As filed with the Securities and Exchange Commission on November 15, 2001
Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
HEWLETT-PACKARD COMPANY
(Exact Name of Registrant as Specified in Its Charter)
-----------------
Delaware 3570
(State or Other (Primary Standard
Jurisdiction of Industrial 94-1081436
Incorporation or Classification Code (I.R.S. Employer
Organization) Number) Identification Number)
-----------------
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-----------------
Carleton S. Fiorina
Chairman of the Board and Chief Executive Officer
HEWLETT-PACKARD COMPANY
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
-----------------
Copies to:
Ann O. Baskins, Esq. Larry W. Sonsini, Esq. Michael D. Capellas Thomas C. Siekman, Esq.
Charles N. Charnas, Esq. Martin W. Korman, Esq. Chairman of the Board and Linda S. Auwers, Esq.
Melanie D. Vinson, Esq. Robert D. Sanchez, Esq. Chief Executive Officer James P. Shaughnessy, Esq.
Matthew L. Jacobson, Esq. WILSON SONSINI GOODRICH & ROSATI COMPAQ COMPUTER COMPAQ COMPUTER
HEWLETT-PACKARD COMPANY PROFESSIONAL CORPORATION CORPORATION CORPORATION
3000 Hanover Street 650 Page Mill Road 20555 SH 249 20555 SH 249
Palo Alto, California 94304 Palo Alto, California 94304 Houston, Texas 77070 Houston, Texas 77070
(650) 857-1501 (650) 493-9300 (281) 514-8705 (281) 514-8705
Roger S. Aaron, Esq. Kenton J. King, Esq.
SKADDEN, ARPS, SLATE, Celeste E. Greene, Esq.
MEAGHER & FLOM LLP SKADDEN, ARPS, SLATE,
Four Times Square MEAGHER & FLOM LLP
New York, New York 10036 525 University Avenue
(212) 735-3000 Suite 1100
Palo Alto, California 94301
(650) 470-4500
-----------------
Approximate date of commencement of proposed sale to the public: Upon
completion of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-----------------
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class Amount Offering Price Aggregate Amount of
of Securities To Be Registered To Be Registered (1) Per Share (2) Offering Price (2) Registration Fee
----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per share, and associated
preferred share purchase rights (3)................... 1,201,450,898 shares $7.63 $14,493,391,857 $3,623,348
----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Based upon the maximum number of shares of common stock, par value $0.01
per share, of Hewlett-Packard Company, a Delaware corporation, that may be
issued in connection with the merger described herein.
(2) Estimated solely for purposes of calculating the registration fee required
by the Securities Act of 1933, as amended, and computed pursuant to Rules
457(f) and (c) under the Securities Act based on (i) $7.63, the average of
the high and low per share prices of common stock, par value $0.01 per
share, of Compaq Computer Corporation, a Delaware corporation, as reported
on the New York Stock Exchange composite transactions tape on November 12,
2001 and (ii) the maximum number of shares of Compaq common stock to be
canceled in connection with the merger described herein.
(3) The preferred share purchase rights, which are attached to the shares of HP
common stock being registered hereunder, will be issued for no additional
consideration. Accordingly, no additional registration fee is payable.
-----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The information in this joint proxy statement/prospectus is not complete and
may be changed. HP may not sell these securities until the registration
statement filed with the United States Securities and Exchange Commission is
effective. This joint proxy statement/prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to completion, dated November 15, 2001
[LOGO] Hewlett Packard [LOGO OF COMPAQ]
JOINT PROXY STATEMENT/PROSPECTUS
Hewlett-Packard Company and Compaq Computer Corporation have agreed to
combine their businesses under the terms of an Agreement and Plan of
Reorganization, which we refer to as the merger agreement, that is described in
this joint proxy statement/prospectus.
Upon completion of the merger, holders of Compaq common stock will be
entitled to receive 0.6325 of a share of HP common stock for each share of
Compaq common stock they then hold. HP shareowners will continue to own their
existing shares of HP common stock after the merger. The shares of HP common
stock issued in exchange for shares of Compaq common stock in connection with
the merger will represent approximately % of the outstanding shares of HP
common stock immediately following the completion of the merger, based on the
number of shares of HP and Compaq common stock outstanding on , 200 . HP
common stock is listed on the New York Stock Exchange and the Pacific Exchange
under the trading symbol "HWP." On , 200 , HP common stock closed at $
per share on the New York Stock Exchange composite transactions tape.
HP and Compaq cannot complete the merger unless HP shareowners vote to
approve the issuance of shares of HP common stock in connection with the merger
and Compaq shareowners vote to approve and adopt the merger agreement and
approve the merger. The HP board of directors recommends that HP shareowners
vote "for" the proposal to approve the issuance of shares of HP common stock in
connection with the merger. The Compaq board of directors recommends that
Compaq shareowners vote "for" the proposal to approve and adopt the merger
agreement and approve the merger.
Each of HP and Compaq will hold a special meeting of shareowners to obtain
these approvals. The date, times and places of the special meetings are as
follows:
For HP shareowners: For Compaq shareowners:
, 200 at .m. , 200 at .m.
local time local time
Whether or not you plan to attend your special meeting, we encourage you to
read this joint proxy statement/prospectus, which includes important
information about the merger and your special meeting. In addition, the section
entitled "Risk Factors" beginning on page 20 of this joint proxy
statement/prospectus contains a description of risks that you should consider.
Your vote is very important. Please submit your proxy card or voting
instruction card for your special meeting as soon as possible.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares of HP common stock to be
issued in connection with the merger or determined whether this joint proxy
statement/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 200 and is first
being mailed to shareowners of each of HP and Compaq on or about , 200 .
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
Time and Date .m., local time, on , 200 .
Place
Items of Business (1) To consider and vote upon a proposal to
approve the issuance of shares of
Hewlett-Packard Company common stock in
connection with a merger of Heloise Merger
Corporation with and into Compaq Computer
Corporation, as contemplated by the Agreement
and Plan of Reorganization among HP, Heloise
Merger Corporation and Compaq.
(2) To consider such other business as may
properly come before the special meeting or
any adjournment or postponement of the
special meeting.
Adjournments and
Postponements Any action on the items of business described
above may be considered at the special meeting at
the time and on the date specified above or at
any time and date to which the special meeting
may be properly adjourned or postponed.
Record Date You are entitled to vote only if you were a
holder of HP common stock at the close of
business on , 200 .
Meeting Admission Two cut-out admission tickets to the special
meeting are included with this joint proxy
statement/prospectus. Please contact the
corporate secretary of HP at HP's principal
executive offices if you would like additional
admission tickets for joint holders. The special
meeting will begin promptly at .m.
Voting Your vote is very important. Whether or not you
plan to attend the special meeting, we encourage
you to read this joint proxy statement/prospectus
and submit your proxy or voting instructions for
the special meeting as soon as possible. You may
submit your proxy or voting instructions for the
special meeting by completing, signing, dating
and returning the proxy card or voting
instruction card in the accompanying
pre-addressed envelope, or, in most cases, by
using the telephone or the Internet. For specific
instructions on how to vote your shares, please
refer to the section entitled "The Special
Meeting of HP Shareowners" beginning on page 30
of this joint proxy statement/prospectus and the
instructions on the proxy card or voting
instruction card.
By Order of the Board of Directors,
, 200 Ann O. Baskins
Palo Alto, California Vice President, General Counsel and
Secretary
Compaq Computer Corporation
20555 State Highway 249
Houston, Texas 77070
(281) 370-0670
NOTICE OF A SPECIAL MEETING OF SHAREOWNERS
Time and Date .m., local time, on , 200 .
Place
Items of Business (1) To consider and vote upon a proposal to
approve and adopt the Agreement and Plan of
Reorganization among Hewlett-Packard Company,
Heloise Merger Corporation and Compaq
Computer Corporation, and approve the merger
contemplated by the Agreement and Plan of
Reorganization.
(2) To consider such other business as may
properly come before the special meeting or
any adjournment or postponement of the
special meeting.
Adjournments and
Postponements Any action on the items of business described
above may be considered at the special meeting at
the time and on the date specified above or at
any time and date to which the special meeting
may be properly adjourned or postponed.
Record Date You are entitled to vote only if you were a
Compaq shareowner at the close of business on
, 200 .
Voting Your vote is very important. Whether or not you
plan to attend the special meeting, we encourage
you to read this joint proxy statement/prospectus
and submit your proxy or voting instructions for
the special meeting as soon as possible. You may
submit your proxy or voting instructions for the
special meeting by completing, signing, dating
and returning the proxy card or voting
instruction card in the accompanying
pre-addressed envelope, or, in most cases, by
using the telephone or the Internet. For specific
instructions on how to vote your shares, please
refer to the section entitled "The Special
Meeting of Compaq Shareowners" beginning on page
34 of this joint proxy statement/prospectus and
the instructions on the proxy card or voting
instruction card.
By Order of the Board of Directors,
, 200 Linda S. Auwers
Houston, Texas Vice President, Deputy General
Counsel and Secretary
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE
MERGER...................................... 1
General Questions and Answers.............. 1
Questions and Answers for HP
Shareowners.............................. 2
Questions and Answers for Compaq
Shareowners.............................. 3
SUMMARY....................................... 6
The Merger and the Merger Agreement........ 6
Parties to the Merger...................... 6
Recommendation of the HP Board of
Directors................................ 7
Opinion of HP Financial Advisor
Regarding the Merger..................... 7
Recommendation of the Compaq Board
of Directors............................. 8
Opinion of Compaq Financial Advisor
Regarding the Merger..................... 8
Some HP and Compaq Directors and
Executive Officers Have Interests in the
Merger................................... 8
Share Ownership of Directors and
Executive Officers of HP and
Compaq................................... 8
Directors and Executive Officers of HP
Following the Merger..................... 9
What is Needed to Complete the Merger...... 9
HP and Compaq are Prohibited from
Soliciting Other Offers.................. 9
HP and Compaq May Terminate the
Merger Agreement Under Specified
Circumstances............................ 9
HP or Compaq May Pay a Termination
Fee Under Specified Circumstances........ 10
The Merger Is Intended to Qualify as a
Reorganization for United States
Federal Income Tax Purposes.............. 10
Accounting Treatment of the Merger......... 10
We Have Not Yet Obtained All
Required Regulatory Approvals to
Complete the Merger...................... 10
HP Will List Shares of HP Common
Stock on the New York Stock
Exchange and the Pacific Exchange........ 11
No Appraisal Rights........................ 11
SUMMARY SELECTED HISTORICAL
CONSOLIDATED FINANCIAL
DATA OF HP.................................. 12
Page
----
SUMMARY SELECTED HISTORICAL
CONSOLIDATED FINANCIAL
DATA OF COMPAQ........................ 14
SELECTED UNAUDITED
PRO FORMA CONDENSED
COMBINED CONSOLIDATED
FINANCIAL DATA........................ 16
COMPARATIVE HISTORICAL AND
PRO FORMA PER SHARE DATA.............. 17
COMPARATIVE PER SHARE
MARKET PRICE DATA..................... 18
CAUTIONARY STATEMENT
REGARDING FORWARD-
LOOKING INFORMATION................... 19
RISK FACTORS............................ 20
THE SPECIAL MEETING OF HP
SHAREOWNERS........................... 30
Date, Time and Place................. 30
Items of Business.................... 30
Admission to the Special Meeting..... 30
Method of Voting; Record Date; Stock
Entitled to Vote; Quorum........... 30
Adjournment and Postponement......... 31
Required Vote........................ 31
Recommendation of the HP Board of
Directors.......................... 31
Share Ownership of HP Directors and
Executive Officers................. 31
Voting Procedures.................... 32
Confidential Voting Policy........... 33
Other Matters........................ 33
THE SPECIAL MEETING OF COMPAQ
SHAREOWNERS........................... 34
Date, Time and Place................. 34
Items of Business.................... 34
Method of Voting; Record Date; Stock
Entitled to Vote; Quorum........... 34
Adjournment and Postponement......... 34
Required Vote........................ 35
Recommendation of the Compaq Board
of Directors....................... 35
Share Ownership of Compaq Directors
and Executive Officers............. 35
Voting Procedures.................... 35
Other Matters........................ 36
THE MERGER.............................. 37
Background of the Merger............. 37
i
TABLE OF CONTENTS
Page
----
Reasons for the Merger................... 44
Consideration of the Merger by the HP
Board of Directors..................... 46
Consideration of the Merger by the
Compaq Board of Directors.............. 54
Interests of HP and Compaq Directors and
Executive Officers in the Merger....... 64
The Merger Agreement..................... 68
United States Federal Income Tax
Consequences of the Merger............. 85
Accounting Treatment of the Merger....... 86
Directors and Executive Officers of HP
Following the Merger................... 87
Effect of the Merger on Compaq Equity
Incentive Plans........................ 87
Regulatory Filings and Approvals
Required to Complete the Merger........ 88
Listing of Shares of HP Common
Stock Issued in the Merger on the
New York Stock Exchange and the
Pacific Exchange....................... 88
Delisting and Deregistration of Compaq
Common Stock After the Merger.......... 88
Restrictions on Sales of Shares of HP
Common Stock Received in the
Merger................................. 89
No Appraisal Rights...................... 89
BUSINESS OF THE COMBINED
COMPANY................................... 90
Page
----
UNAUDITED PRO FORMA
CONDENSED COMBINED
CONSOLIDATED FINANCIAL
STATEMENTS............................ 92
COMPARISON OF RIGHTS OF
HOLDERS OF HP COMMON STOCK
AND COMPAQ COMMON STOCK............... 101
Comparison of the Certificates of
Incorporation and Bylaws of HP and
Compaq............................. 101
Indemnification of Directors and
Officers........................... 106
Shareowner Rights Plans.............. 106
FUTURE HP SHAREOWNER
PROPOSALS............................. 111
FUTURE COMPAQ SHAREOWNER
PROPOSALS............................. 111
LEGAL MATTERS........................... 112
EXPERTS................................. 112
WHERE YOU CAN FIND MORE
INFORMATION........................... 113
ANNEX A--Agreement and Plan of
Reorganization........................ A-1
ANNEX B--Opinion of Goldman,
Sachs & Co............................ B-1
ANNEX C--Opinion of Salomon Smith
Barney, Inc........................... C-1
ii
This joint proxy statement/prospectus incorporates important business and
financial information about HP and Compaq from documents that each company has
filed with the Securities and Exchange Commission but that have not been
included in or delivered with this joint proxy statement/prospectus. For a
listing of documents incorporated by reference into this joint proxy
statement/prospectus, please see the section entitled "Where You Can Find More
Information" beginning on page 113 of this joint proxy statement/prospectus.
HP will provide you with copies of this information relating to HP, without
charge, upon written or oral request to:
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Attention: Investor Relations
Telephone Number: (650) 857-1501
In addition, you may obtain copies of this information by making a request
through HP's investor relations website, http://www.hp.com/hpinfo/investor, or
by sending an e-mail to investor_relations@hp.com.
Compaq will provide you with copies of this information relating to Compaq,
without charge, upon written or oral request to:
Compaq Computer Corporation
P.O. Box 692000
Houston, Texas 77269-2000
Attention: Compaq Investor Relations, MS 110605
Telephone Number: (800) 433-2391
In addition, you may obtain copies of this information by making a request
through Compaq's investor relations website,
http://www.shareholder.com/cpq/document-request.cfm, or by sending an e-mail to
investor.relations@compaq.com.
In order for you to receive timely delivery of the documents in advance of
the HP and Compaq special meetings, HP or Compaq should receive your request no
later than , 200 .
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
General Questions and Answers
Q: Why am I receiving this joint proxy statement/prospectus?
A: HP and Compaq have agreed to combine their businesses under the terms of a
merger agreement that is described in this joint proxy statement/prospectus.
A copy of the merger agreement is attached to this joint proxy
statement/prospectus as Annex A.
In order to complete the merger, HP shareowners must vote to approve the
issuance of shares of HP common stock in connection with the merger and
Compaq shareowners must vote to approve and adopt the merger agreement and
approve the merger. Each of HP and Compaq will hold a special meeting of its
respective shareowners to obtain these approvals. This joint proxy
statement/prospectus contains important information about the merger and the
special meeting of each of HP and Compaq, and you should read it carefully.
The enclosed voting materials allow you to vote your shares of HP common
stock or Compaq common stock, as applicable, without attending your special
meeting.
Your vote is important. We encourage you to vote as soon as possible. For
more specific information on how to vote, please see the questions and
answers for each of HP and Compaq shareowners below.
Q: Why are HP and Compaq proposing the merger? (see page 44)
A: The management teams and boards of directors of HP and Compaq share a
conviction that advances in technology, increased competition and changing
customer requirements are rapidly transforming the structure and economics
of the information technology (IT) industry. Both companies believe that the
merger is the single best way to grow, meet the competitive challenges ahead
and deliver value to shareowners, customers and employees.
We are convinced that, among other things, the merger will allow us to:
. extend our leadership in enterprise computing across key products and
solutions, including across all server categories and enterprise storage;
. achieve critical mass in services;
. improve the economics of our personal computer (PC) business, while also
driving innovation across new access categories and devices; and
. create a stronger, more balanced operating model, and improve the
combined company's cash flow and balance sheet.
Q: When do HP and Compaq expect to complete the merger?
A: HP and Compaq currently plan to complete the merger in the first half of
calendar year 2002. However, we cannot predict the exact timing of the
completion of the merger because the merger is subject to United States and
foreign governmental and regulatory approvals and other conditions.
1
Q: How do the boards of directors of HP and Compaq recommend that I vote? (see
pages 31 and 35)
A: The HP board of directors recommends that HP shareowners vote "for" the
proposal to approve the issuance of shares of HP common stock in connection
with the merger.
The Compaq board of directors recommends that Compaq shareowners vote "for"
the proposal to approve and adopt the merger agreement and approve the
merger.
Q: What should I do if I receive more than one set of voting materials? (see
pages 30 and 34)
A: You may receive more than one set of voting materials, including multiple
copies of this joint proxy statement/prospectus and multiple proxy cards or
voting instruction cards. For example, if you hold your shares in more than
one brokerage account, you will receive a separate voting instruction card
for each brokerage account in which you hold shares. If you are a shareowner
of record and your shares are registered in more than one name, you will
receive more than one proxy card. In addition, if you are a shareowner of
both HP and Compaq, you may receive one or more separate proxy cards or
voting instruction cards for each company. Please complete, sign, date and
return each proxy card and voting instruction card that you receive.
Questions and Answers for HP Shareowners
Q: When and where is the HP special meeting? (see page 30)
A: The special meeting of HP shareowners will be held at .m., local time, on
, 200 , at .
Q: How can I obtain an admission ticket for the HP special meeting? (see page
30)
A: Two cut-out admission tickets for the HP special meeting are included for HP
shareowners. Limited additional tickets are available for additional HP
joint owners. Please contact the HP corporate secretary at HP's principal
executive offices for details. If you forget to bring an admission ticket,
you will need to provide proof of ownership as described in the section
entitled "Admission to the Special Meeting" beginning on page 30 of this
joint proxy statement/prospectus.
Q: What is the vote of HP shareowners required to approve the issuance of HP
common stock in connection with the merger? (see page 31)
A: The issuance of HP common stock in connection with the merger requires an
affirmative vote of a majority of the votes cast at the HP special meeting,
provided that the total vote cast on the proposal represents over 50% of all
shares of HP common stock entitled to vote on the proposal.
Q: As an HP shareowner, how can I vote? (see page 32)
A: If you are a shareowner of record, you may vote in person at the HP special
meeting by bringing your proxy card or other form of identification. If you
hold shares in a stock brokerage account or if your shares are held by a
bank or nominee (i.e., in street name), you may not vote in person at the HP
special meeting unless you obtain a signed proxy from the record holder
giving you the right to vote the shares.
You also may direct your vote without attending the HP special meeting. If
you are a shareowner of record, you may vote by granting a proxy. If you
hold shares in street name, you may vote by submitting voting instructions
to your broker or nominee. For directions on how to vote, please refer to
the summary instructions below and those included on your proxy card or, for
shares held in street name, the voting instruction card provided by your
broker or nominee.
2
By Internet--Record holders and most other shareowners with Internet access
may vote from any location in the world over the Internet. If you are a
shareowner of record, simply follow the "Vote by Internet" instructions on
your proxy card. If you hold shares in street name, check the voting
instruction card provided by your broker or nominee and, if available,
access the website specified.
By Telephone--Record holders and most other shareowners who live in the
United States or Canada may vote by phone. If you are a shareowner of
record, simply follow the "Vote by Phone" instructions on your proxy card.
If you hold shares in street name, check the voting instruction card
provided by your broker or nominee and, if available, call the number
specified.
By Mail--Any HP shareowner may vote by mail. Simply complete, sign and date
your proxy card or voting instruction card, as applicable, and mail it in
the accompanying pre-addressed envelope.
For a more detailed explanation of the voting procedures, please see the
section entitled "Voting Procedures" beginning on page 32 of this joint
proxy statement/prospectus.
Q: As an HP shareowner, what happens if I do not vote? (see page 31)
A: Failure to vote or give voting instructions to your broker or nominee for
the HP special meeting could make it more difficult to meet the voting
requirement that the total vote cast on the proposal represents over 50% of
all shares of HP common stock entitled to vote on the proposal. Therefore,
we urge you to vote.
Q: As an HP shareowner, who can help answer my questions?
A: If you have any questions about the merger or how to vote or revoke your
proxy, or if you need additional copies of this joint proxy
statement/prospectus, you should contact:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
@georgesonshareholder.com
( ) -
international calls ( ) -
Questions and Answers for Compaq Shareowners
Q: When and where is the Compaq special meeting? (see page 34)
A: The special meeting of Compaq shareowners will be held at .m, local
time, on , 200 , at .
Q: What is the vote of Compaq shareowners required to approve and adopt the
merger agreement and approve the merger? (see page 35)
A: Approval and adoption of the merger agreement and approval of the merger
requires the affirmative vote of the holders of a majority of the shares of
Compaq common stock outstanding as of the record date for the Compaq special
meeting.
Q: As a Compaq shareowner, what happens if I do not vote? (see page 35)
A: Failure to vote or give voting instructions to your broker or nominee for
the Compaq special meeting will have the same effect as voting "against" the
proposal to approve and adopt the merger agreement and approve the merger.
Therefore, we urge you to vote.
3
Q: As a Compaq shareowner, what will I receive upon completion of the merger?
(see page 69)
A: Upon completion of the merger, you will be entitled to receive 0.6325 of a
share of HP common stock for each share of Compaq common stock you own at
the effective time of the merger. Instead of a fractional share of HP common
stock, you will be entitled to receive an amount of cash equal to the value
of the fractional share remaining after aggregating all of your Compaq
shares held in a single account, based on an average closing price of HP
common stock as reported on the New York Stock Exchange composite
transactions tape.
Q: As a Compaq shareowner, will I be able to trade the HP common stock that I
receive in connection with the merger? (see page 89)
A: The shares of HP common stock issued in connection with the merger will be
freely tradeable, unless you are an affiliate of Compaq, and will be listed
on the New York Stock Exchange and the Pacific Exchange under the symbol
"HWP." Generally, persons who are deemed to be affiliates of Compaq must
comply with Rule 145 under the Securities Act of 1933 if they wish to sell
or otherwise transfer any of the shares of HP common stock received in
connection with the merger. You will be notified if you are an affiliate of
Compaq.
Q: As a Compaq shareowner, how can I vote? (see page 35)
A: If you are a shareowner of record, you may submit a proxy for the Compaq
special meeting (1) by completing, signing, dating and returning the proxy
card in the accompanying pre-addressed envelope, (2) by using the telephone,
or (3) by using the Internet. For specific instructions on how to use the
telephone or the Internet to submit a proxy for the Compaq special meeting,
please refer to the instructions on your proxy card.
If you hold your shares of Compaq common stock in a stock brokerage account
or if your shares are held by a bank or nominee (i.e., in street name), you
must provide the record holder of your shares with instructions on how to
vote your shares. Please check the voting instruction card used by your
broker or nominee to see if you may vote using the telephone or the Internet.
Q: As a Compaq shareowner, should I send in my stock certificates at this time?
(see page 70)
A: Do not send in your stock certificates at this time. Promptly following
completion of the merger, Computershare Trust Company of New York, the
exchange agent for the merger, will send you written instructions for
exchanging your Compaq stock certificates for book-entry ownership of HP
common stock or, if you request, an HP stock certificate.
Q: What will happen to my options to acquire Compaq common stock or my Compaq
stock appreciation rights (SARs)? (see page 77)
A: Options to purchase shares of Compaq common stock will be assumed by HP and
become exercisable for shares of HP common stock after completion of the
merger. The respective number of shares issuable upon the exercise of these
options, and their respective exercise prices, will be adjusted using the
exchange ratio for the merger of 0.6325 of a share of HP common stock for
each share of Compaq common stock. Compaq SARs will be assumed by HP in a
similar manner as options to purchase Compaq common stock.
Q: How will the merger affect my participation in the Compaq employee stock
purchase plan? (see page 77)
A: Compaq will terminate the Compaq employee stock purchase plan before the
merger is completed, and any purchase period then in effect will be
shortened. Compaq will make adjustments under the Compaq employee stock
purchase plan to reflect the shortened purchase period.
4
Q: As a Compaq shareowner, who can help answer my questions?
A: If you have any questions about the merger or how to vote or revoke your
proxy, or if you need additional copies of this joint proxy
statement/prospectus, you should contact:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
@georgesonshareholder.com
( ) -
international calls ( ) -
5
SUMMARY
The following is a summary of the information contained in this joint proxy
statement/prospectus. This summary may not contain all of the information about
the merger that is important to you. For a more complete description of the
merger, we encourage you to read carefully this entire joint proxy
statement/prospectus, including the attached annexes. In addition, we encourage
you to read the information incorporated by reference into this joint proxy
statement/prospectus, which includes important business and financial
information about HP and Compaq. You may obtain the information incorporated by
reference into this joint proxy statement/prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" beginning on page 113 of this joint proxy statement/prospectus.
The Merger and the Merger Agreement (see page 68)
HP and Compaq have agreed to combine their businesses under the terms of a
merger agreement between the companies that is described in this joint proxy
statement/prospectus. A copy of the merger agreement is attached to this joint
proxy statement/prospectus as Annex A. Under the terms of the merger agreement,
a wholly-owned subsidiary of HP will merge with and into Compaq and Compaq will
survive the merger as a wholly-owned subsidiary of HP. Upon completion of the
merger, holders of Compaq common stock will be entitled to receive 0.6325 of a
share of HP common stock for each share of Compaq common stock they then hold.
HP shareowners will continue to own their existing shares of HP common stock
after the merger. HP currently intends to merge Compaq into HP as soon as
reasonably practicable following the merger.
Parties to the Merger
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
HP is a leading global provider of computing and imaging solutions and
services for business and home, and is focused on capitalizing on the
opportunities of the Internet and the emergence of next-generation appliances,
e-services and infrastructure.
HP currently organizes its operations into three major businesses. Imaging
and Printing Systems provides laser and inkjet printers (both monochrome and
color), mopiers, scanners, all-in-one devices, personal color copiers and
faxes, digital senders, wide- and large-format printers, print servers,
network-management software, networking solutions, digital photography
products, imaging and printing supplies, imaging and software solutions, and
related professional and consulting services. Computing Systems provides a
broad range of computing systems for the enterprise, commercial and consumer
markets. The products and solutions range from mission-critical systems and
software to personal computers for business and home. Major product lines
include UNIX(R) and PC servers, desktop and mobile personal computers,
workstations, software solutions and storage solutions. Information Technology
Services provides consulting, education, design and installation services,
ongoing support and maintenance, proactive services like mission-critical
support, outsourcing and utility-computing capabilities. Financing capabilities
include leasing, automatic technology-refreshment services, solution financing
and venture financing.
HP was incorporated in 1947 under the laws of the State of California as the
successor to a partnership founded in 1939 by William R. Hewlett and David
Packard. Effective in May 1998, HP changed its state of incorporation from
California to Delaware.
6
Compaq Computer Corporation
20555 State Highway 249
Houston, Texas 77070
(281) 370-0670
Founded in 1982, Compaq, a Delaware corporation, is a leading global
provider of enterprise technology and solutions. Compaq designs, develops,
manufactures and markets hardware, software, solutions and services, including
industry-leading enterprise storage and computing solutions, fault-tolerant
business-critical solutions, communication products, and desktop and portable
personal computers.
Compaq products and services are sold directly and through a network of
authorized Compaq marketing partners. Compaq markets its products and services
primarily to customers in the business, home, government and education sectors.
Compaq aggregates its strategic business units into three reportable
segments. Compaq's Enterprise Computing segment designs, develops, manufactures
and markets advanced computing and telecommunication products, including
business-critical servers, industry-standard servers and storage products. The
Access segment delivers products and solutions targeting the convergence of
business and home-user computing for the Internet-connected world. Compaq's
Global Services segment delivers worldwide infrastructure and solution design
implementation, management and support services, as well as leasing and asset
management services.
Heloise Merger Corporation
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
Heloise Merger Corporation is a newly-formed, wholly-owned subsidiary of HP.
HP formed Heloise Merger Corporation solely to effect the merger, and Heloise
Merger Corporation has not conducted and will not conduct any business during
any period of its existence.
Recommendation of the HP Board of Directors (see page 31)
After careful consideration, the HP board of directors unanimously
determined that the merger is advisable, and is fair to and in the best
interests of HP and its shareowners, and unanimously approved the merger
agreement. The HP board of directors recommends that the HP shareowners vote
"for" the proposal to approve the issuance of shares of HP common stock in
connection with the merger.
Opinion of HP Financial Advisor Regarding the Merger (see page 47)
On September 3, 2001, Goldman, Sachs & Co. delivered its written opinion to
the HP board of directors that, as of that date and subject to the assumptions,
considerations and limitations set forth in its opinion, the exchange ratio
provided for in the merger agreement is fair, from a financial point of view,
to HP. Goldman Sachs provided its opinion for the information and assistance of
the HP board of directors in connection with the board's consideration of the
merger. The Goldman Sachs opinion is not a recommendation as to how any HP
shareowner should vote with respect to the issuance of shares of HP common
stock in connection with the merger.
7
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with its opinion, is attached to this joint proxy
statement/prospectus as Annex B. Shareowners of HP are urged to read the
opinion carefully and in its entirety. HP shareowners should carefully consider
the discussion of Goldman Sachs' analysis in the section entitled "Opinion of
HP Financial Advisor" beginning on page 47 of this joint proxy
statement/prospectus.
Recommendation of the Compaq Board of Directors (see page 35)
After careful consideration, the Compaq board of directors unanimously
determined the merger is advisable, and is fair to and in the best interests of
Compaq and its shareowners, and unanimously approved the merger agreement. The
Compaq board of directors recommends that the Compaq shareowners vote "for" the
proposal to approve and adopt the merger agreement and approve the merger.
Opinion of Compaq Financial Advisor Regarding the Merger (see page 56)
On September 3, 2001, Salomon Smith Barney Inc. delivered its written
opinion to the Compaq board of directors that, as of that date and based upon
and subject to the considerations and limitations set forth in its opinion, its
work described in the section entitled "Opinion of Compaq Financial Advisor,"
beginning on page 56 of this joint proxy statement/prospectus, its experience
as investment bankers and other factors it deemed relevant, the exchange ratio
provided for in the merger agreement is fair, from a financial point of view,
to the holders of Compaq common stock. The opinion of Salomon Smith Barney does
not constitute a recommendation as to how any Compaq shareowner should vote
with respect to the merger.
The full text of the written opinion of Salomon Smith Barney, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached to this joint proxy
statement/prospectus as Annex C. Compaq shareowners are urged to read the
opinion carefully and in its entirety. Compaq shareowners should carefully
consider the discussion of Salomon Smith Barney's analysis in the section
entitled "Opinion of Compaq Financial Advisor" beginning on page 56 of this
joint proxy statement/prospectus.
Some HP and Compaq Directors and Executive Officers Have Interests in the
Merger (see page 64)
Some of the directors and executive officers of HP and Compaq have personal
interests in the merger that are different from the interests of other HP and
Compaq shareowners. These interests include severance arrangements, retention
bonuses contingent upon the completion of the merger, employment agreements
that are being negotiated in connection with the merger and the acceleration of
vesting of certain stock options and restricted stock in connection with the
merger.
