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At Hewlett, New Anger in Run-Up to the Vote

February 27, 2002

By STEVE LOHR




In its final weeks, the Hewlett- Packard proxy fight is
becoming increasingly tough and increasingly personal.

The latest volley in the effort to win votes began
yesterday when Walter B. Hewlett asserted that the
Hewlett-Packard (news/quote) board had considered paying
Carleton S. Fiorina, the company's chief executive, and
Michael D. Capellas, chief executive of Compaq Computer
(news/quote), a total of $115 million in salary, bonuses
and stock options if the proposed merger of the companies
was completed.

Mr. Hewlett - a Hewlett-Packard board member, son of the
co-founder William Hewlett, and the leading opponent of the
deal - accused the company of trying to "hide the ball" by
not disclosing the executive compensation discussions.

Late yesterday afternoon, Hewlett-Packard issued a
statement of its own asserting that Mr. Hewlett was
"disseminating misinformation about nonexistent employment
terms." In the past, Hewlett-Packard questioned the
credibility of Mr. Hewlett, saying that his rationale for
opposing the Compaq deal had changed over the months.

"Simply put," the statement declared, "Walter Hewlett is
again attempting to mislead investors - but worse than his
usual flip-flop, it is plainly deceptive."

"It is unfortunate," it added, "that he is willing to
blatantly breach his fiduciary duties as an H.P. director."


Mr. Hewlett's statement, and a seven-page report on his
view of the compensation issue, is his effort to raise
questions about the credibility and motivations of Ms.
Fiorina and Mr. Capellas, the merger's chief advocates. His
move came just before Hewlett-Packard's daylong
presentation to securities analysts scheduled in New York
today, and as shareholders begin to receive proxy forms in
the mail in the run-up to the March 19 voting deadline.

Later this week or next, Institutional Shareholder
Services, an advisory firm, is expected to make its
recommendation for or against the deal, a view that is
likely to influence the votes of many big shareholders.

Beyond the 18 percent of total shares that the Hewlett and
Packard foundations have pledged to vote against the deal,
only a few institutional investors have publicly stated
their intentions. These institutions add up to roughly 2
percent of the shares for the deal, and 2 percent against,
including Robert E. Torray & Company, which yesterday
signaled that it planned to vote its 6.7 million shares in
opposition.

Hewlett-Packard stock rose 3 cents yesterday, to $20.01.
Compaq fell 20 cents, to $10.40.

In his document, Mr. Hewlett said that on the eve of the
merger announcement on Sept. 4, there was a "side letter"
to the agreement that dealt with compensation. As a member
of the Hewlett-Packard board's compensation committee, he
received a copy.

For Ms. Fiorina, according to Mr. Hewlett's report, the
compensation package under consideration included a salary
of $1.4 million, a target bonus of $4.8 million and six
million stock options with an estimated value of $57
million. For Mr. Capellas, it said, the compensation
package being considered included a salary of $1 million, a
target bonus of $3.8 million and four million options with
an estimated value of $38 million.

Later, in its proxy material, Hewlett-Packard did disclose
that it intended to make payments of $33 million to retain
the top management teams of both companies for at least a
year after the deal was completed.

The company said Ms. Fiorina had declined to accept her
retention payment of $8 million and Mr. Capellas had also
declined his of $14.4 million. Its statement added that the
compensation packages for the top executives would be
figured out after the merger was completed.

Mr. Hewlett's report suggests two things: the seemingly
generous concessions by Ms. Fiorina and Mr. Capellas were
made only because both knew that highly lucrative pay
packages awaited if the deal was completed, and
Hewlett-Packard decided not to disclose the compensation
packages under consideration to avoid further criticism of
a controversial merger.

H.P. insists that such reasoning is erroneous. According to
Larry W. Sonsini, outside counsel to the company, the
figures in Mr. Hewlett's report were preliminary numbers,
which were rejected as probably too high and not a result
of a rigorous methodology. "The prior discussions were
aborted," Mr. Sonsini said. "The prior discussions were not
a benchmark for what the compensation will be, and the
prior discussions were confidential."

"It's unfortunate that Walter has decided to do this now,"
he said.

http://www.nytimes.com/2002/02/27/technology/27PLAC.html?ex=1015819421&ei=1&en=5f7ea8ab4889b625



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