the deal.

"I've been for the merger, but you have to take this seriously," said Steven 
M. Milunovich, a Merrill Lynch analyst. "The H.P. view is, `we didn't do 
anything wrong,' and you have to hope they're telling the truth."

Daniel Kunstler, a J. P. Morgan analyst who said he had generally been 
negative on the deal, expressed concern about the disclosure of the 
voice-mail message. "This was an extraordinary leak," he said. "I'm not a 
lawyer or a detective, but the wording is intriguing."

Mr. Hewlett's complaint against Hewlett-Packard will be heard at a three-day 
trial scheduled to begin on April 23. If the judge rules that a new vote is 
required, Mr. Hewlett could delay or possibly even end the attempted merger.

The marriage of Hewlett-Packard and Compaq, the nation's second- and 
third-largest computer makers after I.B.M., has been greeted skeptically by 
many executives in Silicon Valley who say that increasing the size of 
Hewlett-Packard will leave it ponderous and slow to respond.

The company's executives have argued that the merger will make the company 
the market leader in a number of businesses including servers, printers and 
personal computers.

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