Share Ownership of Directors and Executive Officers of HP and Compaq (see pages
31 and 35)
At the close of business on the record date for the HP special meeting,
directors and executive officers of HP and their affiliates beneficially owned
and were entitled to vote approximately shares of HP common stock,
collectively representing percent of the shares of HP common stock
outstanding on that date. On November 6, 2001, Walter B. Hewlett, a director of
HP, Eleanor Hewlett Gimon, Mary Hewlett Jaffe and The William R. Hewlett
Revocable Trust announced that they intend to vote their shares of HP common
stock against the proposal to approve the issuance of shares of HP common stock
in connection with the merger. On November 14, 2001, Mr. Hewlett, Ms. Gimon,
Ms. Jaffe and Edwin E. van Bronkhorst jointly filed a Schedule 13D with the
Securities and Exchange Commission stating that they plan to continue to oppose
the proposed merger.
At the close of business on the record date for the Compaq special meeting,
directors and executive officers of Compaq and their affiliates beneficially
owned and were entitled to vote approximately shares of Compaq common
stock, collectively representing less than one percent of the shares of
Compaq common stock outstanding on that date.
8
Directors and Executive Officers of HP Following the Merger (see page 87)
Following the merger, five directors of Compaq who are reasonably acceptable
to HP, including Michael D. Capellas, the Chairman of the Board and Chief
Executive Officer of Compaq, are expected to join the HP board of directors. In
addition, HP expects that each committee of the HP board of directors will
include at least one Compaq designee, Carleton S. Fiorina, the Chairman of the
Board and Chief Executive Officer of HP, will step down from the nominating and
governance committee to allow for an additional outside director to join that
committee, and a Compaq designee will become the chairman of at least one of
the audit, compensation, finance and investment or nominating and governance
committees of the HP board of directors. HP also is negotiating with certain
persons who are current senior executives of HP and Compaq and who are expected
to become, or continue to be, senior executives of HP following the merger.
What is Needed to Complete the Merger (see page 80)
Several conditions must be satisfied or waived before we complete the
merger, including those summarized below:
. receipt of required approvals from HP shareowners and Compaq shareowners;
. absence of any law, regulation or order making the merger illegal or
otherwise prohibiting the merger which would have a material impact on
HP on a combined basis with Compaq;
. receipt of antitrust approvals from the United States, the European
Commission and Canada, and receipt of all other material foreign
antitrust approvals;
. absence of any orders or proceedings (1) prohibiting or seeking to
prohibit the merger which would have a material impact on HP on a
combined basis with Compaq, (2) limiting, or seeking to limit, HP's
ownership of Compaq or (3) seeking to compel divestiture of assets or
other remedies, that, in each case, would be reasonably likely to have a
material adverse effect on HP or materially adversely impact the
benefits expected to be derived by HP on a combined basis with Compaq
following the merger;
. receipt of opinions by HP and Compaq from their respective tax counsel
that the merger will qualify as a "reorganization" under the Internal
Revenue Code;
. accuracy of each party's respective representations and warranties in
the merger agreement, except as would not have a material adverse effect;
. material compliance by each party with its covenants in the merger
agreement; and
. absence of a material adverse effect on HP or Compaq, respectively, from
September 4, 2001 to the completion of the merger.
HP and Compaq Are Prohibited from Soliciting Other Offers (see page 74)
The merger agreement contains detailed provisions that prohibit HP and
Compaq and the subsidiaries of each of them, and their officers and directors,
from taking any action to solicit or engage in discussions or negotiations with
any person or group with respect to an acquisition proposal as defined in the
merger agreement, including an acquisition which would result in the person or
group acquiring more than a 10% interest in the party's total outstanding
securities, a sale of more than 10% of the party's assets or a merger or other
business combination. The merger agreement does not, however, prohibit either
party or its board of directors from considering, and in the event of a tender
or exchange offer made directly to shareowners potentially recommending, an
unsolicited bona fide written acquisition proposal from a third party if
specified conditions are met.
HP and Compaq May Terminate the Merger Agreement under Specified Circumstances
(see page 82)
Under circumstances specified in the merger agreement, either HP or Compaq
may terminate the merger agreement. These circumstances generally include if:
. the merger is not completed by May 31, 2002 (which date will be extended
to August 30, 2002 if the merger has not been completed as a result of a
failure to obtain required antitrust approvals or the
9
existence of a governmental law, regulation or order making the
completion of the merger illegal or otherwise prohibited);
. a final, non-appealable order of a court or other action or inaction of
any governmental authority has the effect of permanently prohibiting
completion of the merger;
. the required approval of the shareowners of each of HP and Compaq has
not been obtained at its duly held special meeting;
. the board of directors of the other party takes any of the actions in
opposition to the merger described as a triggering event in the merger
agreement;
. the other party breaches its representations, warranties or covenants in
the merger agreement such that its conditions to completion of the
merger regarding representations, warranties or covenants would not be
satisfied;
. there is a material adverse effect on the other party since September 4,
2001; or
. the other party consents to termination.
HP or Compaq May Pay a Termination Fee Under Specified Circumstances (see page
83)
If the merger agreement is terminated, either HP or Compaq, in specified
circumstances, may be required to pay a termination fee of $675 million to the
other party.
The Merger Is Intended to Qualify as a Reorganization for United States Federal
Income Tax Purposes (see page 85)
The merger is intended to qualify as a reorganization for United States
federal income tax purposes under the Internal Revenue Code. Assuming the
merger so qualifies, Compaq shareowners generally will not recognize gain or
loss for United States federal income tax purposes as a result of receiving HP
common stock in exchange for their Compaq common stock pursuant to the merger,
except with respect to cash received instead of fractional shares of HP common
stock. You should carefully read the discussion in the section entitled "United
States Federal Income Tax Consequences of the Merger" beginning on page 85 of
this joint proxy statement/prospectus. Further, you are encouraged to consult
your tax advisor because tax matters can be complicated, and the tax
consequences of the merger to you will depend upon your own situation.
Accounting Treatment of the Merger (see page 86)
HP will account for the merger under the purchase method of accounting for
business combinations.
We Have Not Yet Obtained All Required Regulatory Approvals to Complete the
Merger (see page 88)
The merger is subject to antitrust laws. HP and Compaq are required to make
filings under applicable antitrust laws with the United States Department of
Justice and the United States Federal Trade Commission, the European Commission
and the Canadian Competition Bureau. HP and Compaq are not permitted to
complete the merger until the applicable waiting periods associated with those
filings, including any extension of those waiting periods, have expired or been
terminated and applicable clearances have been obtained. HP and Compaq are also
required to make other applicable foreign antitrust filings and may not
complete the merger until all material foreign antitrust approvals have been
obtained. In addition, the reviewing agencies or governments, states or private
persons, may challenge the merger at any time before or after its completion.
10
HP Will List Shares of HP Common Stock on the New York Stock Exchange and the
Pacific Exchange (see page 88)
HP will use all reasonable efforts to cause the shares of HP common stock to
be issued in connection with the merger to be authorized for listing on the New
York Stock Exchange and the Pacific Exchange before the completion of the
merger, subject to official notice of issuance.
No Appraisal Rights (see page 89)
Neither HP shareowners nor Compaq shareowners are entitled to dissenters'
rights of appraisal for their shares under the General Corporation Law of the
State of Delaware in connection with the merger.
11
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HP
The table below presents a summary of selected historical consolidated
financial data with respect to HP as of the dates and for the periods
indicated. The historical consolidated statements of earnings data presented
below for the fiscal years ended October 31, 2000, 1999, and 1998 and the
historical consolidated balance sheets data as of October 31, 2000 and 1999
have been derived from HP's historical consolidated financial statements, which
are incorporated by reference into this joint proxy statement/prospectus. The
historical consolidated statements of earnings data presented below for the
fiscal years ended October 31, 1997 and 1996 and the historical consolidated
balance sheets data as of October 31, 1998, 1997 and 1996 have been derived
from HP's historical consolidated financial statements, which are not
incorporated by reference into this joint proxy statement/prospectus. The
selected historical consolidated financial data as of and for the nine months
ended July 31, 2001 and 2000 has been derived from HP's unaudited historical
consolidated condensed financial statements which are incorporated by reference
into this joint proxy statement/prospectus and reflect, in the opinion of HP's
management, all adjustments, consisting of only normal recurring adjustments,
which HP considers necessary for a fair presentation of the results of
operations for those periods and financial position at those dates.
It is important for you to read the following summary selected historical
consolidated financial data together with the consolidated financial statements
and accompanying notes contained in HP's Annual Report on Form 10-K for its
fiscal year ended October 31, 2000 and HP's Quarterly Report on Form 10-Q for
its fiscal quarter ended July 31, 2001, each as filed with the Securities and
Exchange Commission, as well as the sections of HP's Annual Report on Form 10-K
and Quarterly Report on Form 10-Q entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all of which are
incorporated by reference into this joint proxy statement/prospectus.
HP's consolidated financial statements for the fiscal year ended October 31,
2001 to be included in its 2001 Annual Report on Form 10-K, when filed, will
include a cumulative effect of an accounting change as a result of adoption of
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," as amended, as well as certain minor
reclassifications. HP's Current Report on Form 8-K, dated November 14, 2001,
and incorporated by reference herein, included a copy of HP's press release
with respect to certain financial information for the fiscal year ended October
31, 2001 and also included certain quarterly financial information for the
first three quarters of fiscal 2001 which has been restated for the effects of
this accounting change and these reclassifications. The effect of this
accounting change on the nine months ended July 31, 2001 and the effect of
these reclassifications for all prior periods have not been reflected in the
historical financial information of HP included herein.
12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Summary Selected Historical Consolidated Financial Data/(1)/
(In millions, except per share amounts)
As of or For the
Nine Months Ended
July 31, As of or For the Year Ended October 31,
----------------- ---------------------------------------
2001 2000 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- ------- -------
Historical Consolidated Statements
of Earnings Data:
Net revenue....................... $33,702 $35,519 $48,782 $42,370 $39,419 $35,465 $31,613
Earnings from operations/(2)/..... 1,106 2,934 3,889 3,688 3,399 3,405 2,926
Net earnings from continuing
operations before extraordinary
item/(3)/....................... 463 2,639 3,561 3,104 2,678 2,515 2,085
Net earnings per share from
continuing operations before
extraordinary item/(3)(4)/:
Basic......................... $ 0.24 $ 1.33 $ 1.80 $ 1.54 $ 1.29 $ 1.23 $ 1.02
Diluted....................... $ 0.24 $ 1.28 $ 1.73 $ 1.49 $ 1.26 $ 1.19 $ 0.99
Cash dividends declared per
share/(4)/...................... $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.30 $ 0.26 $ 0.22
Historical Consolidated Balance
Sheets Data:
Assets--Continuing operations..... $32,374 $32,457 $34,009 $31,764 $28,624 $26,681 $22,934
Total assets/(5)/................. 32,374 32,457 34,009 35,297 31,708 29,852 25,977
Long-term debt.................... 3,511 3,390 3,402 1,764 2,063 3,158 2,579
--------
(1) HP's consolidated financial statements present the businesses of Agilent
Technologies, Inc. as a discontinued operation through the spin-off date of
June 2, 2000.
(2) Earnings from operations represent earnings before net interest income and
other, interest expense, litigation settlement, impairment losses on
investments, losses (gains) on divestitures, provision for taxes, net
earnings from discontinued operations and extraordinary item.
(3) Includes a $400 million charge for litigation settlement, $365 million of
impairment losses on investments, a $131 million loss on a divestiture, and
$102 million charge for restructuring, all for the nine months ended July
31, 2001.
(4) All per share amounts reflect the retroactive effects of all stock splits,
including the two-for-one stock split in the form of a stock dividend
effective October 27, 2000.
(5) Total assets includes assets from continuing operations and the net assets
of discontinued operations through the spin-off of Agilent Technologies on
June 2, 2000.
13
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF COMPAQ
The table below presents a summary of selected historical consolidated
financial data with respect to Compaq as of the dates and for the periods
indicated. The historical consolidated statements of income data presented
below for the fiscal years ended December 31, 2000, 1999 and 1998 and the
historical consolidated balance sheets data as of December 31, 2000 and 1999
have been derived from Compaq's historical consolidated financial statements,
which are incorporated by reference into this joint proxy statement/prospectus.
The historical consolidated statements of income data presented below for the
fiscal years ended December 31, 1997 and 1996 and the historical consolidated
balance sheets data as of December 31, 1998, 1997 and 1996 have been derived
from Compaq's historical consolidated financial statements, which are not
incorporated by reference into this joint proxy statement/prospectus. The
summary selected historical consolidated financial data of Compaq as of and for
the nine months ended September 30, 2001 and 2000 has been derived from
Compaq's unaudited historical interim condensed consolidated financial
statements which are incorporated by reference into this joint proxy
statement/prospectus and reflect, in the opinion of Compaq's management, all
adjustments, consisting of only normal recurring adjustments, which Compaq
considers necessary for a fair presentation of the results of those periods and
financial condition at those dates.
It is important for you to read the following summary selected historical
consolidated financial data together with the consolidated financial statements
and accompanying notes contained in Compaq's Annual Report on Form 10-K for its
fiscal year ended December 31, 2000 and Compaq's Quarterly Report on Form 10-Q
for its fiscal quarter ended September 30, 2001, each as filed with the
Securities and Exchange Commission, as well as the sections of Compaq's Annual
Report on Form 10-K and Quarterly Report on Form 10-Q entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are incorporated by reference into this joint proxy
statement/prospectus.
14
COMPAQ COMPUTER CORPORATION
Summary Selected Historical Consolidated Financial Data
(In millions, except per share amounts)
As of or For the
Nine Months Ended As of or For the
September 30, Year Ended December 31,
---------------- -----------------------------------------
2001 2000 2000 1999 1998/(1)/ 1997 1996
------- ------- ------- ------- -------- ------- -------
Historical Consolidated Statements of Income
Data:
Total revenue................................. $25,126 $30,857 $42,383 $38,525 $31,169 $24,584 $20,009
Income (loss) before income taxes/(2)(3)(4)/.. (972) 1,863 875 934 (2,662) 2,758 1,883
Income (loss) before cumulative effect of
accounting change........................... (700) 1,267 595 569 (2,743) 1,855 1,318
Net income (loss)/(5)/........................ $ (700) $ 1,241 $ 569 $ 569 $(2,743) $ 1,855 $ 1,318
Earnings (loss) per common share:
Basic:
Before cumulative effect of
accounting change.................... $ (0.41) $ 0.75 $ 0.35 $ 0.35 $ (1.71) $ 1.23 $ 0.90
Cumulative effect of accounting
change, net of tax................... -- (0.02) (0.02) -- -- -- --
------- ------- ------- ------- ------- ------- -------
$ (0.41) $ 0.73 $ 0.33 $ 0.35 $ (1.71) $ 1.23 $ 0.90
======= ======= ======= ======= ======= ======= =======
Diluted:
Before cumulative effect of
accounting change.................... $ (0.41) $ 0.73 $ 0.34 $ 0.34 $ (1.71) $ 1.19 $ 0.87
Cumulative effect of accounting
change, net of tax................... -- (0.02) (0.01) -- -- -- --
------- ------- ------- ------- ------- ------- -------
$ (0.41) $ 0.71 $ 0.33 $ 0.34 $ (1.71) $ 1.19 $ 0.87
======= ======= ======= ======= ======= ======= =======
Shares used in computing earnings
(loss) per common share:
Basic.................................. 1,688 1,701 1,702 1,693 1,608 1,505 1,472
Diluted................................ 1,688 1,742 1,742 1,735 1,608 1,564 1,516
Cash dividends declared per common share...... $ 0.075 $ 0.075 $ 0.10 $ 0.085 $ 0.065 $ 0.015 $ --
Historical Consolidated Balance Sheets Data:
Current assets................................ $14,409 $14,996 $15,111 $13,849 $15,167 $12,017 $10,089
Total assets.................................. 23,548 26,433 24,856 27,277 23,051 14,631 12,331
Current liabilities........................... 11,045 12,175 11,549 11,838 10,733 5,202 4,741
Long-term obligations/(6)/.................... 600 575 575 -- 422 -- 300
Stockholders' equity.......................... 11,240 13,001 12,080 14,834 11,351 9,429 7,290
--------
(1) 1998 results reflect the acquisition of Digital Equipment Corporation in
June 1998.
(2) Includes a $742 million charge for restructuring and related charges in
2001; an $86 million release of restructuring reserves in fourth quarter
2000; an $868 million charge for restructuring and related charges in 1999;
a $393 million charge for restructuring and asset impairments in 1998 in
connection with the Digital acquisition and the closing of certain Compaq
facilities; and a $52 million charge related to restructuring actions taken
by Tandem Computers Incorporated during 1996.
(3) Includes non-recurring, non-tax-deductible charges associated with
purchased in-process technology of $3.2 billion in connection with the
Digital acquisition in 1998, and $208 million in connection with
acquisitions in 1997.
(4) Includes a $583 million charge for impairment of investments and related
assets in 2001, a $1.8 billion charge for impairment of investments in 2000
(including a $1.7 billion charge in fourth quarter 2000), and a $1.2
billion gain on the sale of an 81.5 percent interest in AltaVista Co. in
1999.
(5) Includes a $26 million cumulative effect in 2000 for the adoption of
Securities and Exchange Commission Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," as amended.
(6) Includes $422 million of minority interest acquired in 1998 related to
Digital preferred stock which was redeemed in April 1999.
15
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma condensed combined consolidated
financial data was prepared using the purchase method of accounting. Due to
different fiscal period ends for HP and Compaq, the unaudited pro forma
condensed combined consolidated statements of earnings data combines the
historical consolidated statements of earnings data of HP for the nine months
ended July 31, 2001 and the year ended October 31, 2000, with Compaq's
historical consolidated statements of income data for the nine months ended
June 30, 2001 and the twelve months ended September 30, 2000, respectively,
giving effect to the merger as if it had occurred at the beginning of each
period presented. The unaudited pro forma condensed combined consolidated
balance sheet data combines HP's historical consolidated balance sheet data as
of July 31, 2001 with Compaq's historical consolidated balance sheet data as of
June 30, 2001, giving effect to the merger as if it had occurred as of July 31,
2001. All per share data amounts reflect the retroactive effects of the
two-for-one stock split of HP in the form of a stock dividend effective October
27, 2000.
The selected unaudited pro forma condensed combined consolidated financial
data is based on estimates and assumptions which are preliminary. This data is
presented for informational purposes only and is not intended to represent or
be indicative of the consolidated results of operations or financial condition
of HP that would have been reported had the merger been completed as of the
dates presented, and should not be taken as representative of future
consolidated results of operations or financial condition of HP.
This selected unaudited pro forma condensed combined consolidated financial
data should be read in conjunction with the summary selected historical
consolidated financial data and the unaudited pro forma condensed combined
consolidated financial statements and accompanying notes contained elsewhere in
this joint proxy statement/prospectus and the separate historical consolidated
financial statements and accompanying notes of HP and Compaq incorporated by
reference into this joint proxy statement/prospectus. See the section entitled
"Where You Can Find More Information" beginning on page 113 of this joint proxy
statement/prospectus.
HP AND COMPAQ
Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Data/(1)/
(In millions except per share amounts)
Nine Months Ended Year Ended
July 31, 2001 October 31, 2000
----------------- ----------------
Unaudited Pro Forma Condensed Combined Consolidated Statements of
Earnings Data:
Net revenue.................................................. $62,638 $89,866
Earnings from operations..................................... 963 5,424
Net earnings (loss) from continuing operations............... (614) 4,881
Net earnings (loss) per share from continuing operations:
Basic..................................................... $ (0.20) $ 1.60
Diluted................................................... $ (0.20) $ 1.54
Average number of shares and share equivalents:
Basic..................................................... 3,004 3,053
Diluted................................................... 3,004 3,176
As of
July 31, 2001
-------------
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.................. $ 7,069
Working capital.................................................... 11,645
Total assets....................................................... 68,906
Long-term debt..................................................... 4,386
Total stockholders' equity......................................... 36,719
--------
(1) See the section entitled "Unaudited Pro Forma Condensed Combined
Consolidated Financial Statements" beginning on page 92 of this joint proxy
statement/prospectus.
16
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table presents comparative historical per share data regarding
the net earnings (loss), book value and dividends of each of HP and Compaq and
unaudited combined pro forma per share data after giving effect to the merger
as a purchase of Compaq by HP assuming the merger had been completed at the
beginning of the periods presented below. The following data assumes 0.6325 of
a share of HP common stock will be issued in exchange for each share of Compaq
common stock in connection with the merger and the assumption of options based
upon the same exchange ratio. This data has been derived from and should be
read in conjunction with the summary selected historical consolidated financial
data and unaudited pro forma condensed combined consolidated financial
statements contained elsewhere in this joint proxy statement/prospectus, and
the separate historical consolidated financial statements of HP and Compaq and
accompanying notes incorporated by reference into this joint proxy
statement/prospectus. The unaudited pro forma per share data is presented for
informational purposes only and is not intended to represent or be indicative
of the consolidated results of operations or financial condition of HP that
would have been reported had the merger been completed as of the dates
presented, and should not be taken as representative of future consolidated
results of operations or financial condition of HP. All per share amounts
reflect the retroactive effects of the two-for-one stock split of HP in the
form of a stock dividend effective October 27, 2000.
As of or For the Nine Months Ended July 31, 2001
-----------------------------------------------
Pro Forma
--------------------------
HP and Compaq
HP Compaq/(1)/ Compaq/(2)/ Equivalent/(3)/
----- ---------- ---------- --------------
(Unaudited)
Net earnings (loss) per share from continuing operations/(4)/:
Basic...................................................... $0.24 $(0.52) $(0.20) $(0.13)
Diluted.................................................... $0.24 $(0.52) $(0.20) $(0.13)
Book value per share at period end/(5)/....................... $7.15 $ 6.93 $12.19 $ 7.71
Cash dividends declared per share............................. $0.32 $ 0.075 $ 0.37 $ 0.23
As of or For the Year Ended October 31, 2000
--------------------------------------------
Pro Forma
-------------------------
HP and Compaq
HP Compaq/(1)/ Compaq/(2)/ Equivalent/(3)/
----- ---------- ---------- --------------
(Unaudited)
Net earnings per share from continuing operations/(4)/:
Basic........................................................... $1.80 $0.94 $ 1.60 $1.01
Diluted......................................................... $1.73 $0.92 $ 1.54 $0.97
Book value per share at period end/(5)/............................ $7.30 $7.63 $12.29 $7.77
Cash dividends declared per share.................................. $0.32 $0.10 $ 0.38 $0.24
--------
(1) Compaq historical per share data is as of or for the nine months ended June
30, 2001 and as of or for the twelve months ended September 30, 2000.
(2) Because of different fiscal period ends, financial information for HP as of
or for the nine months ended July 31, 2001 and fiscal year ended October
31, 2000 has been combined with financial information relating to Compaq as
of or for the nine months ended June 30, 2001 and twelve months ended
September 30, 2000, respectively.
(3) The Compaq equivalent pro forma combined per share amounts are calculated
by multiplying HP combined pro forma share amounts by the exchange ratio in
the merger of 0.6325 of a share of HP common stock for each share of Compaq
common stock.
(4) Net earnings (loss) per share from continuing operations are presented
before extraordinary item and cumulative effect of accounting change.
(5) Historical book value per share is computed by dividing stockholders'
equity by the number of shares of HP or Compaq common stock outstanding at
the end of each period. Pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares
of HP common stock outstanding at the end of each period.
17
COMPARATIVE PER SHARE MARKET PRICE DATA
HP common stock trades on the New York Stock Exchange and the Pacific
Exchange under the symbol "HWP." Compaq common stock trades on the New York
Stock Exchange under the symbol "CPQ."
The following table shows the high and low sales prices per share of HP
common stock and Compaq common stock, each as reported on the New York Stock
Exchange composite transactions tape on (1) August 31, 2001, the last full
trading day preceding public announcement that HP and Compaq had entered into
the merger agreement, and (2) , 200 , the last full trading day for which
high and low sales prices were available as of the date of this joint proxy
statement/prospectus.
The table also includes the equivalent high and low sales prices per share
of Compaq common stock on those dates. These equivalent high and low sales
prices per share reflect the fluctuating value of the HP common stock that
Compaq shareowners would receive in exchange for each share of Compaq common
stock if the merger was completed on either of these dates, applying the
exchange ratio of 0.6325 of a share of HP common stock for each share of Compaq
common stock.
HP Compaq Equivalent
Common Stock Common Stock Price Per Share
------------- ------------- ---------------
High Low High Low High Low
------ ------ ------ ------ ------ ------
August 31, 2001.............. $23.50 $23.01 $12.83 $12.27 $14.86 $14.55
, 200........................ $ $ $ $ $ $
The above table shows only historical comparisons. These comparisons may not
provide meaningful information to HP shareowners in determining whether to
approve the issuance of shares of HP common stock in connection with the merger
and to Compaq shareowners in determining whether to approve and adopt the
merger agreement and approve the merger. HP and Compaq shareowners are urged to
obtain current market quotations for HP and Compaq common stock and to review
carefully the other information contained in this joint proxy
statement/prospectus or incorporated by reference into this joint proxy
statement/prospectus in considering whether to approve and adopt the merger
agreement and approve the merger. See the section entitled "Where You Can Find
More Information" beginning on page 113 of this joint proxy
statement/prospectus.
18
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This joint proxy statement/prospectus and the documents incorporated by
reference into this joint proxy statement/prospectus contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties, as well as assumptions, that, if
they never materialize or prove incorrect, could cause the results of HP and
its consolidated subsidiaries, on the one hand, or Compaq and its consolidated
subsidiaries, on the other, to differ materially from those expressed or
implied by such forward-looking statements. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements. For example, forward-looking statements include
projections of earnings, revenues, synergies, accretion or other financial
items; any statements of the plans, strategies and objectives of management for
future operations, including the execution of integration and restructuring
plans and the anticipated timing of filings, approvals and the closing relating
to the merger; any statements concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; statements of belief and any statement of
assumptions underlying any of the foregoing. The risks, uncertainties and
assumptions referred to above include the challenge of managing asset levels,
including inventory; the difficulty of keeping expense growth at modest levels
while increasing revenues; the assumption of maintaining revenues on a combined
company basis following the merger; and other risks and uncertainties described
in the section entitled "Risk Factors" which follows on the next page and in
the documents that are incorporated by reference into this joint proxy
statement/prospectus.
If any of these risks or uncertainties materializes or any of these
assumptions proves incorrect, results of HP and Compaq could differ materially
from the expectations in these statements. HP and Compaq are not under any
obligation and do not intend to update their respective forward-looking
statements.
19
RISK FACTORS
HP and Compaq will operate as a combined company in a market environment
that cannot be predicted and that involves significant risks, many of which
will be beyond its control. In addition to the other information contained in,
or incorporated by reference into, this joint proxy statement/prospectus, you
should carefully consider the risks described below before deciding how to vote
your shares. Additional risks and uncertainties not presently known to HP and
Compaq or that are not currently believed to be important to you also may
adversely affect the merger and HP and Compaq as a combined company.
Although HP and Compaq expect that the merger will result in benefits to the
combined company, the combined company may not realize those benefits because
of integration and other challenges.
The failure of the combined company to meet the challenges involved in
integrating the operations of HP and Compaq successfully or otherwise to
realize any of the anticipated benefits of the merger, including anticipated
cost savings described in this joint proxy statement/prospectus, could
seriously harm the results of operations of the combined company. Realizing the
benefits of the merger will depend in part on the integration of technology,
operations, and personnel. The integration of the companies is a complex,
time-consuming and expensive process that, without proper planning and
implementation, could significantly disrupt the businesses of HP and Compaq.
The challenges involved in this integration include the following:
. demonstrating to the customers of HP and to the customers of Compaq that
the merger will not result in adverse changes in client service
standards or business focus and helping customers conduct business
easily with the combined company;
. consolidating and rationalizing corporate IT and administrative
infrastructures;
. consolidating manufacturing operations;
. combining product offerings;
. coordinating sales and marketing efforts to effectively communicate the
capabilities of the combined company;
. coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
. preserving distribution, marketing or other important relationships of
both HP and Compaq and resolving potential conflicts that may arise;
. minimizing the diversion of management attention from ongoing business
concerns;
. persuading employees that the business cultures of HP and Compaq are
compatible, maintaining employee morale and retaining key employees; and
. coordinating and combining overseas operations, relationships and
facilities, which may be subject to additional constraints imposed by
local laws and regulations.
The combined company may not successfully integrate the operations of HP and
Compaq in a timely manner, or at all, and the combined company may not realize
the anticipated benefits or synergies of the merger to the extent, or in the
timeframe, anticipated. The anticipated benefits and synergies relate to cost
savings associated with anticipated restructurings and other operational
efficiencies, greater economies of scale and revenue enhancement opportunities.
However, these anticipated benefits and synergies are based on projections and
assumptions, not actual experience, and assume a successful integration. In
addition to the integration risks discussed above, the combined company's
ability to realize these benefits and synergies could be adversely impacted by
practical or legal constraints on its ability to combine operations or
implement workforce reductions.
20
Compaq shareowners will receive a fixed ratio of 0.6325 of a share of HP
common stock for each share of Compaq common stock regardless of any changes in
market value of Compaq common stock or HP common stock before the completion of
the merger.
Upon completion of the merger, each share of Compaq common stock will be
converted into the right to receive 0.6325 of a share of HP common stock. The
market values of HP common stock and Compaq common stock have varied since HP
and Compaq entered into the merger agreement and will continue to vary in the
future due to changes in the business, operations or prospects of HP and
Compaq, market assessments of the merger, regulatory considerations, market and
economic considerations, and other factors. The dollar value of HP common stock
that Compaq shareowners will receive upon completion of the merger will depend
on the market value of HP common stock at the time of completion of the merger,
which may be different from, and lower than, the closing price of HP common
stock on the last full trading day preceding public announcement that HP and
Compaq entered into the merger agreement, the last full trading day prior to
the date of this joint proxy statement/prospectus or the date of the special
meetings. Moreover, completion of the merger may occur some time after
shareowner approval has been obtained. There will be no adjustment to the
exchange ratio (except for adjustments to reflect the effect of any stock split
or other recapitalization of HP common stock or Compaq common stock), and the
parties do not have a right to terminate the merger agreement, based upon
changes in the market price of either HP common stock or Compaq common stock.
Some of the directors and executive officers of HP and Compaq have interests
and arrangements that could have affected their decision to support or approve
the merger.
The interests of some of the directors and executive officers of HP and
Compaq in the merger and their participation in arrangements that are different
from, or are in addition to, those of HP and Compaq shareowners generally could
have affected their decision to support or approve the merger. These interests
include severance arrangements, retention bonuses contingent upon the
completion of the merger, employment agreements that are being negotiated in
connection with the merger and the acceleration of vesting of certain stock
options and restricted stock in connection with the merger. As a result, these
directors and officers may be more likely to recommend the proposals relating
to the merger than if they did not have these interests. Please see the section
entitled "Interests of HP and Compaq Directors and Executive Officers in the
Merger" beginning on page 64 of this joint proxy statement/prospectus.
HP and Compaq may be unable to obtain the regulatory approvals required to
complete the merger or, in order to do so, the combined company may be required
to comply with material restrictions or conditions.
The merger is subject to review by the United States Federal Trade
Commission under the Hart-Scott-Rodino Improvements Act of 1976, by the
European Commission under Council Regulation No. 4064/89 of the European
Community, and by the Canadian Competition Bureau under the Competition Act
(Canada). Under each of these statutes, HP and Compaq are required to make
pre-merger notification filings and to await the expiration or early
termination of statutory waiting periods and clearance prior to completing the
merger. Each of HP and Compaq received a request for additional information and
other documentary material from the Federal Trade Commission under the
Hart-Scott-Rodino Act in connection with the merger. This request effectively
extends the waiting period for the merger under the Hart-Scott-Rodino Act. In
practice, complying with a request for additional information or material under
the Hart-Scott-Rodino Act can take a significant amount of time. The merger
also may be subject to review by the governmental authorities of various other
jurisdictions under the antitrust laws of those jurisdictions. HP and Compaq
have not yet obtained any of the governmental or regulatory approvals required
to complete the merger.
The reviewing authorities may not permit the merger at all or may impose
restrictions or conditions on the merger that may seriously harm the combined
company if the merger is completed. These conditions could include a complete
or partial license, divestiture, spin-off or the holding separate of assets or
businesses. Either HP or Compaq may refuse to complete the merger if
restrictions or conditions are required by governmental authorities that would
materially adversely impact the combined company's results of operations or the
benefits anticipated to be derived by the combined company. Any delay in the
completion of the merger could diminish the anticipated benefits of the merger
or result in additional transaction costs, loss of revenue or other effects
associated with uncertainty about the transaction.
21
HP and Compaq also may agree to restrictions or conditions imposed by
antitrust authorities in order to obtain regulatory approval, and these
restrictions or conditions could harm the combined company's operations. No
additional shareowner approval is expected to be required or sought for any
decision by HP or Compaq, after the special meeting of Compaq shareowners and
the special meeting of HP shareowners, to agree to any terms and conditions
necessary to resolve any regulatory objections to the merger, and shareowner
approval will not be sought unless the shareowner approval is required to
approve such terms and conditions under applicable law.
In addition, during or after the statutory waiting periods, and even after
completion of the merger, governmental authorities could seek to block or
challenge the merger as they deem necessary or desirable in the public
interest. In addition, in some jurisdictions, a competitor, customer or other
third party could initiate a private action under the antitrust laws
challenging or seeking to enjoin the merger, before or after it is completed.
HP, Compaq or the combined company may not prevail, or may incur significant
costs, in defending or settling any action under the antitrust laws.
The stock prices and businesses of HP and Compaq may be adversely affected
if the merger is not completed.
If the merger is not completed, the price of HP common stock and Compaq
common stock may decline to the extent that the current market prices of HP
common stock and Compaq common stock reflect a market assumption that the
merger will be completed. In addition, HP's business and Compaq's operations
may be harmed to the extent that customers, suppliers and others believe that
the companies cannot effectively compete in the marketplace without the merger,
or otherwise remain uncertain about the companies. HP and Compaq also will be
required to pay significant costs incurred in connection with the merger,
including legal, accounting and a portion of the financial advisory fees,
whether or not the merger is completed. Moreover, under specified
circumstances, HP may be required to pay Compaq a termination fee of $675
million, or Compaq may be required to pay HP a termination fee of $675 million,
in connection with the termination of the merger agreement.
Charges to earnings resulting from the application of the purchase method of
accounting may adversely affect the market value of HP's common stock following
the merger.
In accordance with United States generally accepted accounting principles,
the combined company will account for the merger using the purchase method of
accounting, which will result in charges to earnings that could have a material
adverse effect on the market value of the common stock of HP following
completion of the merger. Under the purchase method of accounting, the combined
company will allocate the total estimated purchase price to Compaq's net
tangible assets, amortizable intangible assets, intangible assets with
indefinite lives and in-process research and development based on their fair
values as of the date of completion of the merger, and record the excess of the
purchase price over those fair values as goodwill. The portion of the estimated
purchase price allocated to in-process research and development will be
expensed by the combined company in the quarter in which the merger is
completed. The combined company will incur additional depreciation and
amortization expense over the useful lives of certain of the net tangible and
intangible assets acquired in connection with the merger. In addition, to the
extent the value of goodwill or intangible assets with indefinite lives becomes
impaired, the combined company may be required to incur material charges
relating to the impairment of those assets. These depreciation, amortization,
in-process research and development and potential impairment charges could have
a material impact on the combined company's results of operations.
Customer uncertainties related to the merger could adversely affect the
businesses and results of operations of HP, Compaq and the combined company.
In response to the announcement of the merger or due to ongoing uncertainty
about the merger, customers of HP or Compaq may delay or defer purchasing
decisions or elect to switch to other suppliers. In particular, prospective
customers could be reluctant to purchase the combined company's products due to
uncertainty about the direction of the combined company's product offerings and
willingness to support and service existing products. To the extent that the
merger creates uncertainty among those persons and organizations contemplating
22
hardware, software or service purchases such that one large customer, or a
significant group of smaller customers, delays, defers or changes purchases in
connection with the planned merger, results of operations of HP, Compaq or the
combined company would be adversely affected. Further, customer assurances may
be made by HP and Compaq to address their customers' uncertainty about the
direction of the combined company's product and related support offerings which
may result in additional obligations of HP, Compaq or the combined company.
Accordingly, quarterly results of operations of HP, Compaq or the combined
company could be substantially below expectations of market analysts and a
decline in the companies' respective stock prices could result.
In order to be successful, the combined company must retain and motivate key
employees, which will be more difficult in light of uncertainty regarding the
merger, and failure to do so could seriously harm the combined company.
In order to be successful, the combined company must retain and motivate
executives and other key employees. The market for highly skilled employees is
limited, and the loss of key employees could have a significant impact on the
combined company's operations. Employee retention may be a particularly
challenging issue in connection with the merger. Accordingly, the compensation
committee of the HP board of directors (consisting of Philip M. Condit, Sam
Ginn and Walter B. Hewlett) and the human resources committee of the Compaq
board of directors (consisting of Lawrence T. Babbio, Judith L. Craven and
Kenneth L. Lay), acting on the authority of the HP board of directors and the
Compaq board of directors, respectively, designed and adopted retention
programs to assure the continued dedication of key employees and to provide key
employees with financial incentives to remain with the combined company
following the completion of the merger. A number of factors, however, may
counteract the benefits of these retention programs. In particular, employees
of HP or Compaq may experience uncertainty about their future role with the
combined company until or after strategies with regard to the combined company
are announced or executed. This circumstance may adversely affect the combined
company's ability to attract and retain key management, marketing and technical
personnel. The combined company also must continue to motivate employees and
keep them focused on the strategies and goals of the combined company, which
may be particularly difficult due to the potential distractions of the merger,
morale challenges posed by the separate workforce reductions being implemented
by HP and Compaq and the additional workforce reductions of the combined
company anticipated in connection with the merger.
The economic downturn could adversely affect the results of operations of
the combined company.
The results of operations of the combined company will depend significantly
on the overall demand for computing and imaging products and services,
particularly in the product and service segments in which it will compete.
Softening demand for the products and services of HP and Compaq caused by the
ongoing economic downturn may result in decreased revenues, earnings levels or
growth rates and issues relating to the saleability of inventory and
realizability of customer receivables for the combined company in the future.
The global economy has weakened and market conditions continue to be
challenging. As a result, individuals and companies are delaying or reducing
expenditures, including those for information technology. Delays or reductions
in information technology spending could have a material adverse effect on
demand for the combined company's products and services, and consequently, its
results of operations, prospects and stock price.
The competitive pressures the combined company will face could harm its
operations and prospects.
The combined company will encounter aggressive competition from numerous and
varied competitors in all areas of its business, and will compete primarily on
the basis of technology, performance, price, quality, reliability,
distribution, customer service and support. If the combined company fails to
develop new products, services and support, periodically enhance its existing
products, services and support, or otherwise compete successfully, it could
harm its operations and prospects. Further, the combined company may have to
continue to lower the prices of many of its products, services and support to
stay competitive, while at the same time trying to maintain or improve gross
margins. If the combined company cannot proportionately decrease its cost
structure, its gross margins and therefore the profitability of the combined
company could be adversely affected.
23
If the combined company cannot continue to develop, manufacture and market
innovative products and services rapidly that meet customer requirements for
performance and reliability, it may lose market share and its results of
operations may suffer.
The process of developing new high technology products and services is
complex and uncertain, and failure to accurately anticipate customers' changing
needs and emerging technological trends and to develop or obtain appropriate
intellectual property could significantly harm the combined company. The
combined company must make long-term investments and commit significant
resources before knowing whether its predictions will eventually result in
products that the market will accept. After a product is developed, the
combined company must be able to manufacture sufficient volumes quickly and at
low costs. To accomplish this, it must accurately forecast volumes, mix of
products and configurations that meet customer requirements, and it may not
succeed.
If the combined company does not effectively manage the transition from
existing products to new products, its results of operations may suffer.
If the combined company does not make an effective transition from existing
products to new products, its results of operations may be seriously harmed.
Among the factors that make a smooth transition from current products to new
products difficult are delays in product development or manufacturing,
variations in product costs, delays in customer purchases of existing products
in anticipation of new product introductions and customer demand for the new
product. The combined company's results of operations may also suffer due to
the timing of product or service introductions by its suppliers and
competitors. This is especially challenging when a product has a short life
cycle or a competitor introduces a new product just before the combined
company's own product introduction. Furthermore, sales of the combined
company's new products may replace sales of some of the current products of HP
and Compaq, offsetting the benefit of even a successful product introduction.
There may also be overlaps in the current products of HP and Compaq product
portfolios that will be reduced or eliminated in connection with the merger. If
the combined company incurs delays in new product introductions, or does not
accurately estimate the market effects of new product introductions, given the
competitive nature of its industry, future demand for its products and its
revenues may be seriously harmed.
The combined company's operations will suffer if it cannot continue to
license or enforce the intellectual property rights on which its business will
depend or if third parties assert that the combined company violates their
intellectual property rights.
The combined company generally will rely upon patent, copyright, trademark
and trade secret laws in the United States and similar laws in other countries,
and agreements with its employees, customers, partners and other parties, to
establish and maintain its intellectual property rights in technology and
products used in the combined company's operations. However, any of its
intellectual property rights could be challenged, invalidated or circumvented,
or its intellectual property rights may not provide competitive advantages,
which could significantly harm its business. Also, because of the rapid pace of
technological change in the information technology industry, much of the
combined company's business and many of its products will rely on key
technologies developed by third parties, and the combined company may not be
able to continue to obtain licenses and technologies from these third parties.
Third parties also may claim that the combined company is infringing upon their
intellectual property rights. Even if the combined company does not believe
that its products or business are infringing upon third parties' intellectual
property rights, the claims can be time-consuming and costly to defend and
divert management's attention and resources away from the combined company's
business. Claims of intellectual property infringement might also require the
combined company to enter into costly settlement or license agreements. If the
combined company cannot or does not license the infringed technology or
substitute similar technology from another source, its operations could suffer.
In addition, it is possible that as a consequence of the merger, some
intellectual property rights of the combined company may be licensed to a third
party that had not been licensed prior to the creation of the combined company
or that certain restrictions are imposed on the business of the combined
company that had not been imposed on the business of HP or Compaq prior to the
merger. Consequently, the combined company may lose a competitive advantage
with respect to these intellectual property rights or the combined company may
be required to enter into costly arrangements in order to terminate or limit
these agreements.
24
If the combined company fails to manage distribution of its products and
services properly, or if its distributors' financial condition or operations
weaken, the combined company's results of operations could suffer.
The combined company will use a variety of different distribution methods to
sell its products and services, including third-party resellers and
distributors and both retail and direct sales to both enterprise accounts and
consumers. Since each distribution method has distinct risks and gross margins,
if the combined company fails to implement the most advantageous balance in the
delivery model for its products and services, it could adversely affect the
results of operations of the combined company. In addition, if the combined
company increases its commitment to direct sales, it could risk alienating
channel partners and adversely affecting its distribution model.
Some of the combined company's wholesale and retail distributors may have
insufficient financial resources and may not be able to withstand changes in
business conditions, including changes that may result from the merger. The
results of operations of the combined company could suffer if its distributors'
financial condition or operations weaken or if its relationships with them
deteriorate. Additionally, inventory management of the combined company will be
complex as the combined company will continue to sell a significant mix of
products through distributors.
Distributors may increase orders during times of product shortages, cancel
orders if their inventory is too high, or delay orders in anticipation of new
products. Distributors also may adjust their orders in response to the supply
of the combined company's products and the products of its competitors that are
available to the distributor and seasonal fluctuations in end-user demand. If
the combined company has excess inventory, it may have to reduce its prices and
write down inventory, which in turn could result in lower gross margins.
The combined company will depend on third party suppliers and its results of
operations could suffer if it fails to receive timely delivery of quality
components or if it fails to manage inventory levels properly.
The manufacturing operations of the combined company will depend on the
combined company's ability to anticipate its needs for components and product
and its suppliers' ability to deliver quality components and products in time
to meet critical manufacturing and distribution schedules. Given the wide
variety of systems, products and services that the combined company will offer
and the large number of its suppliers and contract manufacturers that are
dispersed across the globe, problems could arise in planning production and
managing inventory levels that could seriously harm the combined company. The
combined company occasionally may experience a short supply of certain
component parts as a result of strong demand in the industry for those parts.
If shortages or delays persist, the results of operations of the combined
company could suffer until other sources can be developed. In order to secure
components for the production of new products, at times the combined company
may make advance payments to suppliers, or it may enter into non-cancelable
purchase commitments with vendors. If the prices of these component parts then
decrease or the combined company fails to properly anticipate customer demand
for its products or services after it has entered into binding price or
purchase agreements, the combined company's results of operations could suffer.
Furthermore, the combined company may not be able to secure enough components
at reasonable prices to build new products in a timely manner in the quantities
and configurations needed. Conversely, a temporary oversupply of these parts
also could adversely affect the combined company's results of operations. In
addition, failure to comply with import and export laws could result in
significant financial penalty or restriction on the combined company's actions
that could adversely affect its businesses.
Due to the international nature of the combined company's business,
political or economic changes could harm its future results of operations and
financial condition.
At the time of the completion of the merger, sales outside the United States
will make up more than half of the combined company's revenues. The future
results of operations and financial condition of the combined company could be
adversely affected by a variety of international factors, including:
. changes in a country's or region's political or economic conditions;
. longer accounts receivable cycles;
25
. trade protection measures;
. import or export licensing requirements;
. overlap of different corporate structures;
. unexpected changes in regulatory requirements;
. differing technology standards and/or customer requirements;
. problems caused by the conversion of various European currencies to the
Euro and macroeconomic dislocations that may result; and
. natural disasters.
A portion of the combined company's product and component manufacturing,
along with key suppliers, also will be located outside of the United States,
and also could be disrupted by some of the international factors described
above.
The combined company will be exposed to foreign currency exchange rate and
interest rate risks that could impact the results of operations of the combined
company.
The combined company will be exposed to foreign currency exchange rate risk
that will be inherent in its sales commitments, anticipated sales, and assets
and liabilities that are denominated in currencies other than the United States
dollar. The combined company also will be exposed to interest rate risk
inherent in its debt and investment portfolios. Failure to sufficiently hedge
or otherwise manage foreign currency risks properly could adversely affect the
combined company's results of operations. In addition, any downgrade in HP's
credit ratings associated with the merger would result in increased borrowing
costs, more restrictive covenants and the extension of less open credit, all of
which could negatively affect results of operations.
Impairment of investment and financing portfolios could harm the combined
company's results of operations.
The combined company will have an investment portfolio that will include
minority equity and debt investments and financing for the purchase of its
products and services. In most cases, the combined company will not attempt to
reduce or eliminate its market exposure on these investments and may incur
losses related to the impairment of these investments and therefore charges to
earnings. A number of the combined company's investments will be in privately
held companies that are still in the start-up or development stage. These
investments have inherent risks because the markets for the technologies or
products they have under development are typically in the early stages and may
never develop. Furthermore, the values of the combined company's investments in
publicly-traded companies will be subject to significant market price
volatility. The combined company's investments in technology companies often
will be coupled with a strategic commercial relationship. The combined
company's commercial agreements with these companies may not be sufficient to
allow it to obtain and integrate such products or technology into its
technology or product lines or otherwise benefit from the relationship, and
these companies may be subsequently acquired by third parties, including
competitors of the combined company. Moreover, due to the economic downturn and
difficulties that may be faced by some of the companies to which HP, Compaq or
the combined company has supplied financing, the combined company's investment
portfolio could be further impaired.
Failure to complete acquisitions and alliances and successfully integrate or
divest businesses or product lines could seriously harm the combined company's
results of operations.
In the normal course of business, HP and Compaq frequently engage in
discussions with third parties relating to possible acquisitions, strategic
alliances, joint ventures and divestitures. Completion of large, complex
transactions may have a material effect on the financial position, results of
operations or cash flows of the combined company taken as a whole, and any
transaction may contribute to the combined company's financial results
differing from the investment community's expectations in a given quarter.
Acquisitions and strategic alliances may require the combined company to
integrate with a different company culture, management team
26
and business infrastructure and could result in material restructuring charges.
The combined company also may have to develop, manufacture and market products
with its products in a way that enhances the performance of the combined
business or product line and otherwise manage integration risks. Even if an
acquisition or alliance is successfully integrated, the combined company may
not receive the expected benefits of the transaction. Divestitures of part of
the combined company's business may result in the cancellation of orders and
charges to earnings. In addition, a transaction may not be completed at all, in
which case the combined company will not realize the intended benefits of the
transaction and may be adversely affected by negative market perception
relating to the pursuit of the transaction. Managing acquisitions, alliances
and divestitures require varying levels of management resources, which may
divert the combined company's attention from other business operations.
Currently, HP has several acquisitions that are pending completion, including
the proposed merger with Compaq, or that recently have been completed and are
still being integrated. The number of pending transactions and the size and
scope of the proposed merger with Compaq increase both the scope and
consequences of ongoing integration risks.
Terrorist acts and acts of war may seriously harm the combined company's
business and results of operations.
Terrorist acts or acts of war (wherever located around the world) may cause
damage or disruption to the combined company, its employees, facilities,
partners, suppliers, distributors and resellers, and customers, which could
significantly impact the combined company's results of operations. The
terrorist attacks that took place in the United States on September 11, 2001
were unprecedented events that have created many economic and political
uncertainties, some of which may materially harm the combined company's
business and results of operations. The long-term effects of the September 11,
2001 attacks on the combined company's business and results of operations are
unknown. The potential for future terrorist attacks, the national and
international responses to terrorist attacks, and other acts of war or
hostility have created many economic and political uncertainties, which could
adversely affect the business and results of operations of HP, Compaq or the
combined company in ways that cannot presently be predicted. In addition, as
major multi-national companies with headquarters and significant operations
located in the United States, any of HP, Compaq or the combined company may be
impacted by actions against the United States. The combined company will be
predominantly uninsured for losses and interruptions caused by terrorist acts
and acts of war.
Business disruptions could seriously harm future results of operations of
the combined company.
The combined company's worldwide operations could be subject to natural
disasters and other business disruptions which could seriously harm its results
of operations and financial position. The corporate headquarters of the
combined company, a portion of its research and development activities, other
critical business operations and a certain number of its suppliers will be
located in California, near major earthquake faults. The ultimate impact on the
combined company, its significant suppliers and its general infrastructure of
being located near major earthquake faults is unknown, but results of
operations could be significantly harmed in the event of a major earthquake. In
addition, some areas, including California, have experienced, and may continue
to experience, ongoing power shortages, which have resulted in "rolling
blackouts." These blackouts could cause disruptions to the operations of the
combined company and the operations of its suppliers, distributors and
resellers, and customers. The combined company will be predominantly uninsured
for losses and interruptions caused by earthquakes, power outages and other
natural disasters.
Unforeseen environmental costs could impact the future results of operations
and financial position of the combined company.
Some of the combined company's operations will use substances regulated
under various federal, state and international laws governing the environment.
The combined company could be subject to liability for remediation if it does
not handle these substances in compliance with applicable laws. It will be the
combined company's policy to apply strict standards for environmental
protection to sites inside and outside the United States, even when not subject
to local government regulations. The combined company will record a liability
for environmental remediation and related costs when it considers the costs to
be probable and the amount of the costs can be reasonably estimated.
27
The revenues and profitability of the operations of HP and Compaq have
historically varied.
The revenues and profit margins of HP and Compaq vary among their respective
products, customer groups and geographic markets. The revenue mix of the
combined company will be different than the revenue mix of either HP or Compaq
alone, particularly with respect to the proportion contributed by personal
computers and printing and imaging devices and supplies. Overall profitability
in any given period is dependent partially on the product, customer and
geographic mix reflected in that period's net revenue, and therefore revenue
and gross margin trends cannot be reliably predicted. Actual trends may cause
the combined company to adjust its operations, which could cause
period-to-period fluctuations in the combined company's results of operations.
Failure to successfully execute planned cost reductions could adversely
affect the combined company's expected results of operations.
Historically, each of HP and Compaq has separately undertaken restructuring
plans to bring operational expenses to appropriate levels for each of its
businesses, while simultaneously implementing extensive new company-wide
expense-control programs. In addition to the previously announced workforce
reductions of the separate companies, the combined company may have additional
workforce reductions. Significant risks associated with these actions that may
impair the ability of the combined company to achieve anticipated cost
reductions or otherwise harm its business include delays in implementation of
anticipated reductions in force in highly regulated locations outside of the
United States, redundancies among restructuring programs, and the failure to
meet operational targets due to the loss of employees or decreases in employee
morale.
HP's stock price has historically fluctuated and may continue to fluctuate.
HP's stock price, like that of other technology companies, can be volatile.
Some of the factors that can affect its stock price are:
. the announcement of new products, services or technological innovations
by HP or its competitors;
. quarterly increases or decreases in HP's revenue or earnings;
. changes in quarterly revenue or earnings estimates by the investment
community; and
. speculation in the press or investment community about HP's strategic
position, financial condition, results of operations, business or
significant transactions.
General market conditions and domestic or international macroeconomic and
geopolitical factors unrelated to HP's performance may also affect HP's stock
price. For these reasons, investors should not rely on recent trends to predict
future stock prices or financial results. In addition, following periods of
volatility in a company's securities, securities class action litigation
against a company is sometimes instituted. This type of litigation could result
in substantial costs and the diversion of management time and resources. HP
anticipates that it will continue to face similar risks associated with stock
price volatility following the merger.
The effective tax rate of the combined company is uncertain.
The impact of the merger on the overall effective tax rate of the combined
company is uncertain. Although the combined company will attempt to optimize
its overall effective tax rate, it is impossible to predict the effective tax
rate of the combined company accurately. The combination of the operations of
HP and Compaq may result in an overall effective tax rate for the combined
company that is higher than HP's currently reported tax rate, and it is
possible that the combined effective tax rate of HP and Compaq as a combined
company may exceed the average of the pre-merger tax rates of HP and Compaq.
28
Some anti-takeover provisions contained in HP's certificate of
incorporation, bylaws and shareowner rights plan, as well as provisions of
Delaware law, could impair a takeover attempt.
HP has provisions in its certificate of incorporation and bylaws, each of
which could have the effect of rendering more difficult or discouraging an
acquisition deemed undesirable by the HP board of directors. These include
provisions:
. authorizing blank check preferred stock, which could be issued with
voting, liquidation, dividend and other rights superior to its common
stock;
. limiting the liability of, and providing indemnification to, directors
and officers;
. limiting the ability of HP shareowners to call special meetings;
. requiring advance notice of shareowner proposals for business to be
conducted at annual meetings of HP shareowners and for nominations of
candidates for election to the HP board of directors;
. controlling the procedures for conduct of board and shareowner meetings
and election and removal of directors; and
. specifying that shareowners may take action only at a duly called annual
or special meeting of shareowners.
These provisions, alone or together, could deter or delay hostile takeovers,
proxy contests and changes in control or management of HP.
In addition, HP has adopted a shareowner rights plan. The rights are not
intended to prevent a takeover of HP. However, the rights may have the effect
of rendering more difficult or discouraging an acquisition of HP deemed
undesirable by the HP board of directors. The rights will cause substantial
dilution to a person or group that attempts to acquire HP on terms or in a
manner not approved by the HP board of directors, except pursuant to an offer
conditioned upon redemption of the rights.
As a Delaware corporation, HP is also subject to provisions of Delaware law,
including Section 203 of the Delaware General Corporation law, which prevents
some shareowners from engaging in certain business combinations without
approval of the holders of substantially all of HP's outstanding common stock.
Any provision of HP's certificate of incorporation or bylaws, HP's
shareowner rights plan or Delaware law that has the effect of delaying or
deterring a change in control could limit the opportunity for HP shareowners
(including former Compaq shareowners who become HP shareowners upon completion
of the merger) to receive a premium for their shares of HP common stock, and
could also affect the price that some investors are willing to pay for HP
common stock.
29
THE SPECIAL MEETING OF HP SHAREOWNERS
Date, Time and Place
The HP special meeting will be held at .m., local time, on , 200 at .
Items of Business
At the HP special meeting, HP shareowners will be asked to consider and vote
upon a proposal to approve the issuance of shares of HP common stock in
connection with the merger as more fully described in this joint proxy
statement/prospectus. HP shareowners also will consider any other business that
may properly come before the HP special meeting or any adjournment or
postponement of the HP special meeting. HP currently does not contemplate that
any other matters will be considered at the HP special meeting.
Admission to the Special Meeting
Two cut-out admission tickets for the HP special meeting are included for HP
shareowners. Limited additional tickets are available for additional HP joint
owners. Please contact the HP corporate secretary at HP's principal executive
offices for details. Shareowners of record of HP common stock who forget to
bring an admission ticket will be admitted to the meeting only if they are
listed as HP shareowners of record as of the close of business on the record
date and bring forms of identification. HP shareowners who hold shares of HP
common stock through brokers or nominees and fail to bring an admission ticket
will need to provide proof of ownership by bringing either a copy of the voting
instruction cards provided by their brokers or nominees or copies of their
brokerage statements showing their HP share ownership as of the record date.
Method of Voting; Record Date; Stock Entitled to Vote; Quorum
HP shareowners are being asked to vote both shares held directly in their
name as shareowners of record and any shares they hold in street name as
beneficial owners. Shares held in street name are shares held in a stock
brokerage account or shares held by a bank or other nominee.
The method of voting differs for shares held as a record holder and shares
held in street name. Record holders will receive proxy cards. Holders of shares
in street name will receive voting instruction cards in order to instruct their
brokers or nominees how to vote.
Shareowners may receive more than one set of voting materials, including
multiple copies of this joint proxy statement/prospectus and multiple proxy
cards or voting instruction cards. For example, shareowners who hold shares in
more than one brokerage account may receive a separate voting instruction card
for each brokerage account in which shares are held. Shareowners of record
whose shares are registered in more than one name will receive more than one
proxy card. HP shareowners should complete, sign, date and return each proxy
card and voting instruction card they receive.
Only shareowners of HP at the close of business on , 200 , the record
date for the HP special meeting, are entitled to receive notice of, and vote
at, the HP special meeting. On the record date, approximately shares of HP
common stock were issued and outstanding. Shareowners of HP common stock on the
record date are each entitled to one vote per share of HP common stock on the
proposal to approve the issuance of shares of HP common stock in connection
with the merger.
A quorum of shareowners is necessary to have a valid meeting of HP
shareowners. Under Delaware law and HP's bylaws, a majority of the shares of HP
common stock issued and outstanding and entitled to vote on the record date
must be present in person or by proxy at the HP special meeting in order for a
quorum to be established.
30
Abstentions and broker "non-votes" count as present for establishing the
quorum described above. A broker "non-vote" occurs on an item when a broker is
not permitted to vote on that item without instructions from the beneficial
owner of the shares and no instructions are given. Shares held by HP in its
treasury do not count toward the quorum.
Adjournment and Postponement
HP shareowners may be asked to vote upon a proposal to adjourn or postpone
the HP special meeting. Any adjournment or postponement could be for the
purpose of allowing additional time for soliciting votes from HP shareowners to
approve the issuance of shares of HP common stock in connection with the merger
or to satisfy other conditions to completion of the merger that HP and Compaq
elect to satisfy prior to seeking a vote of the HP shareowners in connection
with the merger. Any adjournment or postponement of the HP special meeting may
be made at any time by the chairman of the meeting or a vote of shareowners
holding a majority of shares of HP common stock represented at the HP special
meeting, either in person or by proxy, whether or not a quorum exists, without
further notice other than by an announcement made at the special meeting.
Required Vote
Under the applicable rules of the New York Stock Exchange, the issuance of
shares of HP common stock in connection with the merger requires an affirmative
vote of a majority of the votes cast at the HP special meeting, provided that
the total vote cast on the proposal represents over 50% of all shares of HP
common stock entitled to vote on the proposal.
Under the applicable rules of the New York Stock Exchange, brokers and other
nominees are prohibited from giving a proxy to vote their customers' shares
with respect to the proposal to be voted on at the HP special meeting in the
absence of instructions from their customers. Accordingly, if no instructions
are given, the shares will be considered broker "non-votes." For purposes of
determining whether HP has received the affirmative vote of a majority of the
votes cast at the HP special meeting, broker "non-votes" and abstentions will
not be considered votes cast and will therefore have no effect on the outcome
of the proposal.
For purposes of determining whether the total vote cast represents over 50%
of all shares of HP common stock entitled to vote on the proposal, broker
"non-votes" and abstentions will be considered entitled to vote and will
therefore make it more difficult to meet this requirement. If the total vote
cast on the proposal represents over 50% of all shares of HP common stock
entitled to vote on the proposal, these broker "non-votes" and abstentions
would have no effect on the outcome of the proposal.
Recommendation of the HP Board of Directors
After careful consideration, the HP board of directors unanimously
determined that the merger is advisable, and is fair to and in the best
interests of HP and its shareowners, and unanimously approved the merger
agreement. The HP board of directors recommends that the HP shareowners vote
"for" the proposal to approve the issuance of shares of HP common stock in
connection with the merger.
Share Ownership of HP Directors and Executive Officers
At the close of business on the record date for the HP special meeting,
directors and executive officers of HP and their affiliates beneficially owned
and were entitled to vote approximately shares of HP common stock,
collectively representing % of the shares of HP common stock outstanding
on that date. On November 6, 2001, Walter B. Hewlett, a director of HP, Eleanor
Hewlett Gimon, Mary Hewlett Jaffe and The William R. Hewlett Revocable Trust
announced that they intend to vote their shares of HP common stock against the
proposal to approve the issuance of shares of HP common stock in connection
with the merger. On November 14, 2001, Mr. Hewlett, Ms. Gimon, Ms. Jaffe and
Edwin E. van Bronkhorst jointly filed a Schedule 13D with the Securities and
Exchange Commission stating that they plan to continue to oppose the proposed
merger.
31
Voting Procedures
Submitting Proxies or Voting Instructions
Shareowners of record of HP common stock may vote in person at the HP
special meeting by bringing their proxy cards or other forms of identification.
If shares of HP common stock are held by HP shareowners in street name,
those HP shareowners may not vote their shares in person at the HP special
meeting unless they obtain a signed proxy from the record holder giving them
the right to vote their shares.
Whether HP shareowners hold shares of HP common stock directly as
shareowners of record or in street name, HP shareowners may direct the voting
of their shares without attending the HP special meeting. HP shareowners may
vote by granting proxies or, for shares held in street name, by submitting
voting instructions to their brokers or nominees. In most instances, HP
shareowners will be able to vote over the Internet, by telephone or by mail. HP
shareowners should refer to the instructions below and those included on their
proxy cards or, for shares held in street name, the voting instruction cards
provided by their brokers or nominees.
By Internet--Record holders of shares of HP common stock with Internet
access may submit proxies from any location in the world by following the "Vote
by Internet" instructions on their proxy cards. Most HP shareowners who hold
shares in street name may vote by accessing the website specified on the voting
instruction cards provided by their brokers or nominees. Please check the
voting instruction card for Internet voting availability.
By Telephone--Record holders of shares of HP common stock who live in the
United States or Canada may submit proxies by following the "Vote by Phone"
instructions on their proxy cards. Most HP shareowners who hold shares in
street name and live in the United States or Canada may vote by phone by
calling the number specified on the voting instruction cards provided by their
brokers or nominees. Please check the voting instruction card for telephone
voting availability.
By Mail--Record holders of shares of HP common stock may submit proxies by
completing, signing and dating their proxy cards and mailing them in the
accompanying pre-addressed envelopes. HP shareowners who hold shares in street
name may vote by mail by completing, signing and dating the voting instruction
cards provided by their brokers or nominees and mailing them in the
accompanying pre-addressed envelopes.
If HP shareowners of record do not include instructions on how to vote their
properly signed proxy cards, their shares will be voted "for" the proposal to
approve the issuance of shares of HP common stock in connection with the merger
and in the discretion Carleton S. Fiorina and Ann O. Baskins, as the proxy
holders, on any other matters that properly come before the HP special meeting
or any adjournment or postponement of the HP special meeting.
If HP shareowners holding shares of HP common stock in street name do not
provide voting instructions, their shares will not be voted and will therefore
be considered broker "non-votes." However, any shares held in HP's Tax Saving
Capital Accumulation Plan (TAXCAP) as to which voting instructions are not
provided will be voted in proportion to the way the other TAXCAP participants
vote their shares.
Revoking Proxies or Voting Instructions
HP shareowners may change their votes at any time prior to the vote at the
HP special meeting. HP shareowners of record may change their votes by granting
new proxies bearing a later date (which automatically revoke the earlier
proxies) or by attending the HP special meeting and voting in person.
Attendance at the HP special meeting will not cause previously granted proxies
to be revoked, unless HP shareowners specifically so
32
request. For shares held in street name, HP shareowners may change their votes
by submitting new voting instructions to their brokers or nominees or by
attending the HP special meeting and voting in person, provided that they have
obtained a signed proxy from the record holder giving them the right to vote
their shares.
Proxy Solicitation
HP is soliciting proxies for the HP special meeting from HP shareowners and
Compaq is soliciting proxies for the Compaq special meeting from its
shareowners. Each company will share equally the cost of printing and filing
this joint proxy statement/prospectus and the registration statement on Form
S-4, of which it forms a part, that has been filed by HP with the Securities
and Exchange Commission.
Other than the costs shared with Compaq, the cost of soliciting proxies from
HP shareowners will be paid by HP. However, HP shareowners are responsible for
Internet access charges they may incur if they choose to access proxy materials
and vote over the Internet.
In addition to the mailing of these proxy materials, the solicitation of
proxies or votes may be made in person or by telephone or by electronic
communication by HP's directors, officers and employees, who will not receive
any additional compensation for such solicitation activities.
HP also has retained Georgeson Shareholder and Innisfree M&A Incorporated to
assist it in the distribution of proxy materials and the solicitation of votes.
HP will pay Georgeson Shareholder a fee of $ , and Innisfree a fee of $
, in each case plus customary out-of-pocket expenses, for these services. Upon
request, HP also will reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and solicitation materials to HP shareowners. HP has agreed to indemnify
Georgeson Shareholder and Innisfree against certain liabilities arising out of
or in connection with its engagement.
Contact for Questions and Assistance in Voting
Any HP shareowner who has a question about the merger, the issuance of
shares in connection with the merger, or how to vote or revoke a proxy, or who
wishes to obtain additional copies of this joint proxy statement/prospectus,
should contact:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
@georgesonshareholder.com
( ) -
international calls ( ) - .
Confidential Voting Policy
It is HP's policy that proxy instructions, ballots and voting tabulations
that identify individual HP shareowners are handled in a manner that protects
voting privacy. HP shareowner votes will not be disclosed within HP or to
Compaq or third parties, except (1) as necessary to meet applicable legal
requirements, (2) to allow for the tabulation of votes and certification of the
vote, or (3) to facilitate a successful proxy solicitation. Occasionally, HP
shareowners provide written comments on their proxy cards, which are then
forwarded to HP management.
Other Matters
HP is not aware of any other business to be acted upon at the HP special
meeting. If, however, other matters are properly brought before the HP special
meeting or any adjournment or postponement of the HP special meeting, the
persons named as proxy holders, Carleton S. Fiorina and Ann O. Baskins, will
have discretion to act on those matters.
33
THE SPECIAL MEETING OF COMPAQ SHAREOWNERS
Date, Time and Place
The Compaq special meeting will be held at .m., local time, on , 200
at .
Items of Business
At the Compaq special meeting, Compaq shareowners will be asked to consider
and vote upon the proposal to approve and adopt the merger agreement and
approve the merger. Compaq shareowners also will consider any other business
that may properly come before the Compaq special meeting or any adjournment or
postponement of the Compaq special meeting. Compaq currently does not
contemplate that any other matters will be considered at the Compaq special
meeting.
Method of Voting; Record Date; Stock Entitled to Vote; Quorum
Compaq shareowners are being asked to vote both shares held directly in
their name as shareowners of record and any shares they hold in street name as
beneficial owners. Shares held in street name are shares held in a stock
brokerage account or shares held by a bank or other nominee.
The method of voting differs for shares held as a record holder and shares
held in street name. Record holders will receive proxy cards. Holders of shares
in street name will receive voting instruction cards in order to instruct their
brokers or nominees how to vote.
Shareowners may receive more than one set of voting materials, including
multiple copies of this joint proxy statement/prospectus and multiple proxy
cards or voting instruction cards. For example, shareowners who hold shares in
more than one brokerage account will receive a separate voting instruction card
for each brokerage account in which shares are held. Shareowners of record
whose shares are registered in more than one name will receive more than one
proxy card. Compaq shareowners should complete, sign, date and return each
proxy card and voting instruction card they receive.
Only shareowners of record of Compaq at the close of business on , 200
, the record date for the Compaq special meeting, are entitled to receive
notice of, and have the right to vote at, the Compaq special meeting. On the
record date, approximately shares of Compaq common stock were issued and
outstanding. Shareowners of record of Compaq on the record date are entitled to
one vote per share of Compaq common stock on the proposal to approve and adopt
the merger agreement and approve the merger.
A quorum of shareowners is necessary to have a valid meeting of Compaq
shareowners. A majority of the shares of Compaq common stock issued and
outstanding and entitled to vote on the record date must be present in person
or by proxy at the Compaq special meeting in order for a quorum to be
established.
Abstentions and broker "non-votes" count as present for establishing a
quorum. A broker "non-vote" occurs on an item when a broker is not permitted to
vote on that item without instructions from the beneficial owner of the shares
and no instructions are given. Shares held by Compaq in its treasury do not
count toward establishing a quorum.
Adjournment and Postponement
Compaq shareowners may be asked to vote upon a proposal to adjourn or
postpone the Compaq special meeting. Any adjournment or postponement could be
used for the purposes of allowing additional time for soliciting votes from
Compaq shareowners to approve and adopt the merger agreement and approve the
merger or to satisfy other conditions to completion of the merger that Compaq
and HP elect to satisfy prior to seeking a vote of the Compaq shareowners in
connection with the merger.
34
Required Vote
Approval and adoption of the merger agreement and approval of the merger
will require the affirmative vote of the holders of a majority of the shares of
Compaq common stock outstanding on the record date. Under applicable Delaware
law, for the purpose of determining whether the proposal to approve and adopt
the merger agreement and approve the merger has received the requisite number
of affirmative votes, abstentions will be counted and have the same effect as a
vote "against" the proposal. In addition, failing to vote will have the same
effect as a vote "against" the proposal. Under the applicable rules of the New
York Stock Exchange, a broker or nominee who holds shares for customers, who
are the beneficial owners of those shares, are prohibited from giving a proxy
to vote those customers' shares with respect to the proposal to be voted on at
the Compaq special meeting without instructions from the customer. Shares held
by a broker or nominee which are not voted because the customer has not
provided instructions to the broker or nominee will have the same effect as a
vote "against" the proposal.
Recommendation of the Compaq Board of Directors
After careful consideration, the Compaq board of directors unanimously
determined that the merger is advisable, and is fair to and in the best
interests of Compaq and its shareowners and unanimously approved the merger
agreement. The Compaq board of directors recommends that Compaq shareowners
vote "for" the proposal to approve and adopt the merger agreement and approve
the merger.
Share Ownership of Compaq Directors and Executive Officers
At the close of business on the record date for the Compaq special meeting,
directors and executive officers of Compaq and their affiliates beneficially
owned and were entitled to vote approximately shares of Compaq common
stock, collectively representing less than one percent of the shares of
Compaq common stock outstanding on that date.
Voting Procedures
Submitting Proxies or Voting Instructions
Compaq shareowners of record may vote their shares by attending the Compaq
special meeting and voting their shares in person at the special meeting, or by
completing their proxy cards and signing, dating and mailing them in the
enclosed self-addressed envelopes. If a proxy card is signed by a shareowner of
record of Compaq and returned without voting instructions, the shares
represented by the proxy will be voted "for" the proposal to approve and adopt
the merger agreement and approve the merger, and in the discretion of Ben K.
Wells and Thomas C. Siekman, as the proxy holders, on any other business that
may properly come before the Compaq special meeting or any adjournment or
postponement of the Compaq special meeting.
Because Delaware, the state in which Compaq is incorporated, permits
electronic submission of proxies, Compaq shareowners who are shareowners of
record have the option to submit their proxies by using the telephone or the
Internet. The telephone and Internet voting procedures are designed to
authenticate votes cast by use of a personal identification number. These
procedures allow Compaq shareowners to appoint a proxy to vote their shares of
Compaq common stock and to confirm that their instructions have been properly
recorded. Instructions for voting by using the telephone or the Internet are
printed on the proxy card for Compaq shareowners of record.
Compaq shareowners whose shares are held in the name of a broker or nominee
must either direct the record holder of their shares as to how to vote their
shares of Compaq common stock or obtain a proxy from the record holder to vote
at the Compaq special meeting. Beneficial holders of Compaq common stock should
check the voting instruction cards used by their brokers or nominees to see if
they may vote by using the telephone or the Internet.
35
Revoking Proxies or Voting Instructions
Compaq shareowners of record may revoke their proxies at any time prior to
the time their proxies are voted at the Compaq special meeting. Proxies may be
revoked by written notice to the corporate secretary of Compaq, by a
later-dated proxy signed and returned by mail, or by attending the Compaq
special meeting and voting in person. Compaq shareowners of record may also
revoke proxies by a later-dated proxy using the telephone or Internet voting
procedures described on their proxy cards.
Compaq shareowners whose shares are held in the name of a broker or nominee
may change their votes by submitting new voting instructions to their brokers
or nominees. Those Compaq shareowners may not vote their shares in person at
the Compaq special meeting unless they obtain a signed proxy from the record
holder giving them the right to vote their shares.
Proxy Solicitation
Compaq is soliciting proxies for the Compaq special meeting from Compaq
shareowners and HP is soliciting proxies for the HP special meeting from its
shareowners. Each company will share equally the cost of printing and filing
this joint proxy statement/prospectus and the registration statement on Form
S-4, of which it forms a part, that has been filed by HP with the Securities
and Exchange Commission.
Other than the costs shared with HP, the cost of soliciting proxies from
Compaq shareowners will be paid by Compaq. In addition to solicitation by mail,
directors, officers and employees of Compaq may also solicit proxies from
shareowners by telephone, telecopy, telegram or in person. Compaq will also
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners. Upon request,
Compaq will reimburse those brokerage houses and custodians for their
reasonable expenses in so doing.
Compaq has retained Georgeson Shareholder to assist it with the solicitation
of proxies and to verify certain records related to the solicitations. Compaq
will pay Georgeson Shareholder a fee of $45,000, plus their reasonable
expenses, for these services. Compaq has agreed to indemnify Georgeson
Shareholder against certain liabilities arising out of or in connection with
its engagement.
Please do not send in any Compaq stock certificates with your proxy cards or
voting instruction cards. Computershare Trust Company of New York, the exchange
agent for the merger, will send transmittal forms with instructions for the
surrender of certificates representing shares of Compaq common stock to former
Compaq shareowners shortly after the merger is completed.
Contact for Questions and Assistance in Voting
Any Compaq shareowner who has a question about the merger or how to vote or
revoke a proxy, or who wishes to obtain additional copies of this joint proxy
statement/prospectus, should contact:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
@georgesonshareholder.com
( ) -
international calls ( ) - .
Other Matters
Compaq is not aware of any other business to be acted upon at the Compaq
special meeting. If, however, other matters are properly brought before the
Compaq special meeting or any adjournment or postponement of the Compaq special
meeting, the persons named as proxy holders, Ben K. Wells and Thomas C.
Siekman, will have discretion to act on those matters, or to adjourn or
postpone the Compaq special meeting.
36
THE MERGER
The following is a description of the material aspects of the merger,
including the merger agreement. While we believe that the following description
covers the material terms of the merger, the description may not contain all of
the information that is important to you. We encourage you to read carefully
this entire joint proxy statement/prospectus, including the merger agreement
attached to this joint proxy statement/prospectus as Annex A, for a more
complete understanding of the merger.
Background of the Merger
Both HP and Compaq continually evaluate strategic opportunities and business
scenarios as a part of its ongoing evaluation of changes in the marketplace and
opportunities to strengthen its business. In 1999, due to an increasingly
competitive market environment, the HP board of directors and members of HP
management became particularly focused on developing strategies to secure HP's
future by strengthening HP's product and service offerings. In particular, the
HP board of directors sought strategic alternatives that would improve HP's
enterprise computing and services businesses, strengthen HP's sales force and
improve HP's relationships with independent software vendors. As part of this
process, HP evaluated a range of strategic alternatives and potential
acquisition candidates, including (with support in particular from HP directors
Richard A. Hackborn and George A. Keyworth II) Compaq. In early 2001, HP
retained McKinsey & Co. to assist in its evaluation process.
Also in early 2001, in an effort to maximize opportunities for its UNIX
business, HP began approaching other companies to determine whether they would
be interested in licensing HP's UNIX operating system, HP-UX. As part of these
initiatives and following a series of previous discussions between business
unit representatives of both companies, Ms. Fiorina contacted Mr. Capellas in
June 2001 to discuss Compaq's interest in licensing HP-UX. After several days
of deliberation, Mr. Capellas contacted Ms. Fiorina to suggest that the
synergies between the two companies were broader than HP-UX and that HP
consider whether a broader strategic relationship might be a viable option.
Based on the initial conversations between Ms. Fiorina and Mr. Capellas, on
June 22, 2001 Mr. Capellas and Shane V. Robison, Compaq's Senior Vice
President, Technology and Chief Technology Officer, met with Ms. Fiorina and
Duane E. Zitzner, HP's President, Computing Systems, to discuss the possibility
of Compaq licensing HP-UX. Although discussions regarding a licensing
arrangement between HP and Compaq continued beyond this meeting and are
ongoing, at this meeting, Ms. Fiorina and Messrs. Capellas, Zitzner and Robison
also discussed the potential for a broader relationship between HP and Compaq,
including a possible business combination.
Following the June 22, 2001 meeting, HP initiated a general analysis of a
possible business combination with Compaq using publicly available information
to build upon the strategic evaluation it had performed with the assistance of
McKinsey & Co. At a telephonic meeting of the HP board of directors on June 24,
2001, Ms. Fiorina apprised the HP board of directors of her discussions with
Messrs. Capellas and Robison and the preliminary analysis that HP had performed
regarding a possible business combination with Compaq. After discussion, the HP
board of directors authorized Ms. Fiorina to explore the business combination
further.
On June 27, 2001, the Compaq board of directors convened a regular meeting.
Several members of Compaq's management also attended this meeting. During this
meeting, Mr. Capellas informed the Compaq board of directors of his
conversations with Ms. Fiorina. Mr. Capellas and Mr. Robison presented the
preliminary analysis that Compaq had performed regarding Compaq's business
strategies and the strategic rationale of a business combination with HP, and
the Compaq board of directors discussed the strategic rationale for the
business combination. The Compaq board of directors also discussed alternatives
to a business combination with HP and authorized management to continue to
explore a number of alternatives, including a business combination with HP.
37
On June 27, 2001, Ms. Fiorina and Mr. Capellas had a telephonic meeting to
discuss further the business combination between HP and Compaq. During this
meeting, Ms. Fiorina and Mr. Capellas discussed their common beliefs in the
strategic rationale and benefits of a business combination and their respective
interests in further exploring a business combination between the two
companies. Ms. Fiorina confirmed that the HP board of directors was willing to
consider a business combination with Compaq and had authorized her to continue
discussions with Mr. Capellas regarding the terms of such a transaction. Mr.
Capellas also confirmed that the Compaq board of directors was interested in
exploring a business combination with HP and had authorized him to proceed with
discussions regarding a possible transaction with HP.
On June 29, 2001, Ms. Fiorina, Robert P. Wayman, HP's Executive Vice
President, Finance and Administration, and Chief Financial Officer, Mr. Zitzner
and a representative from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, outside counsel to HP, met with Mr. Capellas, Jeff Clarke,
Compaq's Senior Vice President, Finance and Administration, and Chief Financial
Officer, Mr. Siekman, Compaq's Senior Vice President and General Counsel, and
Mr. Robison to discuss various strategic, operational, legal and other
regulatory issues associated with a possible business combination between HP
and Compaq.
Following the June 29, 2001 meeting, HP and Compaq executed a
confidentiality agreement to facilitate further discussions and the related
exchange and use of confidential information. Shortly thereafter, HP, with the
assistance of McKinsey & Co., and Compaq, with the assistance of Accenture,
each initiated an extensive business due diligence investigation of the
business and operations of the other and a potential business combination. This
due diligence investigation included a review of the potential strategic
synergies of the business combination.
On July 7, 2001, Ms. Fiorina and Messrs. Wayman and Zitzner of HP, together
with representatives from McKinsey & Co. and a representative from Wilson
Sonsini Goodrich & Rosati, met with Messrs. Capellas, Clarke, Siekman and
Robison of Compaq, together with representatives from Accenture, to further
discuss various strategic, operational, financial, legal and regulatory aspects
of the business combination. The parties also reviewed the results of their
respective preliminary analyses of the business combination, including the
potential strategic synergies of the business combination and business
integration of the combined company.
Ms. Fiorina and Mr. Capellas had a later meeting on July 7, 2001 to continue
their discussions regarding the business combination. During this meeting, Ms.
Fiorina and Mr. Capellas discussed at a general level valuation concepts and
issues associated with the business combination, the governance and management
of the combined company and strategic synergies of the business combination.
On July 10, 2001, the HP board of directors convened a meeting to consider
further the business combination with Compaq. Members of HP's management team
and representatives from McKinsey & Co. and a representative of Wilson Sonsini
Goodrich & Rosati also attended this meeting. During this meeting, Ms. Fiorina
and other members of HP's management team updated the HP board of directors
regarding the status of discussions with Compaq regarding the business
combination, and presented their analysis of the strategic, operational, legal
and other regulatory issues associated with the business combination. After a
discussion on these matters, the HP board of directors authorized Ms. Fiorina
and other members of HP's management to continue their discussions with Compaq
regarding the business combination.
From July 10 through July 17, 2001, Ms. Fiorina and Mr. Capellas had
numerous telephonic meetings to discuss further valuation concepts and issues
associated with the business combination, the governance and management of the
combined company and strategic synergies of the business combination. These
discussions also remained general in nature.
On July 17, 2001, the Compaq board of directors convened a meeting to
consider further a potential business combination with HP. Mr. Siekman also was
present. During the meeting, Mr. Capellas reviewed the analysis performed by
Accenture and Compaq's management concerning the potential business combination.
38
Mr. Capellas updated the Compaq board of directors on the discussions with HP
and each company's positions on various terms of the business combination. The
Compaq board of directors authorized continued discussions with HP.
On July 19, 2001, the HP board of directors convened a meeting to consider
further the business combination with Compaq. Members of McKinsey & Co. and a
representative of Wilson Sonsini Goodrich & Rosati also attended this meeting.
During this meeting, representatives of McKinsey & Co. facilitated an intensive
review of the state of HP's businesses within their respective industries and
of the potential benefits and risks associated with a business combination with
Compaq, from both a strategic and an operational standpoint. After extensive
discussion and review, this meeting was adjourned.
On July 20, 2001, the HP board of directors reconvened the meeting adjourned
the prior evening. Following some additional discussion of the previous day's
deliberations and after receiving input from representatives of the management
of HP's businesses, a representative of Wilson Sonsini Goodrich & Rosati
outlined the fiduciary duties of the HP board of directors in connection with
its consideration of the business combination and various legal and regulatory
issues that would arise in connection with the business combination. Following
these presentations, the HP board of directors authorized HP's management to
retain an investment banking firm to advise the board of directors regarding
the financial aspects of the business combination and further authorized Ms.
Fiorina and other members of HP's management to continue their discussions with
Compaq regarding the business combination.
From July 20 through July 25, 2001, Ms. Fiorina and Mr. Capellas had a
number of telephonic meetings to discuss further the valuation concepts and
issues associated with the business combination, governance and management of
the combined company, strategic synergies of the business combination and
integration issues associated with the business combination. These discussions
continued to be general in nature.
During this period, HP engaged Goldman Sachs & Co. to act as financial
advisor to HP in connection with the business combination, and Compaq engaged
Salomon Smith Barney to act as the exclusive financial advisor to Compaq in
connection with the business combination.
On July 22 and 24, 2001, the Compaq board of directors convened meetings to
consider further a business combination with HP. Members of Compaq's management
also attended these meetings. During these meetings, Mr. Capellas reported to
the Compaq board of directors on the status of discussions with HP regarding
the business combination and management's preliminary views with respect to the
strategic, operational, legal and other regulatory issues associated with the
business combination and the process of working with investment bankers on the
transaction. After a discussion of these matters, the Compaq board of directors
authorized Mr. Capellas to continue his discussions with HP regarding the
business combination.
On July 26, 2001, the Compaq board of directors convened a regularly
scheduled meeting at which it considered a potential business combination with
HP. Members of Compaq's management and representatives of Accenture, Salomon
Smith Barney and Skadden, Arps, Slate, Meagher & Flom LLP, outside counsel to
Compaq, also attended this meeting. During this meeting, Mr. Capellas reported
on the discussions to date with HP and its advisors regarding a business
combination, representatives of Accenture presented the Compaq board of
directors with an analysis of the strategic benefits and risks of the business
combination from a business and operational standpoint, representatives of
Salomon Smith Barney presented a financial analysis of the business
combination, and representatives of Skadden, Arps, Slate, Meagher & Flom LLP
outlined the fiduciary duties of the Compaq board of directors in connection
with its consideration of a business combination and various legal and
regulatory issues that would arise in connection with the business combination.
Following these
39
presentations and deliberation among members of the Compaq board of directors
regarding these issues and various strategic alternatives, the Compaq board of
directors authorized Compaq's management to continue its discussions with HP
regarding the business combination.
From July 26 through July 30, 2001, Ms. Fiorina and Mr. Capellas had a
number of telephonic meetings to further discuss economic contribution and
valuation issues relating to the business combination and the governance and
management of the combined company. Although Ms. Fiorina and Mr. Capellas did
not reach agreement on these issues, they each agreed to meet again to further
discuss them and to authorize their respective advisors to continue discussions
regarding other aspects of the business combination. During this period,
representatives of Goldman Sachs, McKinsey & Co. and Wilson Sonsini Goodrich &
Rosati also had numerous meetings with representatives of Salomon Smith Barney,
Accenture and Skadden, Arps, Slate, Meagher & Flom LLP to discuss various
financial and legal aspects of the business combination. During these meetings,
the parties discussed legal structure, implementation and regulatory issues
relating to the business combination, as well as the continuing valuation,
governance and management issues previously discussed between Ms. Fiorina and
Mr. Capellas.
On July 30, 2001, the HP board of directors convened another meeting to
consider further the business combination with Compaq. Members of HP's
management and representatives of McKinsey & Co., Goldman Sachs and Wilson
Sonsini Goodrich & Rosati also attended this meeting. During this meeting,
members of HP's management summarized their discussions with Compaq and its
advisors regarding the business combination. Representatives of Goldman Sachs
then presented a preliminary analysis of various financial considerations
relating to the business combination, and a representative of Wilson Sonsini
Goodrich & Rosati further reviewed the fiduciary duties of the HP board of
directors in connection with its consideration of the business combination, as
well as various legal and regulatory issues associated with the business
combination. Following these presentations and a discussion of alternatives to
a business combination with Compaq, the HP board of directors authorized Ms.
Fiorina and other members of HP's management to continue their discussions with
Compaq regarding the business combination.
On July 31, 2001, the Compaq board of directors convened another meeting to
consider further the business combination with HP. Mr. Capellas reported that
the financial advisors for each of HP and Compaq were engaged in discussions
regarding valuation processes and concepts and working with teams from both
companies and that business due diligence had begun. The Compaq board of
directors also discussed strategic alternatives to the business combination.
HP and Compaq convened a series of meetings from July 30 through August 6,
2001 among the management teams of HP and Compaq, as well as each of their
respective business, financial and legal advisors. During these meetings, each
of HP and Compaq made a series of management presentations to the other to
facilitate their ongoing due diligence efforts in connection with the business
combination.
During the foregoing period, Ms. Fiorina and Mr. Capellas continued to speak
on a regular basis regarding the management presentations, as well as various
proposed terms of the business combination, including valuation concepts and
issues, the governance and management of the combined company and strategic
synergies of the combined company. Ms. Fiorina and Mr. Capellas did not reach
agreement on these issues during this period.
On August 5, 2001, the Compaq board of directors convened a meeting to
consider further the business combination with HP. Members of Compaq's
management and a representative of Skadden, Arps, Slate, Meagher & Flom LLP
also attended this meeting and representatives of Salomon Smith Barney
participated during the portion of the meeting devoted to valuation and premium
discussions. Mr. Capellas reported on the status of the negotiations, including
proposed management and board appointments, valuation and premium, and reviewed
potential execution risks. The Compaq board of directors determined not to
proceed with further discussions with HP based on the proposed terms that were
then being discussed.
40
On August 6, 2001, the HP board of directors convened a meeting to consider
further the business combination with Compaq. Members of HP's management and
representatives from Goldman Sachs, McKinsey & Co. and Wilson Sonsini Goodrich
& Rosati also attended this meeting. During this meeting, members of HP's
management and its advisors reported on their due diligence investigation of
Compaq and their respective discussions with Compaq and its advisors regarding
the terms and conditions of the business combination. Ms. Fiorina reported that
valuation concepts and issues related to the business combination, the
governance and management of the combined company and other terms of the
transaction remained unresolved. The HP board of directors discussed strategic
alternatives to the business combination with Compaq, and determined that a
business combination with Compaq continued to offer significant strategic
benefits for HP. The HP board of directors concluded the meeting by authorizing
Ms. Fiorina and other members of HP's management to continue their discussions
with Compaq regarding the business combination as management deemed advisable,
but directed HP's management to discontinue further due diligence meetings with
Compaq until progress was made regarding some of the unresolved issues relating
to the business combination.
From August 6 through August 10, 2001, HP and Compaq independently reviewed
the unresolved issues relating to the business combination. On August 10, 2001,
Mr. Clarke contacted Mr. Wayman to discuss the business combination. During
this meeting, Messrs. Clarke and Wayman discussed a number of the unresolved
issues relating to the business combination. Although Messrs. Wayman and Clarke
did not reach specific agreement on these issues, they agreed that HP and
Compaq should renew in earnest their discussions and due diligence regarding
the business combination.
From August 10 through August 23, 2001, Ms. Fiorina and Mr. Capellas had a
number of meetings to discuss some of the unresolved issues relating to the
business combination. During these meetings, Ms. Fiorina and Mr. Capellas
reached an understanding regarding the governance and general management
structure of the combined company. Ms. Fiorina and Mr. Capellas also agreed
upon an approach to resolving valuation issues relating to the business
combination, subject to approval of each company's board of directors and final
negotiation of a definitive agreement for the business combination. As a result
of these agreements, Ms. Fiorina and Mr. Capellas agreed that HP and Compaq
should reinitiate discussions in connection with, and preparations for, the
business combination.
During this period, Mr. Capellas communicated the status of discussions with
HP and consideration of other strategic alternatives to members of the Compaq
board of directors individually in numerous telephone conversations. On August
23, 2001, the Compaq board of directors convened to discuss the status of
discussions. Members of Compaq management were also present. Mr. Capellas
discussed the current status of discussions with HP, focusing on valuation, the
scale of potential synergies, the importance of synergies in deriving
shareowner value and the management of the combined company. Mr. Siekman then
discussed the regulatory review process associated with the business
combination. Following a discussion, the Compaq board of directors agreed to
meet on August 30, 2001 to consider further the proposed terms of the business
combination, as well as a detailed report on regulatory issues, due diligence
and valuation issues associated with the business combination.
On August 24, 2001, HP, Compaq and their respective financial and legal
advisors recommenced their preparations for the business combination. From
August 25 through August 31, 2001, HP, Compaq and their respective financial
and legal advisors intensified their due diligence investigations of the other
party, engaged in negotiations regarding the terms and conditions of the merger
agreement, and planned for the announcement of the business combination.
On August 25, 2001, the HP board of directors convened a meeting to
consider, among other things, the business combination with Compaq. Members of
HP's management and representatives of Goldman Sachs, McKinsey & Co. and Wilson
Sonsini Goodrich & Rosati also attended this meeting. During this meeting, Ms.
Fiorina reviewed the status of discussions with Compaq and its advisors
regarding the business combination generally, and her discussions with Mr.
Capellas regarding the governance and general management structure of the
combined company and their agreed upon approach to resolving valuation issues
relating to the business
41
combination. Representatives from Goldman Sachs then summarized a financial
analysis of the business combination based on different exchange ratios, and a
representative of Wilson Sonsini Goodrich & Rosati reviewed the status of HP's
due diligence investigation of Compaq, various terms and conditions of the
merger agreement and regulatory issues relating to the business combination.
Following a discussion of these matters, the HP board of directors authorized
HP's management to continue their negotiations with Compaq regarding the terms
and conditions of the business combination.
On August 30, 2001, the human resources committee of the Compaq board of
directors met to discuss implications of the proposed merger for Compaq's
workforce. Representatives of Skadden, Arps, Slate, Meagher & Flom LLP joined
the committee, which consists of outside directors Ms. Craven and Messrs.
Babbio and Lay. In particular, the discussions focused on the protections for
Compaq employees under the proposed merger agreement, including the provisions
regarding ongoing benefits and severance programs, and on the change in control
protections in Compaq's existing compensation and benefit programs. The
committee discussed that the potential effect of uncertainties created by the
proposed merger could lead key employees, including executive officers, to
leave Compaq for other employment opportunities. To address this issue, the
committee approved certain revisions to existing executive severance agreements
and reviewed proposals for a retention program that would provide incentives to
key employees who remain with Compaq through the completion of the merger and a
critical transition period thereafter. Discussion of these matters continued
with the full Compaq board of directors when it convened later that morning and
throughout the negotiation process.
On August 30, 2001, the Compaq board of directors convened a meeting to
consider the business combination with HP. Members of Compaq's management and
representatives of Salomon Smith Barney and Skadden, Arps, Slate, Meagher &
Flom LLP also attended this meeting. During this meeting, Mr. Capellas and
other members of Compaq's management reviewed the strategic rationale and the
reasons for the business combination, reported on the status and current terms
and conditions of the business combination, and presented a summary of Compaq's
due diligence investigation of HP. Representatives of Skadden, Arps, Slate,
Meagher & Flom LLP outlined the fiduciary duties of the Compaq board of
directors in connection with its consideration of the business combination and
reviewed the current terms and conditions of the merger agreement and the legal
and regulatory issues raised by the business combination. At the invitation of
the Compaq board of directors, Ms. Fiorina attended a portion of the meeting
and made a presentation to the Compaq board of directors regarding the expected
benefits of the proposed business combination and discussed those benefits with
members of the Compaq board of directors. Representatives of Salomon Smith
Barney reviewed Compaq management's assessment of the strategic rationale for
the business combination and presented a review of the financial condition and
results of operations of HP and Compaq, as well as a financial analysis with
respect to the business combination based upon a possible range of exchange
ratios that had been discussed. The Compaq board of directors discussed a
number of issues that remained unresolved in connection with the negotiation of
the business combination, including the final exchange ratio and management
retention issues. The Compaq board of directors also discussed regulatory
matters and strategic alternatives to the business combination with HP. The
Compaq board of directors then authorized Compaq's management to continue its
negotiations with HP regarding the terms and conditions of the business
combination.
On August 31, 2001, the HP board of directors convened a meeting to consider
further the business combination with Compaq. Members of HP's management and
representatives of Goldman Sachs, McKinsey & Co. and Wilson Sonsini Goodrich &
Rosati also attended this meeting. During this meeting, Ms. Fiorina and other
members of HP's management reviewed the strategic rationale and the reasons for
the business combination, reported on the status and current terms and
conditions of the business combination, and presented a summary of HP's due
diligence investigation of Compaq. Following this presentation, a
representative from Wilson Sonsini Goodrich & Rosati outlined the fiduciary
duties of the HP board of directors in connection with its consideration of the
business combination and reviewed the current terms and conditions of the
merger agreement. Representatives of Goldman Sachs and McKinsey & Co. then
summarized HP's assessment of the strategic rationale for the
42
business combination and Goldman Sachs presented an analysis of the financial
condition and results of operations of HP and Compaq, as well as a financial
analysis of the business combination based upon a range of exchange ratios.
Following these presentations, the HP board of directors discussed a number of
issues that remained unresolved in connection with the negotiation of the
business combination, including the final exchange ratio and certain management
retention issues. As a result of this discussion, the HP board of directors
directed members of the compensation committee of the board to further discuss
the unresolved management retention issues. The HP board of directors also
authorized HP's management to continue their negotiations with Compaq regarding
the terms and conditions of the business combination.
Beginning at a meeting on August 31, 2001 and continuing until the execution
of the merger agreement on September 3, 2001, Messrs. Condit, Ginn and Hewlett,
the members of the compensation committee of the HP board of directors,
considered various management retention issues associated with the merger.
Messrs. Condit, Ginn and Hewlett discussed the fact that the success of the
combined company following the merger would be determined in part by how
effectively the combined company will be able to create a unified workforce
drawn from the existing talent of both HP and Compaq, and the risk that
uncertainty associated with the merger could lead some of HP's employees,
including executives, to accept other employment opportunities. To address
these issues, Messrs. Condit, Ginn and Hewlett, as the members of the
compensation committee acting on the authority of the full board, adopted a
retention program to assure the continued dedication of key employees and to
provide key employees with financial incentives to remain with the combined
company following the completion of the merger.
On September 2 and September 3, 2001, members of the management of HP and
Compaq and their respective financial and legal advisors met at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP in New York City to negotiate the
final terms and conditions of the merger agreement and to prepare for the
announcement of the transaction. During these meetings, Mr. Wayman and Mr.
Clarke, and the companies' respective financial advisors, had several
conversations regarding the appropriate exchange ratio for the business
combination in light of the agreed upon approach to determine the exchange
ratio that had been previously agreed upon by Ms. Fiorina and Mr. Capellas, as
well as various management retention issues. Mr. Wayman and Mr. Clarke
ultimately agreed upon the exchange ratio of 0.6325 of a share of HP common
stock for each share of Compaq common stock, subject to approval of the boards
of directors of HP and Compaq and final agreement on the terms and conditions
of the merger agreement. Ms. Fiorina and Mr. Capellas agreed on this exchange
ratio as well, subject to the board approvals.
On September 3, 2001, the HP board of directors convened a meeting to
consider the business combination and the terms and conditions of the merger
agreement that had been negotiated by the management teams of HP and Compaq.
Members of HP's management and representatives of Goldman Sachs, McKinsey & Co.
and Wilson Sonsini Goodrich & Rosati also attended this meeting. At this
meeting, Ms. Fiorina described her meetings with Mr. Capellas and the
agreements she had reached with him regarding the exchange ratio for the
business combination, management retention, regulatory and various other issues
associated with the business combination. Following Ms. Fiorina's presentation,
representatives of Goldman Sachs and McKinsey & Co. again reviewed HP's
assessment of the strategic rationale for the business combination and
presented a financial analysis with respect to the business combination based
upon the exchange ratio in the merger agreement that had been negotiated by Ms.
Fiorina and Mr. Capellas. Based upon the foregoing, Goldman Sachs then
delivered its opinion that, as of the date of the merger agreement and subject
to the assumptions, considerations and limitations set forth in its opinion,
the exchange ratio provided for in the merger agreement is fair, from a
financial point of view, to HP. After deliberating on the foregoing, the HP
board of directors unanimously determined that the merger is advisable, and is
fair to and in the best interests of HP and its shareowners, approved the
merger agreement, directed that the issuance of shares of HP common stock in
connection with the merger be submitted for consideration by HP shareowners at
a special meeting of HP shareowners, and resolved to recommend that HP
shareowners vote "for" the proposal to approve the issuance of shares of HP
common stock in connection with the merger.
43
Also on September 3, 2001, the Compaq board of directors convened a meeting
to consider the business combination and the terms and conditions of the merger
agreement that had been negotiated by the management teams of HP and Compaq.
Other members of management and representatives of Salomon Smith Barney and
Skadden, Arps, Slate, Meagher & Flom LLP also attended this meeting. At this
meeting, Mr. Capellas reported on the series of negotiations and meetings with
HP and its management and advisors over the last few days and the agreements
that had been reached regarding the exchange ratio, management retention, and
regulatory and various other issues. Representatives of Salomon Smith Barney
again presented a financial analysis with respect to the business combination
and delivered its opinion that, as of the date of its opinion and based upon
and subject to the considerations and limitations set forth in its opinion, the
exchange ratio provided for in the merger agreement is fair, from a financial
point of view, to shareowners of Compaq common stock. After deliberation, the
Compaq board of directors unanimously determined that the merger is fair to,
and in the best interests of, Compaq and its shareowners and declared the
merger to be advisable, approved the merger agreement, resolved to recommend
that the shareowners of Compaq approve and adopt the merger agreement and
approve the merger, and directed that such matter be submitted to Compaq's
shareowners at a meeting of Compaq shareowners.
Following the meetings of the board of directors of each of HP and Compaq,
HP and Compaq executed the merger agreement as of September 4, 2001.
During the late evening of September 3, 2001, HP and Compaq issued a joint
press release announcing the execution of the merger agreement and the merger.
Reasons for the Merger
The management teams and boards of directors of HP and Compaq share a
conviction that advances in technology, increased competition and changing
customer requirements are rapidly transforming the structure and economics of
the information technology industry. These shifts are placing new demands on
technology companies, particularly in the area of enterprise computing.
Enterprise customers increasingly want to purchase integrated solutions, not
individual products and technologies. They seek to benefit from the economics
and flexibility of standards-based platforms and architectures, and they want
stronger partnerships with a smaller number of global end-to-end solutions
providers.
HP and Compaq have complementary strengths in discrete areas of the
enterprise computing market. Prior to announcing the merger, each company
independently recognized the need to take aggressive actions to bolster and
extend its current offerings to remain competitive in an industry consolidating
around fewer and fewer vendors. In addition, both companies concluded that
success in a maturing, consolidating PC business requires heightened
cost-competitiveness and distribution efficiency.
This merger will enable the combined company to meet these challenges faster
and more effectively than either company could on its own and to increase
shareowner value.
We are convinced that the merger will allow us to:
. Extend our leadership in enterprise computing across key products and
solutions.
Servers: Combining Compaq's strength in high-end, fault-tolerant
business-critical solutions and industry standard servers with HP's
significant Linux and UNIX presence in the data center creates a business
that will have a leadership position spanning the entire server category--a
pivotal, high-growth enterprise computing segment.
Storage: Combining HP's leadership in high-end storage with Compaq's
market leading mid-range offering, creates the industry's leading enterprise
storage provider.
Solutions: The combined company's sizable and diverse installed base
makes its enterprise platforms extremely compelling to systems integrators
and application developers, thereby enhancing the ability of the combined
company to offer market-leading solutions to customers.
44
Sales coverage: Both HP and Compaq recognize the importance of improving
their overall account coverage to effectively compete for important customer
engagements around the world. The combination of the two businesses doubles
the size of each company's sales force.
. Achieve critical mass in services.
The combined company will have 65,000 IT architects operating in more
than 160 countries around the world, which we believe will provide the
combined company with critical mass in this area. The new company will be
particularly strong in support services, which remains a very profitable
annuity business and an important contributor to customer satisfaction. The
combined consulting and outsourcing capabilities will provide a platform for
more rapid and cost-effective growth.
. Improve the economics of our PC business, while also driving innovation
across new access categories and devices.
Both companies recognize the need to improve the overall economics of
their respective PC businesses. By combining HP's strength in consumer PCs
and Compaq's strength in commercial PCs, the combined company can achieve
economies of scale and obtain a more effective distribution capability to
meet the challenges of the maturing PC industry. Our goal, however, is not
simply to create a more efficient business model. We also intend to create
sustainable value by innovating across emerging categories and delivering a
new generation of access and embedded devices.
. Continue to lead in imaging and printing.
The combined company will continue to build on HP's historic strength in
laser and inkjet printing, as well as enter new and adjacent markets
including commercial printing solutions and digital imaging. We believe
that, as these markets develop, our imaging and printing business will
benefit from the combined company's ability to deliver comprehensive
enterprise solutions that are capable of storing, managing and delivering
rich content.
. Create a stronger, more efficient operating model with increased
potential for growth.
The merger will fundamentally improve our earnings power through
significant cost synergies and operating efficiencies--irrespective of
market conditions. In fact, we expect to improve annual operating results by
more than $2.5 billion by mid-fiscal 2004, which will enable us to achieve
higher operating margins and profit growth than either company could achieve
independently. We also believe the combination will create substantial
accretion to HP's earnings per share in the first full year of combined
operations.
We expect that the cost savings resulting from the merger will allow the
combined company to achieve sustained operating expenses in the range of
15-17% of revenue in an environment where prices and gross margins will
remain under pressure. Even in such an environment, we believe the combined
company can generate operating margins of 8-10% of revenue once cost
synergies are fully realized. The combined company will also enjoy a
stronger, more balanced operating model, with improved free cash flow and a
stronger balance sheet.
In short, our competitive position, our go-to-market capability, our
financial strength and our innovative capacity are all improved by this
combination. For these reasons, we believe the merger represents the single
best way to grow, to meet the competitive challenges ahead and to deliver the
value that shareowners, customers and employees of each of HP and Compaq expect
and deserve.
45
Consideration of the Merger by the HP Board of Directors
Recommendation of the HP Board of Directors
At a meeting held on September 3, 2001, the HP board of directors
unanimously:
. determined that the merger is advisable, and is fair to and in the best
interests of HP and its shareowners;
. approved the merger agreement;
. directed that the issuance of shares of HP common stock in connection
with the merger be submitted for consideration by HP shareowners at an
HP special meeting; and
. resolved to recommend that the HP shareowners vote "for" the proposal to
approve the issuance of shares of HP common stock in connection with the
merger.
In reaching its decision to approve the merger agreement, the HP board of
directors consulted with HP's management, HP's legal counsel regarding the
legal terms of the merger, HP's business consultants regarding the strategic
aspects of the merger and alternatives to the merger, and HP's financial
advisors regarding the financial aspects of the merger and the fairness, from a
financial point of view, of the exchange ratio to HP. The factors that the HP
board of directors considered in reaching its determination include, but were
not limited to, the following:
. the strategic reasons for the merger described in the section entitled
"Reasons for the Merger" beginning on page 44 of this joint proxy
statement/prospectus;
. historical information concerning HP's and Compaq's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public
reports concerning results of operations during the most recent fiscal
year and fiscal quarter for each company filed with the Securities and
Exchange Commission;
. management's view of the financial condition, results of operations and
businesses of HP and Compaq before and after giving effect to the merger;
. current financial market conditions and historical market prices,
volatility and trading information with respect to the common stock of
HP and the common stock of Compaq;
. the relationship between the market value of the common stock of Compaq
and the consideration to be paid to shareowners of Compaq in connection
with the merger and a comparison of comparable merger transactions;
. the belief that the terms of the merger agreement, including the
parties' representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable;
. other strategic alternatives for HP, including organic growth as an
independent company, the potential to enter into strategic relationships
with third parties or acquire or combine with third parties;
. the oral presentations by, and discussions with, Goldman Sachs and the
written opinion of Goldman Sachs to the effect that, as of the date of
the opinion, and based upon and subject to the considerations and
limitations set forth in its opinion, its work described in the section
entitled "Opinion of HP Financial Advisor" beginning on page 47 of this
joint proxy statement/prospectus, its experience as investment bankers
and other factors it deemed relevant, the exchange ratio provided for in
the merger agreement is fair, from a financial point of view, to HP. A
copy of Goldman Sachs' written opinion is attached to this joint proxy
statement/prospectus as Annex B;
. the impact of the merger and its announcement on HP's customers,
suppliers and employees;
. the fact that HP shareowners will have the opportunity to vote upon the
proposal to approve the issuance of shares of HP common stock in
connection with the merger;
46
. the interests that certain executive officers and directors of HP may
have with respect to the merger in addition to their interests as
shareowners of HP generally, as described in more detail in the section
entitled "Interests of HP Directors and Executive Officers in the
Merger" beginning on page 64 of this joint proxy statement/prospectus;
and
. reports from management, legal and financial advisors as to the results
of the due diligence investigation of Compaq.
In addition, the HP board of directors also identified and considered a
variety of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the possibility that the merger might not be completed, or that
completion might be unduly delayed, and the effect of public
announcement of the merger on HP's sales and operating results, and HP's
ability to attract and retain key management, marketing and technical
personnel;
. the substantial charges to be incurred in connection with the merger,
including costs of integrating HP and Compaq and transaction expenses
arising from the merger;
. the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company;
. the terms of the merger agreement regarding HP's right to consider and
negotiate acquisition proposals in certain circumstances, as well as the
possible effects of the provisions regarding the termination fees; and
. various other risks associated with the merger and the businesses of HP
and the combined company described in the section entitled "Risk
Factors" beginning on page 20 of this joint proxy statement/prospectus.
The HP board of directors concluded, however, that these negative factors
could be managed or mitigated by HP or by the combined company or were unlikely
to have a material impact on the merger or the combined company, and that,
overall, the potentially negative factors associated with the merger were
outweighed by the potential benefits of the merger.
The above discussion of the material factors considered by the HP board of
directors is not intended to be exhaustive, but does set forth the principal
factors considered by the HP board of directors. The HP board of directors
collectively reached the unanimous conclusion to approve the merger agreement
and the merger in light of the various factors described above and other
factors that each member of the HP board of directors felt were appropriate. In
view of the wide variety of factors considered by the HP board of directors in
connection with its evaluation of the merger and the complexity of these
matters, the HP board of directors did not consider it practical, and did not
attempt, to quantify, rank or otherwise assign relative weights to the specific
factors it considered in reaching its decision. Rather, the HP board of
directors made its recommendation based on the totality of information
presented to and the investigation conducted by it. In considering the factors
discussed above, individual directors may have given different weights to
different factors.
Opinion of HP Financial Advisor
On September 3, 2001, Goldman Sachs delivered its written opinion to the HP
board of directors that, as of that date and subject to the assumptions,
considerations and limitations set forth in its opinion, the exchange ratio in
the merger of 0.6325 of a share of HP common stock for each share of Compaq
common stock is fair, from a financial point of view, to HP. The full text of
the opinion of Goldman Sachs, which sets forth assumptions made, matters
considered and limitations on the review undertaken by Goldman Sachs in
connection with rendering the opinion, is attached to this joint proxy
statement/prospectus as Annex B.
47
Goldman Sachs provided the opinion described above for the information and
assistance of the HP board of directors in connection with its consideration of
the merger. The terms of the merger agreement and the exchange ratio in the
merger, however, were determined through negotiations between HP and Compaq,
and were approved by the HP board of directors.
HP shareowners are urged to read the opinion provided by Goldman Sachs to
the HP board of directors carefully and in its entirety. In addition, HP
shareowners should carefully consider the following description of the analysis
performed by Goldman Sachs in connection with rendering its opinion when HP
shareowners determine whether to approve the issuance of shares of HP common
stock in connection with the merger. The opinion of Goldman Sachs described
above is not a recommendation as to how any HP shareowner should vote with
respect to the proposal to approve the issuance of shares of HP common stock in
connection with the merger.
In connection with rendering the opinion described above and performing its
related financial analyses, Goldman Sachs reviewed, among other things:
. the merger agreement;
. the Annual Reports to Shareowners and Annual Reports on Form 10-K of HP
for the five fiscal years ended October 31, 2000;
. the Annual Reports to Shareholders and Annual Reports on Form 10-K of
Compaq for the five years ended December 31, 2000;
. interim reports to shareowners and Quarterly Reports on Form 10-Q of HP
and Compaq;
. other communications from HP and Compaq to their respective shareowners;
and
. internal financial analyses and forecasts for HP and Compaq prepared by
their respective managements, including certain cost savings and
operating synergies projected by the management of HP to result from the
merger.
Goldman Sachs also held discussions with members of the senior managements
of HP and Compaq regarding their assessment of the strategic rationale for, and
the potential benefits of, the merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the reported price and trading
activity of shares of HP common stock and Compaq common stock, compared certain
financial and stock market information for HP and Compaq with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the computer hardware industry specifically and in other industries generally
and performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it
and assumed such accuracy and completeness for purposes of rendering the
opinion described above. In that regard, with the consent of the HP board of
directors, Goldman Sachs assumed that the internal financial forecasts prepared
by the managements of HP and Compaq, including certain cost savings and
operating synergies projected by the management of HP to result from the
merger, were reasonably prepared on a basis reflecting the then best currently
available estimates and judgments of HP and Compaq, and will be realized in the
amounts and time periods provided to Goldman Sachs. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of HP or Compaq or any of their respective subsidiaries, and no
evaluations or appraisals of the assets or liabilities of HP or Compaq or any
of their respective subsidiaries were provided to Goldman Sachs. Goldman Sachs
also assumed that all material governmental, regulatory or other consents and
approvals that are necessary for the completion of the merger will be obtained
without any meaningful adverse effect on HP or Compaq or on the contemplated
benefits of the merger.
48
Financial Analyses
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with rendering the opinion described above. The
following summary, however, does not purport to be a complete description of
the analyses performed by Goldman Sachs. To the extent that the following
quantitative information is based on market data or internal financial
forecasts prepared by the managements of HP and Compaq, such quantitative
information is based on such market data and financial forecasts as they
existed at or about August 31, 2001 and is not necessarily indicative of
current conditions. Some of the summaries of the financial analyses below
include information presented in tabular format. The tables alone are not a
complete description of Goldman Sachs' financial analyses and should be read
together with the full text of each summary.
Contribution Analysis. Goldman Sachs performed a contribution analysis in
which Goldman Sachs analyzed and compared:
. the relative contributions to be made by each of HP and Compaq on a
percentage basis to the revenue, operating income, profit before taxes
and net income of the combined company on a pro forma basis assuming the
completion of the merger; and
. the relative ownership of the combined company implied from their
relative contributions, on a percentage basis, by the shareowners of HP
and the shareowners of Compaq on a pro forma basis assuming the
completion of the merger.
Goldman Sachs determined the relative contributions to be made by each of HP
and Compaq to the combined company based upon publicly available information
regarding HP and Compaq, as well as certain analysts' reports and estimates and
information provided by the management of HP and Compaq with respect to the
financial performance of each company. The contribution analyses that Goldman
Sachs performed, however, did not take into account any revenue gains or losses
or expense synergies expected by HP management to be achieved by the combined
company following the completion of the merger. The results of Goldman Sachs'
contribution analysis of the relative percentage contributions to be made by
each of HP and Compaq to the combined company are presented in the table below
under the caption "Percentage Contribution to the Combined Company."
In connection with its contribution analysis, Goldman Sachs also used the
relative percentage contributions of HP and Compaq to the revenue, operating
income, profit before taxes and net income of the combined company to derive a
range of implied exchange ratios for the merger of between 0.524 and 1.000 in
comparison to the actual exchange ratio for the merger of 0.6325. The results
of this analysis are also presented in the table below under the caption
"Implied Exchange Ratio."
49
For comparative purposes, Goldman Sachs then calculated the relative implied
ownership of the combined company using the exchange ratio in the merger of
0.6325 of a share of HP common stock for each share of Compaq common stock. The
results of Goldman Sachs' contribution analysis of the relative implied
ownership of the combined company are presented in the table below under the
caption "Percentage Ownership in the Combined Company."
Percentage Contribution
to the Combined Company
---------------------- Implied
HP Compaq Exchange Ratio
---- ------ --------------
Revenue
CY2001........ 55.7% 44.3% 0.994
CY2002........ 55.5% 44.5% 1.000
Operating Income
CY2001........ 58.3% 41.7% 0.895
CY2002........ 59.9% 40.1% 0.840
Profit Before Tax
CY2001........ 65.0% 35.0% 0.619
CY2002........ 63.6% 36.4% 0.658
Net Income
CY2001........ 67.8% 32.3% 0.547
CY2002........ 66.5% 33.5% 0.582
FY2002........ 68.8% 31.2% 0.524
FY2003........ 68.2% 31.8% 0.537
Percentage Ownership
in the Combined Company
---------------------- Actual
HP Compaq Exchange Ratio
---- ------ --------------
64.4% 35.6% 0.6325
Historical Exchange Ratio Analysis. Goldman Sachs also performed a
historical exchange ratio analysis in which Goldman Sachs compared:
. a series of implied exchange ratios for the merger derived from
historical trading prices of HP common stock and Compaq common stock
over certain specified periods of time beginning August 31, 2000 and
ending August 31, 2001, the last trading day prior to the public
announcement of the merger; and
. the exchange ratio in the merger of 0.6325 of a share of HP common stock
for each share of Compaq common stock.
Goldman Sachs calculated the implied exchange ratios by dividing the closing
prices per share of Compaq common stock for the relevant period of time, by the
closing prices per share of HP common stock for the same period. The results of
Goldman Sachs' implied exchange ratio analysis are presented in the table below
under the caption "Implied Exchange Ratio."
50
In connection with its historical exchange ratio analysis, Goldman Sachs
also calculated the extent to which the exchange ratio in the merger of 0.6325
of a share of HP common stock for each share of Compaq common stock exceeded,
on a percentage basis, each of the implied exchange ratios derived from
historical trading prices. The results of this analysis are presented in the
table below under the caption "Premium to Implied Exchange Ratio."
Implied Premium to Implied
Historical Period Exchange Ratio Exchange Ratio
----------------------- -------------- ------------------
As of August 31, 2001.. 0.532 18.9%
20 day average......... 0.568 11.3%
60 day average......... 0.558 13.4%
120 day average........ 0.578 9.5%
360 trading day average 0.571 10.8%
1 year average......... 0.597 6.0%
3 month high........... 0.627 0.9%
3 month low............ 0.494 28.1%
Selected Companies Analysis. Goldman Sachs also reviewed and compared the
revenue and price /earnings multiples of HP, Compaq and other selected public
companies in the computer hardware, services and storage industries for
calendar years 2001 and 2002, as well as the five-year compounded annual
Institutional Broker Estimate System growth rates and calendar year 2002 price
/ earnings / growth rate of HP, Compaq and the other selected public companies.
The other selected companies consisted of the following:
. Computer Hardware Industry: Apple, Dell, Gateway, IBM, Sun Microsystems
. Services Industry: Accenture, Computer Sciences, EDS, KPMG Consulting
. Storage Industry: EMC, Network Appliance
The financial information and the revenue and price / earnings multiples
were derived from the closing prices of the common stock of each of the
companies as of August 31, 2001, and published analysts' reports and other
publicly available information. The results of Goldman Sachs' analysis are
presented in the table below:
5-Year
Price / Earnings Compounded
Revenue Multiple Multiple Annual IBES CY2002
---------------- ---------------- Earnings Price / Earnings /
HP vs. Compaq vs. Selected Companies* CY2001 CY2002 CY2001 CY2002 Growth Rate Growth Rate
------------------------------------- ------ ------ ------ ------ ----------- ------------------
HP............................ 1.1x 1.0x 36.3x 20.4x 13.0% 1.6x
Compaq........................ 0.6x 0.5x 35.3x 19.0x 15.0% 1.3x
Selected Company Mean......... 1.8x 1.6x 43.3x 25.0x 18.1% 1.3x
Selected Company Median....... 1.5x 1.3x 26.9x 21.3x 17.0% 1.5x
--------
* Estimates for selected companies were obtained from the Institutional Broker
Estimate System and estimates for HP and Compaq were obtained from First
Call.
Goldman Sachs also calculated and compared the historical average forward
twelve month price / earnings ratio for HP and Compaq based on Wall Street
estimates provided by Institutional Brokers Estimate System. The following
table presents the results of this analysis.
6 Months 1 Year 3 Years
-------- ------ -------
Compaq........................................................... 23.8x 20.8x 22.2x
HP............................................................... 22.0x 20.6x 20.8x
Compaq Price / Earnings Ratio as a % of HP Price / Earnings Ratio 108% 101% 107%
51
Goldman Sachs also analyzed the historical and estimated financial
information and multiples, which Goldman Sachs obtained from published
analysts' reports and estimates and other publicly available information,
presented in the table below. For purposes of the following comparison, Goldman
Sachs used Dell, Gateway, IBM and Sun as other selected companies.
Range for
Financial Metric HP Compaq Selected Companies
----------------------------------------------------------- ----- ------ ------------------
Calendar Year 2002 Price / Earnings Multiple*.............. 20.4x 19.0x 19.0x-27.4x
5-Year Estimated Earnings-Per-Share Growth Rate............ 13% 15% 13%-20%
Calendar Year 2002 Price / Earnings / Growth Rate.......... 1.6x 1.3x 1.1x-1.6x
Revenue Performance
Historical 5-Year (Calendar Year 1996 - Calendar Year 2000)
Compounded Annual Revenue Growth Rate.................... 11% 8% 4%-42%
Last Quarter Year-Over-Year Revenue Growth Rate**.......... (14)% (17)% (32)%-0%
Earnings Performance
Historical 5-Year (Calendar Year 1996 - Calendar Year 2000)
Compounded Annual Earnings Growth Rate................... 11% 6% 10%-44%
Last Quarter Year-Over-Year Earnings Growth Rate**......... (78)% (85)% (100)%-2%
--------
* Estimates for selected companies were obtained from the Institutional Broker
Estimate System and estimates for HP and Compaq were obtained from First
Call.
** Quarter-over-quarter comparison was based on the quarter ended July 31 for
HP and June 30 for Compaq.
Synergies Analysis. Goldman Sachs also reviewed the synergies estimates that
were presented to Goldman Sachs by the management of HP, which were prepared
after HP management had held discussions and exchanged information with the
management of Compaq (the "Synergies"). The Synergies reflect the incremental
benefits that the management of HP then expected to achieve as a result of the
merger, including cost savings and operating synergies. The Synergies are based
upon the assumption of HP management that HP and Compaq as a combined company
will begin to realize the benefits of these synergies in the fourth quarter of
HP's fiscal year 2002, but will not fully realize these synergies until HP's
fiscal year 2004.
Goldman Sachs analyzed the Synergies by calculating the present value of the
future streams of after-tax cash flows to be generated by the Synergies and
applying discount rates reflecting, solely for purposes of this analysis, a
weighted average cost of capital ranging from 10% to 14%, to such after-tax
cash flows through HP's fiscal year 2006, and adding a terminal value
determined by projecting a range of nominal perpetual growth rates ranging from
0% to 4%. This analysis resulted in an estimated net present value for the
Synergies of approximately $11.3 billion to $24.5 billion, assuming that 100%
of the Synergies are actually realized. Based upon the exchange ratio in the
merger of 0.6325 of a share of HP common stock for each share of Compaq common
stock, the present value of the Synergies is between $3.66 and $7.92 per share
based on pro forma outstanding shares of common stock of the combined company.
The estimates of achievable cost synergies are based on numerous estimates,
assumptions and judgments and are subject to significant uncertainties. Actual
results may vary from the synergy estimates and the variations may be material.
Pro Forma Merger Analysis. Goldman Sachs also prepared pro forma analyses of
the financial impact of the merger using earnings projections based on Wall
Street estimates and earnings estimates and other information for HP and Compaq
prepared by their respective managements. Goldman Sachs performed these pro
forma analyses assuming the following scenarios:
(1) the combined company would derive no synergies and lose no revenue as a
result of the merger during fiscal years 2002 and 2003;
(2) the combined company would derive the Synergies from the merger and lose
no revenue as a result of the merger during fiscal years 2002 and 2003;
and
(3) the combined company would derive the Synergies from the merger and lose
revenue as a result of the merger during fiscal years 2002 and 2003.
52
For each of the years 2002 and 2003, Goldman Sachs compared the estimated
earnings per share of HP common stock, on a standalone basis, to the earnings
per share of the common stock of HP and Compaq as a combined company on a pro
forma basis. The pro forma analysis was calculated based on pro forma cash
earnings per share, which excludes the impact of non-cash charges associated
with goodwill and intangible asset amortization. Goldman Sachs performed these
pro forma analyses assuming that the merger will be completed by May 1, 2002.
The results of these pro forma analyses are presented below.
. Under scenario (1), the merger would be dilutive to HP shareowners on an
earnings per share basis in year 2002 and significantly dilutive to HP
shareowners on an earnings per share basis in year 2003.
. Under scenario (2), the merger would be significantly accretive to HP
shareowners on an earnings per share basis in years 2002 and 2003.
. Under scenario (3), the merger would be dilutive to HP shareowners on an
earnings per share basis in year 2002, and significantly accretive to HP
shareowners on an earnings per share basis in year 2003.
Other Considerations
In connection with their consideration of the opinion rendered by Goldman
Sachs to the HP board of directors in connection with the merger, and the
summary of the analyses performed by Goldman Sachs described above, HP
shareowners should also consider the following matters.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the opinion rendered by Goldman Sachs to the HP board of directors
in connection with the merger. In arriving at its opinion as to the fairness of
the exchange ratio in the merger to HP, Goldman Sachs considered the results of
all of its analyses and did not attribute any particular weight to any factor
or analysis that it considered. Rather, Goldman Sachs made its determination on
the basis of its experience and professional judgment after considering the
results of all of the analyses it considered. No company or transaction used in
the analyses performed by Goldman Sachs as a comparison is directly comparable
to HP or Compaq or the transaction contemplated by the merger agreement. In
addition, Goldman Sachs prepared its analyses solely for purposes of rendering
an opinion to the HP board of directors as to the fairness from a financial
point of view to HP of the exchange ratio of 0.6325 of a share of HP common
stock to be exchanged for each share of Compaq common stock in connection with
the merger. The analyses that Goldman Sachs performed in connection with
rendering its opinion were not appraisals and do not necessarily reflect the
prices at which businesses or securities actually may be sold. In addition,
analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by these analyses. Because the analyses performed by Goldman
Sachs in connection with rendering its opinion are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
HP, Compaq or their respective advisors, none of HP, Compaq, Goldman Sachs or
any other person assumes responsibility if future results are materially
different from those forecast or are not achieved in the time periods
contemplated.
The HP board of directors selected Goldman Sachs as its financial advisor in
connection with the merger because Goldman Sachs is an internationally
recognized investment banking firm that has substantial experience in
transactions that are similar to the merger. As part of its investment banking
business, Goldman Sachs is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Goldman Sachs is familiar with HP, having provided certain
investment banking services to HP from time to time that included having acted
as co-manager on the initial public offering of shares of common stock of
Agilent Technologies, Inc., an affiliate of HP at the time of the offering, in
November 1999, and as a manager of public offerings of debt securities of HP in
June 2000 (aggregate principal amount of $1.5 billion), July 2001 (aggregate
principal amount of
53
(Euro)750 million) and August 2001 (aggregate principal amount of $50 million),
and having acted as HP's financial advisor in connection with, and having
participated in certain of the negotiations leading to, the merger agreement.
Goldman Sachs also has provided certain investment banking services to Compaq
from time to time.
Goldman Sachs provides a full range of financial advisory and securities
services. From time to time in the course of its normal trading activities
Goldman Sachs may effect transactions and hold positions in the securities,
including derivative securities, of HP or Compaq for its own account and for
the accounts of customers. As of August 31, 2001, Goldman Sachs had accumulated
a net long position 451,315 shares of HP common stock, a net long position of
160,896 shares of Compaq common stock and a net long position of convertible
bonds of Compaq with an aggregate principal amount of $42,400,000.
HP engaged Goldman Sachs to act as its financial advisor in connection with
the merger. The terms of HP's engagement agreement with Goldman Sachs provide
that HP will pay Goldman Sachs a customary fee upon execution of the merger
agreement and upon completion of the merger, provided the fee payable upon the
completion of the merger will be offset by amounts previously paid upon the
execution of the merger agreement. Under the terms of this engagement
agreement, HP also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
Consideration of the Merger by the Compaq Board of Directors
Recommendation of the Compaq Board of Directors
At a meeting held on September 3, 2001, the Compaq board of directors
unanimously:
. determined that the merger is advisable, and fair to and in the best
interests of Compaq and its shareowners;
. approved the merger agreement;
. directed that the proposed transaction be submitted for consideration by
the Compaq shareowners at the Compaq special meeting; and
. resolved to recommend that the Compaq shareowners vote "for" the
proposal to approve and adopt of the merger agreement and approve the
merger.
In reaching its decision, the Compaq board of directors consulted with
Compaq's management, as well as its legal counsel and its financial advisor,
and considered the following material factors:
(1) the strategic reasons for the merger described in the section entitled
"Reasons for the Merger" beginning on page 44 of this joint proxy
statement/prospectus;
(2) the merger will present, based on the then-current market price for HP
common stock, the opportunity for the holders of Compaq common stock to
receive a premium over the trading value of Compaq common stock on
August 31, 2001, the last day of trading before public announcement of
the proposed merger, while at the same time allowing Compaq shareowners
to participate in a combined company positioned to benefit from new
growth opportunities;
(3) the Compaq board of directors' knowledge of Compaq and the industries in
which the Compaq businesses compete and its belief that the greater
resources which Compaq will realize as a result of the merger are
important to the long-term future of Compaq;
(4) the oral presentations by, and discussions with, Salomon Smith Barney
and the written opinion of Salomon Smith Barney to the effect that, as
of the date of the opinion, and based upon and subject to
54
the considerations and limitations set forth in its opinion, its work
described in the section entitled "Opinion of Compaq Financial Advisor"
beginning on page 56 of this joint proxy statement/prospectus, its
experience as investment bankers and other factors it deemed relevant,
the exchange ratio provided for in the merger agreement is fair, from a
financial point of view, to the holders of Compaq common stock. A copy
of Salomon Smith Barney's written opinion is attached to this joint
proxy statement/prospectus as Annex C;
(5) the fact that the merger provides for a fixed exchange ratio and, as a
result, the value of HP common stock to be received by Compaq
shareowners upon completion of the merger may be higher or lower than
the value of such stock at the time the merger agreement was signed;
(6) historical information concerning HP's and Compaq's respective
businesses, prospects, financial performance and condition, operations
technology, management and competitive position, including public
reports concerning results of operations during the most recent fiscal
year and fiscal quarter for each company as filed with the Securities
and Exchange Commission;
(7) the strength of the management team of the combined company, including
the addition of Michael Capellas as president of the combined company;
(8) the ability to complete the merger as a reorganization for United States
federal income tax purposes in which Compaq shareowners generally will
not recognize any gain or loss, except for any gain or loss recognized
in connection with cash received for a fractional share of HP's common
stock;
(9) the Compaq board of directors' belief, after considering the advice of
counsel, that the parties should be able to satisfy all conditions to
the completion of the merger, including the receipt of the necessary
regulatory approvals in accordance with the terms of the merger
agreement, while recognizing the possibility that regulators might
impose conditions on the grant of their approval;
(10)the prospects of Compaq as an independent company;
(11)the terms of the merger agreement regarding third party proposals,
including (a) that the Compaq board of directors may, under certain
circumstances, furnish information to a party making, and enter into
discussions regarding, a proposal that the Compaq board of directors
concludes in good faith could result in a superior proposal, (b) that
the Compaq board of directors may not withdraw or change its
recommendation of the merger after receiving a superior proposal, (c)
the potential payment to HP of a termination fee, and (d) the potential
effect of such provisions on possible efforts by other parties to
acquire or otherwise combine with Compaq;
(12)the fact that Compaq shareowners will have an opportunity to vote on the
proposed merger; and
(13)the interests that certain executive officers and directors of Compaq
may have with respect to the merger in addition to their interests as
shareowners of Compaq generally. See the section entitled "Interests of
Compaq Directors and Executive Officers in the Merger" beginning on page
65 of this joint proxy statement/prospectus.
In reaching its determination, the Compaq board of directors considered the
factors described above generally figured positively, as advantages or
opportunities, with the exception of the factor described in clause (11) above,
which figured both positively and negatively, and the factors described in
clauses (5) and (13) above, which the Compaq board of directors considered to
be neutral. The Compaq board of directors also identified and considered the
following potentially negative material factors in its deliberations concerning
the merger:
(1) the risk that the potential benefits sought in the merger might not be
fully realized;
(2) the challenges of integrating the management teams, strategies, cultures
and organizations of the companies while both companies are currently
restructuring their respective businesses;
(3) the risk that despite the efforts of the combined company, key
management and other personnel might not remain employed by the combined
company;
55
(4) risks associated with fluctuations in HP's stock price and Compaq's
stock price prior to completion of the merger;
(5) the risk of disruption of sales momentum as a result of uncertainties
created by the announcement of the merger;
(6) the possibility that the merger might not be completed, even if approved
by each company's shareowners, including the possible effect of the
termination fee;
(7) the effect of the public announcement of the merger, and the possibility
that the merger might not be completed, on demand for Compaq's products
and services, Compaq's relationships with strategic partners, Compaq's
operating results, Compaq's stock price and Compaq's ability to attract
and retain key management and marketing, sales, technical and other
personnel;
(8) the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger; and
(9) other applicable risks described in the section entitled "Risk Factors"
beginning on page 20 of this joint proxy statement/prospectus.
The Compaq board of directors believed that these risks were outweighed by
the potential benefits of the merger.
The Compaq board of directors did not find it necessary to, and did not
quantify or otherwise assign relative weights to, the foregoing factors or
determine that any factor was of particular importance. Rather, the Compaq
board of directors views its recommendation as being based on the totality of
the information presented to, and considered by, it. The Compaq board of
directors considered all these factors and determined that these factors, as a
whole, supported the conclusions and recommendations described above.
In considering the recommendation of the Compaq board of directors to
approve and adopt the merger agreement and approve the merger, Compaq
shareowners should be aware that certain officers and directors of Compaq have
certain interests in the proposed merger that are different from and in
addition to the interests of Compaq shareowners generally. The Compaq board of
directors was aware of these interests and considered them in approving the
merger agreement and the merger. See the section entitled "Interests of Compaq
Directors and Executive Officers in the Merger" beginning on page 65 of this
joint proxy statement/prospectus.
Opinion of Compaq Financial Advisor
On July 19, 2001, Salomon Smith Barney was retained to act as financial
advisor to Compaq in connection with the merger. Pursuant to Salomon Smith
Barney's engagement letter with Compaq, Salomon Smith Barney rendered a written
opinion to the Compaq board of directors on September 3, 2001, to the effect
that, based upon and subject to the considerations and limitations set forth in
its opinion, its work described below, its experience as investment bankers and
other factors it deemed relevant, as of that date, the exchange ratio was fair,
from a financial point of view, to holders of Compaq common stock.
The Salomon Smith Barney opinion and the presentation of Salomon Smith
Barney to the Compaq board of directors, in connection with which Salomon Smith
Barney was requested to evaluate the fairness, from a financial point of view,
of the exchange ratio to the holders of Compaq common stock, was one of many
factors taken into consideration by the Compaq board of directors in making its
decision to approve the merger agreement. The terms of the merger were
determined through negotiations between Compaq and HP, and were approved by the
Compaq board of directors. Although Salomon Smith Barney provided advice to
Compaq during the course of negotiations, the decision to enter into the merger
agreement and to agree to the exchange ratio was solely that of the Compaq
board of directors.
56
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and
limitations on the review undertaken by Salomon Smith Barney, is attached to
this joint proxy statement/prospectus as Annex C. The summary of Salomon Smith
Barney's opinion set forth below is qualified in its entirety by reference to
the full text of the opinion. Shareowners are urged to read Salomon Smith
Barney's opinion carefully and in its entirety.
Salomon Smith Barney has consented to the inclusion of its opinion and to
the inclusion of the summary of its opinion in this joint proxy
statement/prospectus. In giving such consent, Salomon Smith Barney does not
concede that it comes within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, or the rules and regulations of
the Securities and Exchange Commission thereunder, nor does it concede that it
is an expert within the meaning of the term "expert" as used in the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder with respect to any part of the registration statement on
Form S-4 of which this joint proxy statement/prospectus forms a part.
In connection with rendering its opinion, Salomon Smith Barney, among other
things:
. reviewed a draft of the merger agreement dated September 3, 2001;
. held discussions with certain senior officers and other representatives
and advisors of Compaq and HP concerning the businesses, operations and
prospects of Compaq and HP;
. examined publicly available business and financial information relating
to Compaq and HP and the industries in which they operate;
. reviewed financial forecasts and information relating to certain
strategic implications and operational benefits anticipated to result
from the merger and other information and data regarding Compaq and HP
that were provided to or otherwise discussed with it by management of
Compaq and HP;
. reviewed the financial terms of the merger as set forth in the draft
merger agreement provided to it in relation to, among other things,
current and historical market prices and trading volumes of Compaq
common stock and HP common stock, the historical and projected earnings
and other operating data of Compaq and HP, and the historical and
projected capitalization and financial condition of Compaq and HP;
. considered, to the extent publicly available, the financial terms of
other similar transactions recently effected or proposed which Salomon
Smith Barney considered relevant in evaluating the merger; and analyzed
certain financial, stock market, economic and other publicly available
information relating to the businesses of other companies whose
operations Salomon Smith Barney considered relevant in evaluating those
of Compaq and HP; and
. conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as Salomon Smith
Barney deemed appropriate in arriving at its opinion.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of all of the financial
and other information and data publicly available or furnished to, discussed
with or otherwise reviewed by or for it. With respect to financial forecasts
and information relating to certain strategic implications and operational
benefits anticipated to result from the merger provided to or otherwise
reviewed by or discussed with Salomon Smith Barney regarding Compaq and HP,
Salomon Smith Barney was advised by the management of Compaq and HP that such
forecasts and other information had been reasonably prepared on bases
reflecting the best then currently available estimates and judgments of Compaq
and HP management, as the case may be. Salomon Smith Barney assumed that such
operational benefits would be realized in the amounts and during the time
periods contemplated by management. Salomon Smith Barney expressed no view with
respect to such forecasts and other information or the assumptions on which
they were based. Salomon Smith Barney assumed that the merger will be treated
as a tax-free reorganization for United States federal income purposes. Salomon
Smith Barney did not make and was not provided with an independent evaluation
or appraisal of the assets or
57
liabilities (contingent or otherwise) of Compaq or HP, nor did it make any
physical inspection of the properties or assets of Compaq or HP.
Salomon Smith Barney assumed that the representations and warranties of each
party contained in the merger agreement were true and correct in all material
respects and that each party will perform all of the covenants and agreements
required to be performed by it under the merger agreement. Compaq advised
Salomon Smith Barney, and Salomon Smith Barney assumed, that the final terms of
the merger agreement would not vary materially from those set forth in the
draft provided to it. Salomon Smith Barney further assumed that the merger
would be consummated in accordance with the terms of the merger agreement
without waiver of any of the conditions precedent to the merger contained in
the merger agreement. Salomon Smith Barney also assumed that all material
governmental, regulatory and other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory and
other consents and approvals, or any amendments, modifications or waivers to
any documents to which either Compaq or HP is a party, no restrictions will be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on its analysis.
Salomon Smith Barney's opinion relates to the relative values of Compaq and
HP. It does not imply any conclusion as to the likely trading range for Compaq
common stock or HP common stock following the announcement or consummation of
the merger, which range may vary depending upon, among other factors, changes
in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Salomon Smith Barney was not requested to consider, and its opinion did not
address, the relative merits of the merger as compared to any alternative
business strategies that might exist for Compaq or the effect of any other
transaction in which Compaq might engage. Salomon Smith Barney's opinion
necessarily was based on information available to it and financial, stock
market, economic and other conditions and circumstances disclosed to it as they
existed and could be evaluated as of the date of its opinion. Salomon Smith
Barney assumed no responsibility to update or revise its opinion based on
circumstances or events occurring after September 3, 2001.
Salomon Smith Barney's advisory services and opinion were provided for the
information of Compaq's board of directors in its evaluation of the proposed
merger and do not constitute a recommendation of the merger to Compaq or its
shareowners, nor do they constitute a recommendation to any shareowner as to
how such shareowner should vote on any matter relating to the merger.
In connection with rendering its opinion, Salomon Smith Barney made
presentations to the Compaq board of directors on August 30, 2001 and on
September 3, 2001, with respect to the material financial and comparative
analyses performed by Salomon Smith Barney in evaluating the fairness of the
exchange ratio. The following is a summary of those presentations. This summary
does not purport to be a complete description of the analyses performed by
Salomon Smith Barney. The summary includes information presented in tabular
format. In order to understand fully the financial analyses used by Salomon
Smith Barney, these tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the financial
analyses. The following quantitative information, to the extent it is based on
market data, is, except as otherwise indicated, based on market data as it
existed at or prior to September 3, 2001, and is not necessarily indicative of
current or future market conditions. All calculations, forecasts and estimates
set forth with respect to a specific year are based on such calendar year and
not the fiscal year unless otherwise indicated.
Relative Historical Stock Price Performance
Salomon Smith Barney reviewed the relationship between movements of the
Compaq common stock, the HP common stock and the Nasdaq Composite Index for the
period from and including July 3, 2000 through August 7, 2001, the average
closing prices for the Compaq common stock and the HP common stock over various
periods during the 12-month period ended August 31, 2001 and the trading volume
and price history of the Compaq common stock and the HP common stock for the
period ended August 31, 2001.
58
Historical Exchange Ratio Analysis
Salomon Smith Barney reviewed the historical exchange ratio between the
Compaq common stock and the HP common stock. The exchange ratios used in the
analysis were determined by dividing the closing price per share of Compaq
common stock by the closing price per share of HP common stock on each day over
the 12-month period ended August 31, 2001, the last trading day prior to the
public announcement of the merger. Salomon Smith Barney then examined certain
averages of the historical exchange ratios over various periods during such
12-month period. Salomon Smith Barney also determined an implied premium that
the proposed exchange ratio of 0.6325 of a share of HP common stock for each
share of Compaq common stock represented over the historical exchange ratio for
each period. This review indicated the following historical exchange ratios and
implied premiums:
Average
Exchange Implied
Period ending August 31, 2001 Ratio Premium
----------------------------- -------- -------
August 31, 2001........ 0.532 18.9%
10-Day Average......... 0.544 16.3%
20-Day Average......... 0.568 11.3%
30-Day Average......... 0.573 10.3%
3-Month Average........ 0.557 13.7%
6-Month Average........ 0.584 8.2%
9-Month Average........ 0.591 7.1%
12-Month Average....... 0.596 6.1%
Comparable Public Market Valuation Analysis
Using stock prices as of August 31, 2001 and publicly available information
regarding Compaq and HP as well as Wall Street consensus forecasts and
estimates regarding the two companies discussed with management, Salomon Smith
Barney compared Compaq and HP to a selected group of personal computing,
enterprise computing, information technology services and imaging/printing
companies using various measures of financial performance. Firm value
calculations were made based on the closing price per share of each company's
common stock on August 31, 2001.
Salomon Smith Barney noted that Compaq's and HP's firm values as multiples
of revenues for the 12-month period ended June 30, 2001 (LTM) were 0.5x and
1.0x, respectively. Firm values as multiples of LTM revenues for the selected
companies ranged from 0.2x to 2.1x. Salomon Smith Barney further noted that
Compaq's and HP's firm values as multiples of LTM earnings before interest
expense, taxes, depreciation and amortization (EBITDA) were 5.7x and 12.4x,
respectively. Firm values as multiples of LTM EBITDA for the selected companies
ranged from 5.3x to 18.2x. Salomon Smith Barney also noted that Compaq's and
HP's firm values as multiples of LTM earnings before interest expenses and
taxes (EBIT) were 9.8x and 19.8x, respectively. Firm values as multiples of LTM
EBIT for the selected companies ranged from 8.9x to 19.9x.
Firm Values as a Multiple of:
LTM Revenue LTM EBITDA LTM EBIT
----------- ---------- ----------
Compaq...................................... 0.5x 5.7x 9.8x
HP.......................................... 1.0x 12.4x 19.8x
Selected Group.............................. 0.2x-2.1x 5.3x-18.2x 8.9x-19.9x
Salomon Smith Barney also noted that Compaq's and HP's multiples of stock
price to estimated 2001 earnings per share ("EPS") were 34.3x and 35.7x,
respectively, using the closing price for each company's common stock on August
31, 2001. Multiples of stock prices to estimated 2001 EPS for the eight
selected companies ranged from 18.5x to 57.3x, using the closing price for each
company's stock on August 31, 2001. Salomon Smith Barney further noted that
Compaq's and HP's multiples of stock prices to estimated 2002 EPS
59
were 18.4x and 19.2x, respectively. Multiples of stock prices to estimated 2002
EPS for the eight selected companies ranged from 10.7x to 27.1x. Salomon Smith
Barney also noted that Compaq's and HP's multiples of stock prices to estimated
2003 EPS were 14.0x and 12.5x, respectively. Multiples of stock prices to
estimated 2003 EPS for the eight selected companies ranged from 9.3x to 19.5x.
Closing Stock Price on August 31, 2001 as a Multiple of:
2001 EPS 2002 EPS 2003 EPS
----------- ----------- ----------
Compaq........ 34.3x 18.4x 14.0x
HP............ 35.7x 19.2x 12.5x
Selected Group 18.5x-57.3x 10.7x-27.1x 9.3x-19.5x
Based on its analysis, Salomon Smith Barney determined a range of implied
exchange ratios of 0.493x to 0.637x.
Similar Transactions Premium Analysis
Salomon Smith Barney reviewed publicly available information regarding
selected announced or completed stock-for-stock transactions with an announced
value in excess of $10 billion and for which the acquired company's:
. board members would have significant representation on the board of
directors of the combined entity;
. executive management would have meaningful management roles in the
combined entity; and
. shareowners would retain a significant pro forma ownership in the
combined entity.
Using publicly available information for each selected transaction, Salomon
Smith Barney calculated the premium provided by the transaction over the
implied exchange ratio based on the two companies' average closing prices per
common share for the 10 trading days prior to the announcement of the
transaction and for the 20 trading days prior to announcement. Salomon Smith
Barney's analysis resulted in a range of premiums of (8)% to 46% over exchange
ratios implied by average prices for the 10 trading days prior to announcement,
with a median premium of 23%. Salomon Smith Barney's analysis further resulted
in a range of premiums of (7)% to 58% over exchange ratios implied by average
prices for the 20 trading days prior to announcement, with a median premium of
23%. Using publicly available information for each selected transaction,
Salomon Smith Barney also calculated the premium provided by the transaction
based on the acquiring company's closing price one day prior to the
announcement of the transaction. Salomon Smith Barney's analysis resulted in a
range of premiums of (12)% to 29%, with a median premium of 15%.
Based on its analysis, Salomon Smith Barney determined a range of implied
exchange ratios of 0.585x to 0.680x by applying the range of premiums for other
transactions to the closing prices of Compaq and HP on August 31, 2001 and the
average historical exchange ratio for Compaq and HP for the 10-day period
ending on August 31, 2001, as appropriate.
Synergies
Salomon Smith Barney reviewed the synergy estimates provided by the
management of Compaq. The synergy estimates reflect only the incremental
benefits anticipated to result from the merger as compared to Compaq on a
stand-alone basis. Salomon Smith Barney then estimated the present value of the
anticipated cash flow effect of those synergies as of the transaction closing
date, by applying discount rates reflecting a weighted average cost of capital
ranging from 12.5% to 13.5% per annum to EBIT and cash flow effects for a
five-year period after the date of completion of the transaction and by adding
a terminal value determined by applying an EBIT multiple of 13.5x to 14.5x.
This analysis resulted in a range of present values for Compaq common
shareowners' proportionate share of the synergies of $28.3 billion to $31.2
billion, representing a range of synergy value per share of Compaq common stock
from approximately $5.96 to $6.56. The estimates of
60
achievable cost synergies and timing of the realization of such cost synergies
are based on numerous estimates, assumptions and judgments and are subject to
significant uncertainties. Actual results may vary from the synergy estimates
and the variations in amounts and timing may be material.
Contribution Analysis
Salomon Smith Barney performed an analysis comparing the relative
contributions of Compaq and HP to the combined pro forma company. Using stock
prices as of August 31, 2001 and publicly available information regarding
Compaq and HP as well as Wall Street consensus forecasts and estimates
regarding the two companies discussed with management, Salomon Smith Barney
reviewed each company's relative contribution to the combined company's actual
LTM and estimated 2001, 2002 and 2003 revenues, EBIT and net income, as well as
the combined company's fully-diluted equity value as of August 31, 2001 and
derived a range of implied exchange ratios from such contributions. The
following table sets forth the results of Salomon Smith Barney's review.
Percentage Contribution
-----------------------
Period Compaq HP
------------------------------ ------ -----
EBIT...... LTM 45.7% 54.3%
2001 Estimated 38.1% 61.9%
2002 Estimated 36.9% 63.1%
2003 Estimated 32.7% 67.3%
Net Income 2001 Estimated 32.3% 67.7%
Next Four Fiscal Quarters/(1)/ 31.6% 68.4%
2002 Estimated 32.7% 67.3%
2003 Estimated 29.2% 70.8%
At Market. Equity Value 31.7% 68.3%
-
(1) Represents four fiscal quarters ending June 30, 2002 for Compaq and
four fiscal quarters ending September 30, 2002 for HP.
Based on its analysis, Salomon Smith Barney determined a range of Compaq's
percentage contributions to (1) EBIT of 35% to 40%, which corresponds to a
range of implied exchange ratios of 0.617x to 0.764x and (2) net income of 30%
to 33%, which corresponds to a range of implied exchange ratios of 0.491x to
0.565x.
Precedent Industry Transaction Valuation Analysis
Salomon Smith Barney reviewed and analyzed certain financial, operating and
stock market information relating to six selected transactions involving
companies in the computer systems, services, hardware and/or server sectors.
Salomon Smith Barney reviewed the multiples of firm value to revenues and
EBITDA for the twelve months preceding the announcement of each of the selected
transactions. Multiples of firm value to such revenues ranged from 0.24x to
1.55x, with an average of 0.80x. Multiples of firm value to such EBITDA ranged
from 4.1x to 11.5x, with an average of 8.7x.
Based on its analysis, Salomon Smith Barney determined a range of implied
exchange ratios of 0.637x to 0.863x, using HP's 10-day average closing share
price for the period ending August 31, 2001. Salomon Smith Barney indicated to
the Compaq board of directors that the transactions utilized in this analysis
were acquisitions and did not include provisions granting the acquired
company's board of directors and executive management meaningful and
significant roles in the combined entity. Therefore, although such transactions
featured companies in similar lines of business as Compaq, they were not
directly comparable to the merger. Salomon Smith Barney indicated that it took
these factors into account in evaluating the fairness of the exchange ratio.
61
Pro Forma Earnings Per Share Impact to Compaq
Using stock prices as of August 31, 2001 and publicly available information
regarding Compaq and HP as well as Wall Street consensus forecasts and
estimates regarding the two companies discussed with management, Salomon Smith
Barney performed an analysis of the estimated impact of the merger on estimated
Compaq EPS for 2002 and 2003, in each case on a pro forma basis, for a
combination as if effected on January 1, 2002. For illustrative purposes,
Salomon Smith Barney also assumed that the estimated first full year of pre-tax
synergies of $2.1 billion (excluding restructuring charges) would be realized
in the 2002 calendar year and the second full year of pre-tax synergies of $2.9
billion (excluding restructuring charges) would be realized in the 2003
calendar year. The estimates of achievable cost synergies and the timing of the
realization of such cost synergies are based on numerous estimates, assumptions
and judgments and are subject to significant uncertainties. Actual results may
vary from the synergy estimates and the variations in amounts and timing may be
material. Based on this analysis, the following table shows the
accretion/dilution to the estimated 2002 and 2003 EPS of Compaq anticipated to
result from the merger:
EPS EPS
Accretion/Dilution 2002 2003
---------------------------------------------------------------- ----- -----
Compaq stand-alone.............................................. $0.67 $0.88
HP stand-alone.................................................. $1.21 $1.86
Combined entity pro-forma, excluding projected cost savings/(1)/ $0.74 $1.09
Combined entity pro-forma, including projected cost savings/(1)/ $1.05 $1.51
Accretion/(Dilution) to Compaq, excluding projected cost savings 11% 24%
Accretion/(Dilution) to Compaq, including projected cost savings 57% 71%
--------
(1) Combined entity pro forma figures are on a Compaq share equivalent basis,
assuming an exchange ratio of one Compaq share for 0.6325 of an HP share.
Salomon Smith Barney also performed a synergy sensitivity analysis on the
results of its earnings impact analysis by varying the amount of pre-tax
synergies for the first and second calendar years after the completion of the
merger from zero to $3.0 billion per year. Based on this analysis, the
following table shows the accretion/dilution to the estimated 2002 and 2003 EPS
of Compaq anticipated to result from the merger for varying ranges of assumed
synergies:
Accretion/
Earnings Per Share Impact Sensitivities EPS 2002 (Dilution)
--------------------------------------------------------------------- -------- ----------
2002 Compaq stand-alone.............................................. $0.67 N/A
2002 Combined entity pro-forma, including projected cost savings/(1)/
Assuming no cost savings realized in calendar year................ $0.74 10.9%
Assuming $1.0 billion in cost savings realized in calendar year... $0.89 32.7%
Assuming $2.0 billion in cost savings realized in calendar year... $1.04 54.6%
Assuming $3.0 billion in cost savings realized in calendar year... $1.18 76.4%
2003 Compaq stand-alone.............................................. $0.88 N/A
2003 Combined entity pro-forma, including projected cost savings/(1)/
Assuming no cost savings realized in calendar year................ $1.09 24.1%
Assuming $1.0 billion in cost savings realized in calendar year... $1.24 40.7%
Assuming $2.0 billion in cost savings realized in calendar year... $1.38 57.3%
Assuming $3.0 billion in cost savings realized in calendar year... $1.53 73.9%
--------
(1) Combined entity pro forma figures are on a Compaq share equivalent basis,
assuming an exchange ratio of one Compaq share for 0.6325 of an HP share.
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the Compaq board of directors, but it does
not purport to be a complete description of the analyses performed by Salomon
Smith Barney or of its presentation to the Compaq board of directors. The
preparation of
62
financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by
Salomon Smith Barney and its opinion. With regard to the comparable companies
and precedent transaction analyses summarized above, Salomon Smith Barney
selected comparable public companies and precedent transactions on the basis of
various factors, including size, similarity of line of business and terms of
transactions; however, no company utilized in these analyses is identical to
Compaq or HP and no precedent transaction is identical to the merger. As a
result, these analyses are not purely mathematical, but also take into account
differences in financial and operating characteristics of the subject companies
and other factors that could affect the transaction or public trading value of
the subject companies to which Compaq and HP are being compared. In its
analyses, Salomon Smith Barney made numerous assumptions with respect to
Compaq, HP, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Compaq and HP. Any estimates contained in Salomon Smith Barney's analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because these estimates are inherently subject to uncertainty, none of
Compaq, HP, the Compaq board of directors, the HP board of directors, Salomon
Smith Barney or any other person assumes responsibility if future results or
actual values differ materially from the estimates or are not achieved during
the time periods contemplated. Salomon Smith Barney's analyses were prepared
solely as part of Salomon Smith Barney's analysis of the fairness of the
exchange ratio in the merger and were provided to the Compaq board of directors
in that connection. The opinion of Salomon Smith Barney was only one of the
factors taken into consideration by the Compaq board of directors in making its
determination to approve the merger agreement and the merger. Please see the
section entitled "Recommendation of the Compaq Board of Directors" beginning on
page 35 of this joint proxy statement/prospectus.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Compaq selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Compaq. Salomon Smith Barney and its predecessors and affiliates have
previously provided and currently are providing investment banking services to
Compaq unrelated to the merger, for which Salomon Smith Barney has received and
will receive compensation. In the ordinary course of its business, Salomon
Smith Barney and its affiliates may actively trade or hold the securities of
both Compaq and HP for its own account and for the account of customers and,
accordingly, may at any time hold a long or short position in those securities.
Salomon Smith Barney and its affiliates, including Citigroup Inc. and its
affiliates, may maintain relationships with Compaq and HP and their respective
affiliates.
Pursuant to the terms of an engagement letter, Compaq agreed to pay Salomon
Smith Barney a customary financial advisory fee, a substantial portion of which
will be received upon the closing of the merger. Compaq also has agreed to
reimburse Salomon Smith Barney for its reasonable travel and other expenses
incurred in connection with its engagement, including the reasonable fees and
expenses of its outside counsel, and to indemnify Salomon Smith Barney against
specific liabilities and expenses relating to or arising out of its engagement,
including liabilities under the federal securities laws.
63
Interests of HP and Compaq Directors and Executive Officers in the Merger
Interests of HP Directors and Executive Officers in the Merger
Certain members of the management of HP and some of the HP board of
directors have interests in the merger that may be different from, or in
addition to, the interests of the other shareowners of HP generally. These
interests are summarized below.
Retention and Severance Arrangements
The success of the combined company following the merger will be determined
in part by how effectively the combined company will be able to successfully
create a unified workforce--including a management team--drawn from the
existing talent of both HP and Compaq. Many of the decisions regarding business
integration, organizational structure and the leadership team of the combined
company may not be made or announced until shortly before or after the
completion of the merger. The resulting uncertainty could lead some of HP's key
employees, including executives, to accept other employment opportunities. To
address this concern, the compensation committee of the HP board of directors
(consisting of Messrs. Condit, Ginn and Hewlett), acting on the authority of
the full board, adopted a retention program to assure the continued dedication
of key employees during this uncertain period and to provide key employees with
financial incentives to remain with the combined company following the
completion of the merger so as to encourage these key employees to (1) continue
to focus on business at hand and concentrate on serving customers and beating
competitors, (2) focus on ensuring the success of the merger and the
integration of the businesses of HP and Compaq following the merger, and (3)
maximize the value of the combined company in the future.
The compensation committee adopted a retention program that includes the
payment of retention bonuses to specified employees of HP that are contingent
upon the completion of the merger. Ms. Fiorina would have been entitled to
receive retention bonuses under this program totaling two times the sum of her
current salary and target annual bonus (a total of $8.0 million), but she has
declined to accept the right to participate in this program. Other executive
officers of HP may receive the following retention payments under this program
as follows: (1) three times current salary plus target bonus for eight
executive officers, payable in two equal installments, with the first
installment payable on September 4, 2002 and the second installment payable on
September 4, 2003, and (2) two times current salary plus target bonus for two
other executive officers, payable in two equal installments, with the first
installment payable upon completion of the merger and the second installment
payable on the first anniversary of the completion. The aggregate amount of the
retention payments for the participating executive officers, should they all
remain employed until payment of the second installment of their retention
bonuses, will total approximately $33.1 million.
In addition to the participating executive officers, the retention program
is broad-based and extends to a substantial number of key employees. These
employees are critical to ensure a fast and smooth integration and to the
success of the combined company. Their continued focus on serving customers
while, at the same time, integrating the companies following the merger, is
critical to maximizing the value of the combined company in the future. The
retention bonuses to these key employees are approximately 0.5 times salary
plus target bonus, on average, and are payable in two equal installments upon
the completion of the merger and the first anniversary of the completion.
As a part of its retention program, HP also agreed to provide its executive
officers who are receiving retention bonuses as described above certain
payments and benefits in the event of a "qualifying termination" within two
years after the completion date of the merger. A qualifying termination is
defined as any termination by HP other than for cause, resignation of the
executive for good cause (including a reduction in the executive's total salary
plus target bonus, a reduction of the executive's base salary or a material
reduction in the kind or level of the executive's employee benefits) or
termination of the executive for disability. In the event of a qualifying
termination within two years after the completion of the merger, the executive
will become entitled to the following payments and benefits, offset by any
retention payments described above previously paid to the executive:
64
. a cash payment equal to 1.5 times the executive's then-current base
salary plus target bonus;
. the executive's stock options will become fully exercisable and will
remain exercisable until the earlier of:
- the third anniversary of the executive's termination date; and
- the expiration of the term of the stock option;
. any unvested restricted stock granted to the executive under HP's stock
plans will vest and a portion of other restricted stock held by the
executive will vest; and
. continuation of certain health benefits.
Under the terms of her existing employment agreement, in the event that Ms.
Fiorina's employment is terminated involuntarily other than for cause, death or
disability, or if Ms. Fiorina terminates her employment for good reason
(generally a reduction in Ms. Fiorina's title, responsibilities or
compensation, breach by HP of its obligations under the employment agreement,
or failure to appoint Ms. Fiorina to the HP board of directors), then Ms.
Fiorina will receive her accrued benefits, prorated bonus, a severance amount
of two times her base salary and target variable pay payable over a 24-month
period, a two-year continuation of all welfare plans, full vesting of
restricted stock and restricted stock units, 50% vesting of all unvested stock
options and outplacement services over a 12-month period. It is contemplated
that Ms. Fiorina will enter into a new employment agreement.
Employment Agreements
HP is negotiating new employment agreements with Ms. Fiorina, Mr. Wayman,
Mr. Zitzner, Vyomesh Joshi, HP's President, Imaging and Printing Systems, Ann
M. Livermore, HP's President, Services, and Webb McKinney, HP's President,
Business and Customer Organization. These employment agreements will be
conditioned upon the completion of the merger and are expected to have an
initial term of two years.
While the terms of these agreements have not been determined, HP currently
expects the employment agreements to include increases to the executives'
current salaries to reflect their expanded responsibilities within the combined
company, as well as the potential for a bonus that may be equal to or greater
than the executives' base salaries. HP also currently expects the employment
agreements to provide for the grant of stock options. It is contemplated that
the options will vest based upon continued service with HP and, in significant
part, upon the attainment of certain performance goals. Such goals may include
operational milestones and increases in HP stock prices following the merger.
In addition, HP currently expects that the employment agreements will contain
severance terms that will provide the officers with payments of severance if,
during the term of the agreement, the executive is terminated without cause,
resigns for certain reasons or terminates employment due to death or
disability. These severance payments may include cash payments, continued
employee benefits, additional payments in connection with any golden parachute
excise taxes and the acceleration of vesting of stock options and other equity
awards, but are expected to be offset by any payments under the
retention/severance plan described above.
Interests of Compaq Directors and Executive Officers in the Merger
Certain members of the management of Compaq and the Compaq board of
directors have interests in the merger that may be different from, or in
addition to, the interests of the other shareowners of Compaq generally. These
interests are summarized below.
Retention Agreements
The talent and drive of Compaq's employees is one of the company's most
important assets, and the success of the combined company will be determined in
part by how effectively this resource can be utilized in the new organization.
The period of uncertainty associated with completing the merger and integrating
the companies
65
could, in the absence of a concerted effort to address those concerns, lead
some of Compaq's key employees, including executives, to accept other
employment opportunities. To address this issue, Compaq has developed a
retention program that provides incentives to encourage selected employees to
remain with the company through the completion of the merger and for a
reasonable transition period after the merger. This retention program helps
stabilize workforce turnover in positions critical to completing the merger and
the integration efforts that will begin upon closing.
Compaq's retention program provides cash incentives to employees throughout
the organization who are critical to ongoing business efforts, completion of
the merger, and post-merger integration. Retention payments will be made at
closing and at the conclusion of a reasonable retention period thereafter, the
length of which depends on the individual's role and anticipated business
needs. Mr. Capellas was eligible to receive retention bonuses totaling three
times the sum of his current base salary and target annual bonus (a total of
$14.4 million) under this program, but he has declined to accept the right to
participate in this program. Compaq's executive officers (other than Mr.
Capellas) will receive a retention payment of 1.5 times the sum of current base
salary and target annual bonus at completion of the merger and a second
retention payment of 1.5 times the sum of current base salary and target annual
bonus one year later, provided they remain employed by HP. The aggregate amount
of the retention payments for these participating executive officers, should
they all remain employed through the first anniversary of the completion of the
merger, will total approximately $22.4 million. The retention payments are
contingent on the completion of the merger and, for the participating executive
officers, will offset any severance payable under their severance arrangements,
as described below.
Severance Arrangements
In 2000, the human resources committee of the Compaq board of directors
approved a new employment agreement for Mr. Capellas and new severance
agreements for the other executive officers of Compaq. These new agreements,
which were developed based on information provided by outside compensation
consultants, were intended to bring key aspects of Compaq's executive
compensation programs into line with competitive market practices. Among other
things, the agreements provide for special severance benefits in the event of a
''qualifying termination'' (which would include, for example, involuntary
termination by the company without cause or resignation by the executive for
certain enumerated ''good reasons,'' such as material diminution in duties,
certain reductions in compensation that are not part of across-the-board cuts,
or ceasing to be an executive officer) following a change in control.
In light of the potential merger, in August of 2001 the human resources
committee revisited these agreements. It was clear that the proposed merger
with HP would constitute a change in control for purposes of the agreements and
there was a concern that many of Compaq's executive officers would qualify for
severance benefits as a result of changes associated with the merger. In order
to aid in retaining these executives, the committee approved the following
amendments to their agreements:
. a change in control of Compaq, for purposes of the agreements and for
purposes of accelerated vesting of any restricted stock previously
granted to the executives, will occur upon completion of the
transaction constituting a change in control rather than upon
shareowner approval, aiding the company in retaining the executives
through closing;
. the period during which the executive may claim severance under his or
her agreement following a change in control was extended to one year,
allowing the company and the executive an adequate period of time to
evaluate a potential ongoing employment relationship in the new
company; and
. for the participating executives, the retention payments described
above, which will offset any severance payments to be made under the
agreements, will be made in two installments, the first installment to
be paid upon completion of the merger and the second installment to be
made if the executive remains with the company through the one-year
retention period following completion of the merger.
66
Under these agreements, the executive will be entitled to the following
payments and benefits in the event of a qualifying termination within one year
following completion of the merger:
. a lump sum severance payment which, after taking into account the
retention payments to be made at closing, generally will be equal to
1.5 times the sum of base salary and target annual bonus (in the case
of Mr. Capellas, who has declined to accept the right to participate in
the retention program, the lump sum severance payment will equal three
times the sum of his base salary and target annual bonus);
. a pro-rata target annual bonus for the period in which termination
occurs;
. continued health insurance coverage for two years following termination;
. certain financial counseling and outplacement services;
. reimbursement of legal fees; and
. an additional payment to make the executive whole with respect to any
golden parachute taxes imposed under the Internal Revenue Code.
Upon a qualifying termination, the balance of a loan previously made to Mr.
Capellas in 1999 to purchase Compaq stock (remaining principal of approximately
$3.3 million, which would otherwise be forgiven in consideration of continued
service during 2002 and 2003) will be forgiven and Mr. Capellas will be
entitled to a cash payment of $100,000 for the purposes of assisting him with
tax preparation, accounting or legal fees, outplacement services, or other
similar purposes.
If all of Compaq's executive officers (other than Mr. Capellas) were to
incur a qualifying termination within one year following completion of the
merger, they would receive cash severance payments which would be equal to and
made in lieu of the second retention payments described above. If Mr. Capellas
were to incur a qualifying termination of employment within one year following
completion of the merger, he would receive cash severance payments equal to
approximately $14.4 million. It is contemplated that Mr. Capellas will enter
into a new employment agreement.
New Employment Agreements between HP and Certain Compaq Executives
HP is negotiating to enter into employment agreements with certain executive
officers of Compaq, including Mr. Capellas and the following other executive
officers: Peter Blackmore, Executive Vice President, Worldwide Sales and
Services, Jeff Clarke, Senior Vice President, Finance and Administration, and
Chief Financial Officer, Michael Winkler, Executive Vice President, Global
Business Units, Shane Robison, Senior Vice President, Technology, and Chief
Technology Officer, and Robert Napier, Senior Vice President, Global
Information Solutions, and Chief Information Officer. As with the HP officers
with whom HP is currently negotiating, the terms of these agreements have not
been determined. The structures of the agreements are expected to be
substantially similar to the employment agreements being negotiated with HP
officers.
Equity-Based Incentive Plans
As of November 1, 2001, Compaq's directors and executive officers held
unvested stock options to acquire an aggregate of 5,538,000 shares, with an
average weighted exercise price of $23.40 per share. These options will be
converted upon completion of the merger into options to acquire an aggregate of
approximately 3.5 million HP common shares with a weighted average exercise
price of approximately $37.00 per share. In accordance with the terms of
various equity plans under which they were granted, which are generally
applicable to all holders, options granted prior to September 1, 2001 will
become fully exercisable upon shareowner approval of the merger and, in the
event of a qualifying termination (as defined in the various equity plans under
which they were granted) within one year following the completion of the
merger, the post-termination period of exercisability of outstanding options
generally will be three years from the date of such qualifying termination. The
remainder of these options generally will become fully vested in the event of a
qualifying termination (as defined in the various equity plans under which they
were granted) within one year following the completion of
67
the merger. In addition, upon completion of the merger, restrictions with
respect to an aggregate of approximately 1.1 million shares of restricted stock
currently held by Compaq's executive officers, as a group, will lapse.
Under Compaq's Non-Qualified Stock Option Plan for Non-Employee Directors,
all options granted prior to September 1, 2001 will become fully vested upon
shareowner approval of the merger and all options granted on or after September
1, 2001 will become fully vested upon any termination of the director's service
(other than due to death, disability or retirement) within one year following
the completion of the merger.
Directors Charitable Award Program
Under Compaq's Directors Charitable Award Program, the rights of two
non-employee directors of Compaq which are not currently vested will become
vested upon completion of the merger. At such time, in complete satisfaction of
Compaq's obligations under the Charitable Award Program, Compaq will make
payments aggregating approximately $12 million on behalf of all participating
directors (and former directors) to the charities previously designated by such
directors.
Appointment of Directors
In accordance with the terms of the merger agreement, at and after the time
the merger is completed, HP's board of directors will include five Compaq
directors who are reasonably acceptable to HP, one of whom is expected to be
Mr. Capellas. HP has stated its intent that, at and after the completion of the
merger, each committee of the HP board of directors will include at least one
Compaq director designee and a Compaq director designee will be chairman of at
least one of the audit, compensation, finance and investment or nominating and
governance committees of the HP board of directors.
Indemnification; Directors' and Officers' Insurance
HP will, and has agreed to cause the company surviving the merger to, honor
all of the indemnification obligations of Compaq to its directors and officers
that exist immediately prior to completion of the merger, whether pursuant to
Compaq's certificate of incorporation, Compaq's bylaws or an indemnification
agreement. For six years after the completion of the merger, the certificate of
incorporation and bylaws of the company surviving the merger will contain
provisions with respect to exculpation and indemnification that are at least as
favorable to the directors and officers who were indemnified by Compaq
immediately prior to completion of the merger as the exculpation and
indemnification provisions that were contained in the restated certificate of
incorporation and bylaws of Compaq in effect at the time the merger agreement
was executed. For six years after the completion of the merger, HP also will
cause the company surviving the merger to use all reasonable efforts to
maintain the directors' and officers' liability insurance maintained by Compaq
covering those directors and officers of Compaq who had been covered by such
insurance at the time the merger agreement was executed. The directors' and
officers' liability insurance policy maintaining the coverage of those
directors and officers of Compaq will have terms comparable to those applicable
to Compaq's directors and officers on the date the merger agreement was
executed. The company surviving the merger will not be required to pay, in
total, an annual premium for the insurance described in this paragraph in
excess of 150% of the current annual premium paid by Compaq for its existing
insurance coverage prior to the merger. However, if the annual premiums of such
insurance coverage exceed that amount, the company surviving the merger will
use all reasonable efforts to cause to be maintained the maximum amount of
coverage as is available for such 150% of such annual premium.
The Merger Agreement
The following summary describes certain material provisions of the merger
agreement. The provisions of the merger agreement are complicated and not
easily summarized. This summary may not contain all of the information about
the merger agreement that is important to you. The merger agreement is attached
to this joint
68
proxy statement/prospectus as Annex A and is incorporated by reference into
this joint proxy statement/prospectus, and we encourage you to read it
carefully in its entirety for a more complete understanding of the merger
agreement.
Structure of the Merger
The merger agreement provides for the merger of Heloise Merger Corporation,
a newly formed, wholly-owned subsidiary of HP, with and into Compaq. Compaq
will survive the merger as a wholly-owned subsidiary of HP. HP currently
intends to merge Compaq into HP as soon as reasonably practicable following the
merger.
Completion and Effectiveness of the Merger
We will complete the merger when all of the conditions to completion of the
merger contained in the merger agreement described in the section entitled
"Conditions to Completion of the Merger" beginning on page 80 of this joint
proxy statement/prospectus are satisfied or waived, including approval of the
issuance of shares of HP common stock in connection with the merger by the
shareowners of HP and approval and adoption of the merger agreement and
approval of the merger by the shareowners of Compaq. The merger will become
effective upon the filing of a certificate of merger with the Secretary of
State of the State of Delaware.
We are working to complete the merger as quickly as possible. We currently
plan to complete the merger by June 30, 2002. Because completion of the merger
is subject to governmental and regulatory approvals and other conditions,
however, we cannot predict the exact timing.
Conversion of Compaq Common Stock in the Merger
Upon completion of the merger, each share of Compaq common stock (including,
with respect to each share of Compaq common stock, the associated right
described in the section entitled "Compaq Shareowner Rights Plan" beginning on
page 108 of this joint proxy statement/prospectus) outstanding immediately
prior to the effective time of the merger will be canceled and extinguished and
automatically converted into the right to receive 0.6325 of a share of HP
common stock (including, with respect to each whole share of HP common stock
issued, the associated right described in the section entitled "HP Shareowner
Rights Plan" beginning on page 107 of this joint proxy statement/prospectus)
upon surrender of the certificate representing such share of Compaq common
stock in the manner provided in the merger agreement. Upon completion of the
merger, HP also will assume outstanding options to purchase Compaq common stock
and Compaq SARs as described in the section entitled "Treatment of Compaq Stock
Options and SARs" beginning on page 77 of this joint proxy statement/prospectus.
The exchange ratio in the merger (i.e., 0.6325 of a share of HP common stock
for each share of Compaq common stock) also will be adjusted to reflect the
effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into HP common stock or
Compaq common stock), reorganization, recapitalization, reclassification or
other like change with respect to HP common stock or Compaq common stock having
a record date on or after the date of the merger agreement and prior to
completion of the merger.
Each share of Compaq common stock held by Compaq or owned by HP or any of
their direct or indirect wholly-owned subsidiaries immediately prior to the
merger will be automatically canceled and extinguished, and none of Compaq, HP
or any of their direct or indirect subsidiaries will receive any securities of
HP or other consideration in exchange for those shares.
Based on the exchange ratio and the number of shares of Compaq common stock
and options to purchase Compaq common stock outstanding as of , 2001, a
total of approximately shares of HP common stock will be issued in
connection with the merger to holders of Compaq common stock and a total of
69
approximately shares of HP common stock will be reserved for issuance upon
the exercise of options to purchase Compaq common stock assumed by HP in
connection with the merger.
Fractional Shares
HP will not issue any fractional shares of common stock in connection with
the merger. Instead, each holder of Compaq common stock exchanged in connection
with the merger who would otherwise be entitled to receive a fraction of a
share of common stock of HP will receive cash, without interest, in an amount
equal to the fraction multiplied by the average closing price of one share of
HP common stock for the ten most recent trading days that HP common stock has
traded ending on the trading day one day prior to the date the merger is
completed, as reported on the New York Stock Exchange composite transactions
tape.
Exchange of Compaq Stock Certificates for HP Stock Certificates
Promptly following completion of the merger, Computershare Trust Company of
New York, the exchange agent for the merger, will mail to each record holder of
Compaq common stock a letter of transmittal and instructions for surrendering
the record holder's stock certificates in exchange for a statement indicating
book-entry ownership of HP common stock or, if requested, a certificate
representing HP common stock. Only those holders of Compaq common stock who
properly surrender their Compaq stock certificates in accordance with the
exchange agent's instructions will receive (1) a statement indicating
book-entry ownership of HP common stock or, if requested, a certificate
representing HP common stock, (2) cash in lieu of any fractional share of HP
common stock, and (3) any dividends or other distributions, if any, to which
they are entitled under the terms of the merger agreement. The surrendered
certificates representing Compaq common stock will be canceled. After the
effective time of the merger, each certificate representing shares of Compaq
common stock that has not been surrendered will represent only the right to
receive each of the items enumerated in the preceding sentence. Following the
completion of the merger, Compaq will not register any transfers of Compaq
common stock on its stock transfer books.
Holders of Compaq common stock should not send in their Compaq stock
certificates until they receive a letter of transmittal from Computershare
Trust Company of New York, the exchange agent for the merger, with instructions
for the surrender of Compaq stock certificates.
Distributions with Respect to Unexchanged Shares
Holders of Compaq common stock are not entitled to receive any dividends or
other distributions on HP common stock until the merger is completed. After the
merger is completed, holders of Compaq common stock certificates will be
entitled to dividends and other distributions declared or made after completion
of the merger with respect to the number of whole shares of HP common stock
which they are entitled to receive upon exchange of their Compaq stock
certificates, but they will not be paid any dividends or other distributions on
the HP common stock until they surrender their Compaq stock certificates to the
exchange agent in accordance with the exchange agent instructions.
Transfers of Ownership and Lost Stock Certificates
HP will issue only (1) a statement indicating book-entry ownership of HP
common stock or, if requested, an HP stock certificate, (2) cash in lieu of a
fractional share and (3) any dividends or distributions that may be applicable
in a name other than the name in which a surrendered Compaq stock certificate
is registered if the person requesting such exchange presents to the exchange
agent all documents required to show and effect the unrecorded transfer of
ownership and to show that such person paid any applicable stock transfer
taxes. If a Compaq stock certificate is lost, stolen or destroyed, the holder
of such certificate may need to deliver an affidavit or bond prior to receiving
any statement indicating book-entry ownership of HP common stock or HP stock
certificate.
70
Representations and Warranties
The merger agreement contains generally reciprocal representations and
warranties made by each of HP and Heloise Merger Corporation, on the one hand,
and Compaq, on the other, regarding aspects of their respective businesses,
financial condition and structure, as well as other facts pertinent to the
merger. These representations and warranties relate to the following subject
matters with respect to each party:
. corporate organization, qualifications to do business, corporate
standing and corporate power;
. absence of any breach of the certificate of incorporation and bylaws and
the certificates of incorporation, bylaws and similar organizational
documents of subsidiaries;
. ownership of subsidiary capital stock and the absence of restrictions or
encumbrances with respect to the capital stock of any significant
subsidiary;
. capitalization;
. corporate authorization to enter into and carry out the obligations of
the merger agreement and the enforceability of the merger agreement;
. the vote of shareowners required to complete the merger;
. governmental and regulatory approvals required to complete the merger;
. absence of any conflict or violation of any applicable legal
requirements, corporate charter and bylaws, and the charter, bylaws and
similar organizational documents of subsidiaries as a result of entering
into and carrying out the obligations of the merger agreement;
. the effect of entering into and carrying out the obligations of the
merger agreement on material contracts;
. filings and reports with the Securities and Exchange Commission;
. financial statements;
. the absence of undisclosed liabilities;
. absence of any material adverse change in business between the date of
its last audited balance sheet and September 4, 2001;
. taxes;
. intellectual property;
. compliance with applicable laws;
. possession of and compliance with all permits required for the operation
of business;
. litigation;
. payment, if any, required to be made to brokers and agents on account of
the merger;
. employee benefit plans and labor relations;
. environmental matters;
. absence of breaches of material contracts;
. accuracy of information supplied in this joint proxy
statement/prospectus and the related registration statement filed by HP
with the Securities and Exchange Commission;
. approvals by the board of directors;
. the fairness opinion received; and
71
. adoption of a shareowner rights plan.
In addition, Compaq made additional representations and warranties regarding:
. transactions between Compaq and its affiliates required to be reported
to the Securities and Exchange Commission; and
. the inapplicability of state takeover statutes to HP during the pendency
of the merger agreement.
The representations and warranties of HP, Heloise Merger Corporation and
Compaq contained in the merger agreement expire upon completion of the merger.
Conduct of Business Before Completion of the Merger
Under the merger agreement, each of HP and Compaq has agreed that, until the
earlier of the completion of the merger or termination of the merger agreement,
or unless the other party consents in writing, it will carry on its business,
in all material respects, in the usual, regular and ordinary course, in
substantially the same manner as previously conducted, and will use all
reasonable efforts consistent with past practices and policies to:
. preserve intact its present business organization;
. keep available the services of its present executive officers and key
employees; and
. preserve its relationships with customers, suppliers, licensors,
licensees and others with which it has business dealings.
Under the merger agreement, each of HP and Compaq also agreed that, until
the earlier of the completion of the merger or termination of the merger
agreement, or unless the other party consents in writing, it will conduct its
business in compliance with some specific restrictions relating to the
following:
. entering into any material new line of business;
. declaring or paying dividends, other than regularly quarterly cash
dividends, or making any other distributions;
. effecting any stock splits, recapitalizations and similar transactions;
. purchasing, redeeming or acquiring its capital stock or the capital
stock of its subsidiaries other than (1) repurchases at cost under
arrangements existing as of September 4, 2001 in connection with the
termination of employees and (2) repurchases by HP under HP's publicly
announced repurchase programs;
. issuing, delivering, selling, authorizing or encumbering its capital
stock, or securities convertible into its capital stock, or entering
into any agreement or obligation to do the same other than:
- issuances of common stock upon the exercise or conversion of employee
stock options or other stock based awards existing prior to the date
of the merger agreement or permitted under the merger agreement;
- issuances of common stock pursuant to employee stock purchase plans;
- issuances of common stock upon the exercise of any other options,
warrants or other rights in existence as of September 4, 2001;
- grants of stock options or other stock based awards under stock
option plans in existence prior to September 4, 2001 in the ordinary
course of business, consistent with past practice, in connection with
annual compensation reviews, ordinary course promotions or to new
hires, with some limitations on the terms and conditions of the
options; and
72
- in connection with certain acquisitions of third parties permitted to
be completed without the consent of the other party under the terms
of the merger agreement;
. modifying or amending its certificate of incorporation and bylaws or the
certificate of incorporation, bylaws or similar organizational documents
of its subsidiaries;
. acquiring other entities or assets that, individually or in the
aggregate, are material to its business, or investing in the equity of
other entities, other than (1) some internal reorganizations and (2)
acquisitions in which the aggregate consideration, including assumed
indebtedness, is less than $1.5 billion, in the case of HP, and $1.0
billion, in the case of Compaq, which acquisitions are in existing lines
of business, do not require shareowner approval and do not present a
material risk of delaying the merger or making it more difficult to
obtain governmental or regulatory approval;
. entering into any joint venture, strategic partnerships or alliances
which are material to any of its divisions or business units, would
present a material risk of delaying the merger or making it more
difficult to obtain governmental or regulatory approval or would require
the consent of the other to joint venture, strategic partnership or
alliance;
. selling, leasing, licensing, mortgaging or otherwise encumbering or
disposing of assets material to its business except in the ordinary
course of business, consistent with past practice;
. making any loans, advances, capital contributions or investments other
than (1) to finance acquisitions permitted to be completed without the
consent of the other party under the terms of the merger agreement, (2)
loan and investment transactions with subsidiaries, (3) employee loans
and advances in the ordinary course of business, consistent with past
practice, and (4) loans, advances, capital contributions or investments
in the ordinary course of business, consistent with past practice, which
are not material to it and its subsidiaries taken as a whole and which
do not present a material risk of delaying the merger or making it more
difficult to obtain governmental or regulatory approval;
. changing accounting policies and procedures except as required by United
States generally accepted accounting principles (GAAP) or the Securities
and Exchange Commission;
. settling any material claim, action or proceeding involving money
damages except (1) in the ordinary course of business, consistent with
past practice, or (2) to the extent subject to preexisting reserves in
accordance with GAAP;
. except as required by applicable law or existing contracts, increasing
the compensation of, or making severance or termination payments to, any
director or officer or other key employee of Compaq or any material
subsidiary, division or business unit of Compaq, or materially
increasing the compensation of, or making severance or termination
payments to, the employees of Compaq and its subsidiaries generally,
other than (1) grants of stock options or other stock based awards under
stock option plans in existence prior to September 4, 2001 in the
ordinary course of business, consistent with past practice, in
connection with annual compensation reviews, ordinary course promotions
or to new hires, with some limitations on the terms and conditions of
the options, (2) increases in compensation and fringe benefits and
payment of bonuses in the ordinary course of business, consistent with
past practice, in connection with annual compensation reviews or
ordinary course promotions, and (3) grants of reasonable severance or
termination pay to employees other than officers and directors in
connection with terminations of employment in order to avoid a material
risk of litigation;
. waiving of stock repurchase rights with respect to Compaq stock;
. accelerating the vesting of Compaq stock options or lapsing restrictions
on restricted stock or amending the period of exercisability of Compaq
stock options;
. granting stock appreciation rights to Compaq employees;
. adopting, modifying or amending Compaq employee benefit plans;
73
. entering into any employment, severance, termination or indemnification
agreement with any Compaq employee, except for agreements in the
ordinary course of business, consistent with past practice, (1) with
respect to employees of Compaq other than directors, officers and key
employees and (2) with respect to directors, officers and key employees
only if the employment is "at-will" and does not contain severance or
termination payments;
. subjecting HP or the corporation surviving the merger, or any of their
respective subsidiaries, to any non-compete or other material business
restriction; and
. entering into any oral or written agreement with respect to any of the
foregoing.
Compaq also agreed to additional restrictions on the following actions
unless HP agrees in writing:
. entering into any agreement or commitment having the effect of granting
to a third party following completion of the merger any actual or
potential right to any material intellectual property owned by HP;
. making or changing any material tax elections; and
. entering into any oral or written agreement with respect to any of the
foregoing.
Under the terms of the merger agreement, each of HP and Compaq agreed to
consult with the other's chief executive officer, chief financial officer or
other designee and agreed to consider in good faith the advice of the other
party's representative prior to taking any of the following actions:
. entering into any agreement relating to any material joint venture,
strategic partnership or alliance;
. entering into, modifying or amending in an adverse manner any material
contract, terminating any material contract, other than any
modification, amendment or termination in the ordinary course of
business, consistent with past practice;
. waiving, releasing or assigning in an adverse manner any rights or
claims under any material contract;
. granting any exclusive rights with respect to any material intellectual
property;
. incurring any indebtedness (including guarantees, debt securities or
rights to acquire debt securities, agreements to maintain any financial
statement condition of a third party other than a wholly owned
subsidiary and any arrangement having the economic effect of any of the
foregoing) other than:
- up to, in the case of HP, $1.5 billion of additional indebtedness
under debt facilities of HP existing or replacing those existing on
September 4, 2001, this $1.5 billion being in excess of the amount of
indebtedness outstanding under the HP debt facilities on September 4,
2001;
- up to, in the case of Compaq, $1.0 billion of additional indebtedness
under debt facilities of Compaq existing or replacing those existing
on September 4, 2001, this $1.0 billion being in excess of the amount
of indebtedness outstanding under the Compaq debt facilities existing
on September 4, 2001;
. proposing or making any acquisition of a third party otherwise permitted
to be completed without the consent of the other party under the terms
of the merger agreement for consideration of more than $50 million; and
. entering into oral or written agreement with respect to any of the
foregoing.
HP and Compaq Prohibited from Soliciting Other Offers
Under the terms of the merger agreement, subject to certain exceptions
described below, each of HP and Compaq have agreed that it will not, and each
of its subsidiaries, officers and directors and the officers and directors of
its subsidiaries will not, directly or indirectly:
. solicit, initiate, encourage, knowingly facilitate or induce any inquiry
with respect to, or the making, submission or announcement of, any
acquisition proposal by a third party of the type described below;
74
. participate or engage in any discussions or negotiations with any third
party regarding any acquisition proposal of the type described below;
. furnish to any person any nonpublic information regarding, or take any
other action to facilitate any inquiries or the making of any proposal
that constitutes or may be reasonably be expected to lead to, any
acquisition proposal of the type described below;
. approve, endorse or recommend any acquisition proposal of the type
described below; or
. enter into any letter of intent or similar document or any contract
agreement or commitment contemplating or otherwise relating to any
acquisition proposal of the type described below or any transaction
contemplated by the acquisition proposal.
In addition, each of HP and Compaq agreed to use all reasonable efforts to
cause its and its subsidiaries' employees, agents and representatives
(including any retained investment banker, attorney or accountant) not to do
any of the foregoing.
An acquisition proposal is any offer or proposal, including a tender or
exchange offer, by a third party or group with respect to HP or Compaq that
would result in any of the following:
. the acquisition by any person or group of more than a 10% interest in
the total outstanding voting securities of the party or any of its
subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving the party or any of its subsidiaries;
. any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition
or disposition of more than 10% of the assets of the party (including
its subsidiaries taken as a whole); or
. any liquidation or dissolution of the party.
Under the merger agreement, each of HP and Compaq agreed to cease, as of
September 4, 2001, all existing activities, discussions or negotiations with
any parties conducted prior to that date with respect to any acquisition
proposal.
Each of HP and Compaq is obligated to promptly notify the other orally and
in writing upon receipt of any type of acquisition proposal described above or
any request for nonpublic information or inquiry it reasonably believes would
lead to an acquisition proposal. The notice must include the material terms and
conditions of the acquisition proposal, request or inquiry, the identity of the
person or group making the acquisition proposal, request or inquiry and all
related written materials provided in connection with the acquisition proposal,
request or inquiry. Following delivery of the initial notice to the other
party, the party receiving an acquisition proposal, request or inquiry of the
type described above also must provide the other party with all information as
is reasonably necessary to keep the other party informed in all material
respects of the status and details of the acquisition proposal, request or
inquiry. Each of HP and Compaq further agreed to generally provide the other
party with 48 hours' notice of any meeting of its board of directors at which
its board of directors is reasonably expected to consider any acquisition
proposal.
Notwithstanding the prohibitions contained in the merger agreement with
respect to the type of acquisition proposals described above, if either of HP
or Compaq receives an unsolicited bona fide written acquisition proposal that
its board of directors concludes in good faith, following the receipt of the
advice of its outside legal counsel and its financial advisor, satisfies, or is
reasonably likely to result in an acquisition proposal that satisfies, each of
following criteria that constitute a superior offer:
. the acquisition proposal is an unsolicited bona fide written offer to
the board of directors made by a third party to acquire all or
substantially all of the company's assets or a majority of its total
75
outstanding voting securities, as a result of which the shareowners of
the company immediately preceding the transaction would hold less than
50% of the equity interests in the surviving or resulting entity of such
transaction (or any direct or indirect parent or subsidiary thereof);
. the proposed acquisition is on terms that the recipient board of
directors has in good faith concluded (following receipt of advice of
its outside legal counsel and its financial advisor) after taking into
account, among other things, all legal, financial, regulatory and other
aspects of the offer and the person or group making the offer (1) to be
more favorable, from a financial point of view, to its shareowners than
the terms of the merger and (2) is reasonably capable of being completed;
then the party receiving the superior offer may furnish nonpublic information
to, and engage in negotiations with, the third party making the acquisition
proposal, if its board of directors concludes in good faith, following the
receipt of advice of its outside legal counsel, that failure to do so is
reasonably likely to result in a breach of its fiduciary obligations under
applicable law.
In the event that either of HP or Compaq furnishes nonpublic information to
a third party making an acquisition proposal, it is required to give the other
party advance notice of such action and a copy of the information furnished
concurrently with its delivery of such information to the potential third party
acquirer. It also must enter into a confidentiality agreement with the third
party on terms which are at least as restrictive as the terms contained in the
confidentiality agreement entered into between HP and Compaq. In addition, in
the event that a party enters into negotiations with a third party making an
acquisition proposal, it is required to give the other party written notice of
its intention to enter into negotiations with the third party.
Obligations of the HP Board of Directors and Compaq Board of Directors with
Respect to its Recommendation and Holding a Meeting of its Shareowners
The HP board of directors agreed to call, hold and convene a meeting of its
shareowners promptly after the registration statement of which this joint proxy
statement/prospectus forms a part is declared effective by the Securities and
Exchange Commission. The HP board of directors also agreed to recommend the
approval of the issuance of shares of HP common stock in connection with the
merger to its shareowners and to use all reasonable efforts to obtain the
required shareowner approval. The Compaq board of directors agreed to call,
hold and convene a meeting of its shareowners promptly after the registration
statement of which this joint proxy statement/prospectus forms a part is
declared effective by the Securities and Exchange Commission. The Compaq board
of directors also agreed to recommend the approval and adoption of the merger
agreement and approval of the merger to its shareowners and to use all
reasonable efforts to obtain the required shareowner adoption and approvals.
Notwithstanding each of the HP board of directors' and the Compaq board of
directors' obligations described in this paragraph, in response to a third
party acquisition proposal deemed by the board of directors to be a superior
offer, the board of directors of HP or Compaq, as the case may be, may
withhold, withdraw, amend or modify its recommendation to its shareowners as
described in this paragraph and, in the case of a superior offer that is a
tender or exchange offer made directly to its shareowners, may recommend that
its shareowners accept the tender or exchange offer if the following conditions
are met:
. a superior offer has been made and has not been withdrawn;
. its shareowners' meeting has not occurred;
. it has provided the other party with written notice of its receipt of a
superior offer and has disclosed in the notice the material terms and
conditions of the superior offer, the identity of the third party or
group making the offer, and its intent to change its recommendation to
its shareowners and the manner in which it intends to do so;
. it has provided to the other party a copy of all written materials
delivered to the third party or parties making the superior offer in
connection with the offer, and it has made available to the other party
all materials and information it has made available to the third party
or parties making the superior offer in connection with the offer;
76
. its board of directors has concluded in good faith, after receipt of
advice of its outside legal counsel, that in light of a superior offer,
the failure of the board of directors to change its recommendation is
reasonably likely to result in a breach of its fiduciary obligations to
its shareowners under applicable law; and
. it has not breached in any material respect the handling of third party
acquisition proposals as described in the section entitled "HP and
Compaq Prohibited from Soliciting Other Offers" beginning on page 74 of
this joint proxy statement/prospectus or its obligations to call, hold
and convene a meeting of its shareowners, and to make the
recommendations to its shareowners required under to the merger
agreement, as described in this section.
Regardless of whether the board of directors of either of HP or Compaq has
received an acquisition proposal or has withheld, withdrawn, amended or
modified its recommendation to its shareowners, in the case of HP, to vote
"for" for the proposal to approve the issuance of shares of HP common stock in
connection with the merger, or, in the case of Compaq, to vote "for" the
proposal to approve and adopt the merger agreement and approve the merger, each
of HP and Compaq is obligated under the terms of the merger agreement to call,
give notice of, convene and hold a special meeting of its shareowners to
consider and vote upon its respective proposal. Neither HP nor Compaq is
permitted under the merger agreement to submit to the vote of its respective
shareowners any acquisition proposal, or propose to do so.
Treatment of Compaq Stock Options and SARs
When the merger is completed, HP will assume outstanding options to purchase
shares of Compaq common stock and convert them into options to purchase shares
of HP common stock. HP will convert each assumed Compaq option into an option
to purchase that number of shares of HP common stock equal to the number of
shares of Compaq common stock purchasable pursuant to the Compaq option
immediately prior to the effective time of the merger, multiplied by the
exchange ratio, rounded down to the nearest whole number of shares of HP common
stock. The exercise price per share will be equal to the exercise price per
share of Compaq common stock divided by the exchange ratio, rounded up to the
nearest whole cent. Each assumed option will be subject to all other terms and
conditions set forth in the applicable documents evidencing each Compaq option
immediately prior to the effective time of the merger, including any repurchase
rights or vesting provisions. As of , 200 , options for approximately
shares of Compaq common stock were outstanding in the aggregate under various
Compaq stock option plans.
HP also will assume outstanding Compaq SARs and convert them into SARs
relating to HP common stock. The number of shares to which each SAR relates and
the base price of each SAR will be adjusted in the same manner as described
above with respect to options to purchase Compaq common stock. As of , 200
, Compaq SARs relating to an aggregate of approximately shares of Compaq
common stock were outstanding under various Compaq equity-based plans.
HP will file a registration statement on Form S-8 with the Securities and
Exchange Commission, to the extent available, for the shares of HP common stock
issuable with respect to Compaq options and Compaq SARs assumed by HP in
connection with the merger.
Treatment of Rights under the Compaq Employee Stock Purchase Plan
Compaq's employee stock purchase plan permits eligible Compaq employees to
purchase Compaq common stock at a discount pursuant to such employees'
participation in the Compaq employee stock purchase plan. Prior to the
effective time of the merger, the Compaq employee stock purchase plan will be
terminated. Any offering period then underway under the Compaq employee stock
purchase plan will be shortened, if necessary, and pro rata adjustments to the
rights of employees in the Compaq employee stock purchase plan will be made to
reflect the shortened offering period. Each shortened offering period will
otherwise be treated as a fully effective and completed offering period for all
purposes under the Compaq employee stock purchase plan.
77
Compensation of Compaq Employees
In the merger agreement, HP has stated its intent that, for a 12-month
period after the merger, HP would use all reasonable efforts to provide
generally to those Compaq employees prior to the merger who become employees of
the combined company after the merger a total compensation (including benefits)
package that, in the aggregate, is generally comparable to the total
compensation (including benefits) package provided to those employees prior to
the date of the merger agreement. HP also agreed to use all reasonable efforts
to give continuing Compaq employees full credit for prior service with Compaq
or its subsidiaries for purposes of (1) eligibility and vesting under any HP
employee benefit plan, (2) benefits levels under any HP vacation or severance
plan and (3) determination of retiree status under any HP equity compensation
plan, for which the employee is otherwise eligible and in which the employee is
offered participation. However, full service credit will not be given where
such crediting would result in a duplication of benefits or otherwise cause HP
or its subsidiaries or any HP plan or related trust to accrue or pay for
benefits that relate to any time prior to the Compaq employee's participation
in the HP plan.
Under the merger agreement, the statements in the preceding paragraph
regarding employee compensation are statements of intent only, and no Compaq
employee or other person or entity, including Compaq, has any rights of
enforcement relating to those statements and no Compaq employee or other person
or entity, including Compaq, is intended to be a contractual beneficiary of the
statements.
Board of Directors and Management of HP Following the Merger
The HP board of directors agreed to take all actions necessary such that,
immediately following completion of the merger, the HP board of directors will
include five Compaq directors who are reasonably acceptable to HP, one of whom
is expected to be Mr. Capellas. The HP board of directors agreed to take all
further actions necessary such that immediately following completion of the
merger the HP board of directors will contain no more than two directors who
are employees of HP following the merger.
In the merger agreement, HP has stated its intent that, immediately
following the merger, each committee of the HP board of directors will include
at least one Compaq designee and a Compaq designee will be chairman of at least
one of the audit, compensation, finance and investment or nominating and
governance committees of the HP board of directors.
In the merger agreement, HP has stated its intent to negotiate in good faith
with certain persons who are currently senior executives of HP and Compaq who
are expected to become (or continue to be) senior executives of HP following
the merger for such persons to accept the positions and terms of employment
previously discussed between HP and Compaq.
Under the merger agreement, the statements in the two preceding paragraphs
regarding the composition of the committees of HP board of directors and senior
executives of HP following the merger employee are statements of intent only,
and no Compaq employee or other person, including Compaq, has any rights of
enforcement relating to those statements and no Compaq employee or other person
or entity, including Compaq, is intended to be a contractual beneficiary of the
statements.
Regulatory Filings; Antitrust Matters; Reasonable Efforts to Obtain
Regulatory Approvals
Each of HP, Heloise Merger Corporation and Compaq agreed to coordinate and
cooperate with one another and use all reasonable efforts to comply with, and
refrain from actions that would impede compliance with, applicable laws,
regulations and any other requirements of any governmental entity. HP and
Compaq also agreed to make all filings and submissions required by any
governmental entity in connection with the merger and the other transactions
contemplated by the merger agreement including the following:
78
. those filings or submissions required under the Hart-Scott-Rodino Act,
the European Community merger regulation and the Competition Act
(Canada), as well as any other comparable merger notification or control
laws of any applicable jurisdiction, as agreed by the parties;
. the filing of this joint proxy statement/prospectus and registration
statement filed by HP with the Securities and Exchange Commission of
which this joint proxy statement/prospectus forms a part;
. the filing of a certificate of merger with the Secretary of State of the
State of Delaware and appropriate documents with the relevant
authorities from other states in which it is qualified to do business;
and
. any other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable foreign and
state securities or related laws.
Except as prohibited or restricted by applicable law, each of HP, Heloise
Merger Corporation and Compaq generally agreed to do the following:
. consult with the other with respect to the filings or submissions
described above, and provide the other party an opportunity to review
and comment on the filings or submissions and coordinate with the other
with respect to the filing or submissions;
. promptly notify the other upon the receipt of any comments or requests
for amendments or supplements to any filings or submissions made
pursuant to, or information provided to comply with any applicable laws,
regulations and any other requirements of any governmental entity; and
. provide the other copies of any filing or submission made with any
governmental entity.
Subject to the provisions described in the sections entitled "HP and Compaq
Prohibited from Soliciting Other Offers" beginning on page 74 of this joint
proxy statement/prospectus, "Obligations of the HP Board of Directors and
Compaq Board of Directors with Respect to its Recommendation and Holding a
Meeting of its Shareowners" beginning on page 76 of this joint proxy
statement/prospectus and "Limitation on Reasonable Efforts to Obtain Regulatory
Approvals" immediately following this paragraph, each of HP and Compaq agreed
to use all reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable to
complete and make effective the merger and the other transactions contemplated
by the merger agreement in the most expeditious manner practicable.
Limitation on Reasonable Efforts to Obtain Regulatory Approvals
Neither HP nor Compaq nor any of their respective subsidiaries or affiliates
is required to take any of the following actions if these actions would be
reasonably likely to materially adversely impact the benefits expected to be
derived by HP and its subsidiaries on a combined basis with Compaq and its
subsidiaries following the merger:
. make proposals, execute or carry out agreements or submit to any
applicable laws, regulations and any other requirements of any
governmental entity providing for:
- the license, sale or other disposition or holding separate of any
assets or categories of assets that are material to HP, Compaq or any
of their respective subsidiaries;
- the holding separate of Compaq's capital stock;
- the imposition or proposed imposition of any limitation on the
ability of any of HP, Compaq or their respective subsidiaries to
conduct its businesses; or
- the imposition or proposed imposition of any limitation on the
ability of any of HP, Compaq or their respective subsidiaries to own
assets or to acquire, hold or exercise full rights of ownership of
Compaq's business;
79
. or otherwise take any step to avoid or eliminate any impediment which
may be asserted under any applicable laws, regulations and any other
requirements of any governmental entity governing competition,
monopolies or restrictive trade practices.
Conditions to Completion of the Merger
The respective obligations of HP and Heloise Merger Corporation, on the one
hand, and Compaq, on the other, to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
. the issuance of shares of HP common stock to holders of Compaq common
stock in connection with the merger has been approved by the vote of
holders of the requisite number of shares of HP common stock;
. the merger agreement has been adopted and approved and the merger has
been approved by the vote of holders of the requisite number of shares
of Compaq common stock;
. no law, regulation or order has been enacted or issued by a governmental
entity of competent jurisdiction which is in effect and has the effect
of making the merger illegal or otherwise prohibiting completion of the
merger (which illegality or prohibition would have material impact on HP
and its subsidiaries on a combined basis with Compaq and its
subsidiaries, if the merger were completed notwithstanding such statute,
rule, regulation or order);
. the Securities and Exchange Commission has declared HP's registration
statement effective, no stop order suspending its effectiveness has been
issued and no proceedings for suspension of the registration statement's
effectiveness, or a similar proceeding in respect of this joint proxy
statement/prospectus, has been initiated or threatened in writing by the
Securities and Exchange Commission;
. all waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act with respect to the merger and the other transactions contemplated
by the merger agreement have expired or terminated early;
. any approval of the merger by the European Commission has been obtained
pursuant to the European Community merger regulation;
. all other material foreign antitrust approvals required to be obtained
prior to the merger in connection with the transactions contemplated by
the merger agreement have been obtained;
. there is no pending or overtly threatened suit, action or proceeding
asserted by any governmental authority challenging or seeking to
restrain or prohibit the completion of the merger or any of the other
transactions contemplated by the merger agreement, the effect of which
would be an order making the merger illegal or otherwise prohibiting
completion of the merger (which illegality or prohibition would have a
material impact on HP and its subsidiaries on a combined basis with
Compaq and its subsidiaries, if the merger were completed
notwithstanding such order);
. there is no pending or overtly threatened suit, action or proceeding
asserted by any governmental authority seeking to require HP or Compaq
or any of their respective subsidiaries or affiliates to effect any of
the actions described in the section entitled "Limitation on Reasonable
Efforts to Obtain Regulatory Approvals" beginning on page 79 of this
joint proxy statement/prospectus if such actions of divestiture would be
reasonably likely to materially adversely impact the benefits expected
to be derived by HP and its subsidiaries on a combined basis with Compaq
and its subsidiaries following the merger;
. HP and Compaq have each received from its respective tax counsel an
opinion to the effect that the merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code and
such opinions have not been withdrawn; and
. the shares of HP common stock to be issued in connection with the merger
have been authorized for listing on each of the New York Stock Exchange
and the Pacific Exchange.
80
In addition, individually, the respective obligations of HP and Heloise
Merger Corporation on the one hand, and Compaq on the other, to effect the
merger and the other transactions contemplated by the merger agreement are
subject to the satisfaction or waiver of the following additional conditions:
. the representations and warranties of the other party will have been
true and correct on September 4, 2001 and are true and correct as of the
date the merger is to be completed as if made at and as of that time,
except:
- to the extent the representations and warranties of the other party
address matters only as of a particular date, they must be true and
correct as of that date; and
- if any of these representations and warranties are not true and
correct but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and breaches of these
warranties, is not and does not have a material adverse effect, as
defined below, on the other party, then this condition will be deemed
satisfied;
. the other party will have performed or complied in all material respects
with all of its agreements and covenants required by the merger
agreement to be performed or complied with by it before completion of
the merger; and
. no material adverse effect, as defined below, on the other party has
occurred since September 4, 2001 and is continuing.
Definition of Material Adverse Effect
Under the terms of the merger agreement, a material adverse effect on either
HP or Compaq is defined to mean any change, event, violation, inaccuracy,
circumstance or effect, individually or when taken together, that is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), capitalization, financial condition or results of
operations of the company taken as a whole with its subsidiaries or materially
impede the authority of the company, or, in any case, HP, to complete the
transactions contemplated by the merger agreement. However, under the terms of
the merger agreement, none of the following, individually or in combination,
will be deemed to constitute, and none of the following will be taken into
account in determining, whether there has been or will be, a material adverse
effect on HP or Compaq, as the case may be:
. any change, event, violation, inaccuracy, circumstance or effect
resulting from compliance with the terms and conditions of the merger
agreement;
. any change, event, violation, inaccuracy, circumstance or effect
resulting from the announcement or pendency of the merger, provided that
this exception does not apply to the use of the term material adverse
effect as used in:
- the condition to the obligation of Compaq to complete the merger that
HP's representations and warranties with respect to (1) authority,
(2) the absence of conflicts with applicable legal requirements,
organizational documents and material contracts, (3) governmental
approvals, and (4) material contracts, be true and correct as of
September 4, 2001 and as of the date the merger is completed except
as would not constitute a material adverse effect; and
- the condition to the obligations of HP and Heloise Merger Corporation
to complete the merger that Compaq's representations and warranties
with respect to (1) authority, (2) the absence of conflicts with
applicable legal requirements, organizational documents and material
contracts, (3) governmental approvals, (4) material contracts and (5)
impairment of the business or material intellectual property of HP or
its subsidiaries by virtue of the merger, be true and correct as of
September 4, 2001 and as of the date the merger is completed except
as would not constitute a material adverse effect;
. any change in the stock price or trading volume, in and of itself, of HP
or Compaq, as the case may be;
81
. any failure by HP or Compaq, as the case may be, to meet published
revenue or earnings projections, in and of itself;
. any change, event, violation, inaccuracy, circumstance or effect that
results from changes affecting any of the industries in which such
entity operates generally or the United States economy generally (which
changes in each case do not disproportionately affect HP or Compaq, as
the case may be, in any material respect); or
. any shareowner class action litigation arising from allegations of a
breach of fiduciary duty relating to the merger agreement.
Termination of the Merger Agreement
The merger agreement may be terminated in accordance with its terms at any
time prior to completion of the merger, whether before or after the approval
and adoption of the merger agreement and approval of the merger by Compaq
shareowners or the approval of the issuance of shares of HP common stock to
Compaq shareowners by HP shareowners in connection with the merger:
. by mutual written consent of HP and Compaq;
. by HP or Compaq if the merger is not completed by May 31, 2002 (which
will be extended to August 30, 2002 if the merger has not been completed
as a result of a failure to obtain required antitrust approvals or
existence of governmental regulation or order making the completion of
the merger illegal or otherwise prohibited), except that this right to
terminate the merger agreement is not available to any party whose
action or failure to act has been a principal cause of or resulted in
the failure of the merger to occur on or before that date, and the
action or failure to act constitutes a breach of the merger agreement;
. by HP or Compaq, if there is any order of a court or other action or
inaction of any governmental authority having the effect of permanently
restraining, enjoining or prohibiting the completion of the merger which
is final and nonappealable;
. by HP or Compaq if the issuance of shares of HP common stock to Compaq
shareowners in connection with the merger fails to receive the requisite
affirmative vote by the shareowners of HP at a meeting of HP shareowners
or at any adjournment of that meeting, except that the right to
terminate the merger agreement is not available to HP where the failure
to obtain HP shareowner approval was caused by HP's action or failure to
act and the action or failure to act constitutes a breach by HP of the
merger agreement;
. by HP or Compaq if the merger agreement and the merger fails to receive
the requisite affirmative vote for adoption and approval at a meeting of
Compaq shareowners or at any adjournment of that meeting, except that
this right to terminate the merger agreement is not available to Compaq
where the failure to obtain Compaq shareowner approval was caused by
Compaq's action or failure to act and the action or failure to act
constitutes a breach by Compaq of the merger agreement;
. by HP, at any time prior to the adoption and approval of the merger
agreement and the merger by the required vote of Compaq shareowners, if
any of the following triggering events occur with respect to Compaq:
- its board of directors withdraws, amends or modifies, in a manner
adverse to the other party, the recommendation of its board of
directors described in the section entitled "Obligations of the HP
Board of Directors and Compaq Board of Directors with Respect to its
Recommendation and Holding a Meeting of its Shareowners" beginning on
page 76 of this joint proxy statement/prospectus;
- it fails to include in this joint proxy statement/prospectus the
recommendation of its board of directors;
82
- its board of directors fails to reaffirm (publicly, if the other
party requests) its recommendation within ten calendar days after
being requested by the other party to reaffirm such recommendation;
- its board of directors approves or recommends any acquisition
proposal of the type described in the section entitled "HP and Compaq
Prohibited from Soliciting Other Offers" beginning on page 74 of this
joint proxy statement/prospectus; or
- a tender or exchange offer relating to its securities is initiated by
a third party and it does not send to its securityholders, pursuant
to Rule 14e-2 promulgated under the Securities and Exchange Act of
1934 within ten business days after the tender or exchange offer is
first published, sent or given, a statement disclosing that its board
of directors recommends rejection of the tender or exchange offer;
. by Compaq, at any time prior to the approval of the issuance of shares
of HP common stock to Compaq shareowners in connection with the merger
by the required vote of HP shareowners, if any of the triggering events
described above with respect to Compaq occurs with respect to HP;
. by Compaq upon a breach of any representation, warranty, covenant or
agreement on the part of HP in the merger agreement or if any
representation or warranty of HP has become untrue so that the condition
to completion of the merger regarding HP's representations and
warranties or covenants would not be met. However, if the breach or
inaccuracy is curable by HP through the exercise of reasonable efforts,
then Compaq may not terminate the merger agreement for 60 days after
delivery of written notice from Compaq to HP of the breach. If the
breach is cured during those 60 days, or if Compaq is otherwise in
material breach of the merger agreement, Compaq may not exercise this
termination right;
. by HP upon a breach of any representation, warranty, covenant or
agreement on the part of Compaq in the merger agreement or if any
representation or warranty of Compaq has become untrue so that the
condition to completion of the merger regarding Compaq's representations
and warranties or covenants would not be met. However, if the breach or
inaccuracy is curable by Compaq through the exercise of reasonable
efforts, then HP may not terminate the merger agreement for 60 days
after delivery of written notice from HP to Compaq of the breach. If the
breach is cured during those 60 days, or if HP is otherwise in material
breach of the merger agreement, HP may not exercise this termination
right;
. by HP, if there is a material adverse effect on Compaq since September
4, 2001; or
. by Compaq, if there is a material adverse effect on HP since September
4, 2001.
Payment of Termination Fee
Under the terms of the merger agreement, each of HP and Compaq have agreed
to pay to the other a termination fee of $675 million within two business days
of the termination of the merger agreement if the merger agreement is
terminated by the other party because of the occurrence of a triggering event
in relation to it as described in the section entitled "Termination of the
Merger Agreement" beginning on page 82 of this joint proxy statement/prospectus.
Under the terms of the merger agreement, HP must pay a termination fee of
$675 million to Compaq if all of the following conditions are met:
. between September 4, 2001 and the termination of the merger agreement
there has been public disclosure of an acquisition proposal by a third
party with respect to HP of the type described in the section entitled
"HP and Compaq Prohibited from Soliciting Other Offers" beginning on
page 74 of this joint proxy statement/prospectus; and
83
. the merger agreement has been terminated on either of the following
bases:
- the merger has not been completed by May 31, 2002 (or August 30, 2002
if the merger is not completed as a result of a failure to obtain
required antitrust approvals or the existence of a governmental
regulation or order having the effect of making the completion of the
merger illegal or otherwise prohibited); or
- HP shareowners failed to approve the issuance of shares of HP common
stock in connection with the merger at a meeting of HP shareowners or
an adjournment of that meeting; and
. either of the following has occurred:
- within 12 months following termination of the merger agreement, HP is
the subject of an acquisition of the type described below; or
- within 12 months following termination of the merger agreement, HP
enters into an agreement contemplating the acquisition of it in any
of the manners described below and, within 24 months following the
termination of the merger agreement, an acquisition of the type
described below is completed.
The termination fee must be paid within two days following the acquisition
of HP.
In addition, Compaq must pay a termination fee of $675 million to HP if all
of the following conditions are met:
. between September 4, 2001 and the termination of the merger agreement
there has been public disclosure of an acquisition proposal by a third
party with respect to Compaq of the type described in the section
entitled "HP and Compaq Prohibited from Soliciting Other Offers"
beginning on page 74 of this joint proxy statement/prospectus; and
. the merger agreement has been terminated on either of the following
bases:
- the merger has not been completed by May 31, 2002 (or August 30, 2002
if the merger is not completed as a result of a failure to obtain
required antitrust approvals or the existence of a governmental
regulation or order having the effect of making the completion of the
merger illegal or otherwise prohibited); or
- Compaq shareowners failed to adopt and approve the merger agreement
and to approve the merger at a meeting of Compaq shareowners or an
adjournment of that meeting; and
. either of the following has occurred:
- within 12 months following termination of the merger agreement,
Compaq is the subject of an acquisition of the type described below;
or
- within 12 months following termination of the merger agreement Compaq
enters into an agreement contemplating the acquisition of it in any
of the manners described below and, within 24 months following the
termination of the merger agreement, an acquisition of the type
described below is completed.
The termination fee must be paid within two days following the acquisition
of Compaq.
Under the terms of the merger agreement, an acquisition of either HP or
Compaq, as applicable, for the purposes of these termination provisions, is any
of the following:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving it, pursuant
to which its shareowners immediately preceding such transaction hold
less than 60% of the aggregate equity interests in the surviving or
resulting entity, or direct parent, of such transaction;
84
. a sale or other disposition by the party of assets representing in
excess of 40% of the aggregate fair market value of its business,
immediately prior to such sale; or
. the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by it, directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of
shares representing in excess of 40% of the voting power of the then
outstanding shares of its capital stock.
Payment of the termination fee is not in lieu of damages incurred in the
event of breach of the merger agreement. If the party entitled to payment of
the termination fee has to make a claim against the other party and such claim
results in a judgment against the other party, the party required to pay the
termination fee will also have to pay the other party's reasonable costs and
expenses in connection with the suit together with interest on the unpaid
termination fee.
Extension, Waiver and Amendment of the Merger Agreement
HP and Compaq may amend the merger agreement before completion of the merger
by mutual written consent.
Either HP or Compaq may extend the other's time for the performance of any
of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
United States Federal Income Tax Consequences of the Merger
The following summary discusses certain United States federal income tax
consequences of the merger to Compaq shareowners. The following discussion is
based on existing provisions of the Internal Revenue Code, existing treasury
regulations and current administrative rulings and court decisions, all of
which are subject to change, possibly with retroactive effect, and to differing
interpretations.
We do not discuss all United States federal income tax considerations that
may be relevant to a particular shareowner in light of his or her personal
circumstances or to shareowners subject to special treatment under the federal
income tax laws, including:
. dealers in securities or foreign currencies;
. shareowners who are subject to the alternative minimum tax provisions of
the Internal Revenue Code;
. tax-exempt organizations;
. non-United States persons or entities;
. financial institutions or insurance companies;
. shareowners who acquired Compaq common stock in connection with stock
option or stock purchase plans or in other compensatory transactions; or
. shareowners who hold Compaq common stock as part of an integrated
investment, including a "straddle," comprised of shares of Compaq common
stock and one or more other positions.
In addition, we do not discuss the tax consequences of the merger under
foreign, state or local tax law. This discussion assumes that Compaq
shareowners hold their shares of Compaq common stock as capital assets within
the meaning of Section 1221 of the Internal Revenue Code (generally, as
property held as an investment).
Accordingly, we urge you to consult your tax advisors as to the specific tax
consequences to you of the merger, including any applicable federal, state,
local and foreign tax consequences.
85
The completion of the merger is conditioned upon the delivery by each of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to HP, and
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Compaq, of its opinion to
the effect that, on the basis of the facts, assumptions, and representations
set forth in such opinion, the merger will constitute a "reorganization" for
United States federal income tax purposes within the meaning of Section 368(a)
of the Internal Revenue Code. As a result of the merger qualifying as a
"reorganization":
. Compaq shareowners will not recognize any gain or loss upon the receipt
of HP common stock in exchange for Compaq common stock in connection
with the merger, except for cash received instead of a fractional share
of HP common stock;
. the aggregate tax basis of the HP common stock received by a Compaq
shareowner in connection with the merger, including any fractional share
of HP common stock not actually received, will be equal to the aggregate
tax basis of the Compaq common stock surrendered in exchange for HP
common stock;
. the holding period of the HP common stock received by a Compaq
shareowner in connection with the merger will include the holding period
of the Compaq common stock surrendered in connection with the merger;
. cash payments received by a Compaq shareowner for a fractional share of
HP common stock will be treated as if such fractional share had been
issued in connection with the merger and then redeemed by HP, and Compaq
shareowners will recognize capital gain or loss with respect to such
cash payment, measured by the difference, if any, between the amount of
cash received and the tax basis in such fractional share; and
. HP, Heloise Merger Corporation and Compaq will not recognize gain or
loss as a result of the merger.
Neither HP nor Compaq will request a ruling from the Internal Revenue
Service regarding the tax consequences of the merger to Compaq shareowners. The
tax opinions do not bind the Internal Revenue Service and do not prevent the
Internal Revenue Service from successfully asserting a contrary opinion. In
addition, if any of the representations or assumptions upon which the opinions
are based are inconsistent with the actual facts, the tax consequences of the
merger could be adversely affected.
Accounting Treatment of the Merger
In accordance with United States generally accepted accounting principles,
HP will account for the merger using the purchase method of accounting. Under
this method of accounting, HP will record the market value (based on an average
of the closing prices of HP common stock for a range of trading days from two
days before and after September 3, 2001, the announcement date) of its common
stock issued in connection with the merger, the fair value of the options to
purchase shares of Compaq common stock assumed in connection with the merger
and the amount of direct transaction costs associated with the merger as the
estimated purchase price of acquiring Compaq. HP will allocate the estimated
purchase price to the net tangible and amortizable intangible assets acquired
(including developed and core technology and patents, customer contracts and
lists, and distribution agreements), intangible assets with indefinite lives
and in-process research and development, based on their respective fair values
at the date of the completion of the merger. Any excess of the estimated
purchase price over those fair values will be accounted for as goodwill.
Amortizable intangible assets, currently estimated at $4.1 billion, will
generally be amortized over useful lives ranging from two to ten years,
resulting in an estimated accounting charge for amortization attributable to
these items of approximately $600 million on an annual basis. In-process
research and development, which is currently estimated at $1 billion, will be
expensed during the fiscal quarter in which the merger is completed. In
accordance with the Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," intangible assets with indefinite
lives, and goodwill resulting from a business combination completed subsequent
to June 30, 2001, will not be amortized but instead will be tested for
impairment at least annually
86
(more frequently if certain indicators are present). The amount of the
estimated purchase price allocated to goodwill and intangible assets with
indefinite lives is estimated to be approximately $10.7 billion.
In the event that the management of the combined company determines that the
value of goodwill or intangible assets with indefinite lives has become
impaired, the combined company will incur an accounting charge for the amount
of impairment during the fiscal quarter in which the determination is made. In
addition, in the event that the management of the combined company determines
that the useful life of any intangible assets with indefinite lives has become
definite, the intangible asset will be amortized over its remaining useful
life, and the combined company will incur an accounting charge related to such
amortization during each fiscal quarter of the intangible asset's remaining
useful life. The amounts listed in the above paragraph are only preliminary
estimates, however, actual amounts may differ from these estimates.
Directors and Executive Officers of HP Following the Merger
HP currently intends to make the following changes to the HP board of
directors following the completion of the merger:
. the HP board of directors will include five directors from Compaq who
are reasonably acceptable to HP, including Mr. Capellas; and
. the HP board of directors will contain no more than two directors who
are employees of HP.
In addition, following the completion of the merger, HP intends to review
the composition of the HP board of directors and its committees. Specifically,
HP expects that:
. each committee of the HP board of directors will include at least one
Compaq designee;
. Ms. Fiorina will step down from the nominating and governance committee
to allow for an additional outside director to join that committee; and
. a Compaq designee will become the chairman of at least one of the audit,
compensation, finance and investment or nominating and governance
committees of the HP board of directors.
In addition, HP is negotiating with certain persons who are current senior
executives of HP and Compaq and who are expected to become, or continue to be,
senior executives of HP following the merger.
Effect of the Merger on Compaq Equity Incentive Plans
Under Compaq's various equity plans for its employees, stock options and
stock appreciation rights (SARs) granted prior to September 1, 2001 will become
fully vested upon Compaq shareowner approval of the merger in accordance with
the amended terms of Compaq's equity-based plans. Stock options and SARs
granted under the equity-based plans on or after September 1, 2001 will become
fully vested upon any "qualifying termination" (as defined in Compaq's
equity-based plans) of employment within one year following the completion of
the merger, in accordance with the amended terms of Compaq's equity-based
plans. Certain restrictions on grants of restricted stock issued under the
equity-based plans will lapse upon completion of the merger.
Generally under Compaq's equity-based plans as amended, upon a qualifying
termination within one year of the merger, the participant will have the right
to exercise his or her stock option or SAR until the earlier of:
. the third anniversary of the participant's qualifying termination of
employment (in the case of awards granted prior to September 1, 2001),
or the first anniversary of the participant's termination of employment
(in the case of awards granted on or after September 1, 2001); and
. the expiration of the term of the stock option or SAR.
87
Regulatory Filings and Approvals Required to Complete the Merger
The merger is subject to review by the United States Federal Trade
Commission under the Hart-Scott-Rodino Improvements Act of 1976, by the
European Commission under Council Regulation No. 4064/89 of the European
Community, and by the Canadian Competition Bureau under the Competition Act
(Canada). Under each of these statutes, HP and Compaq are required to make
pre-merger notification filings and to await the expiration or early
termination of statutory waiting periods or obtain clearance prior to
completing the merger. Each of HP and Compaq received a request for additional
information and other documentary material from the Federal Trade Commission
under the Hart-Scott-Rodino Act in connection with the merger. This request
effectively extends the waiting period for the merger under the
Hart-Scott-Rodino Act. In practice, complying with a request for additional
information or material under the Hart-Scott-Rodino Act can take a significant
amount of time. The merger may also be subject to review by the governmental
authorities of various other jurisdictions under the antitrust laws of those
jurisdictions. HP and Compaq have not yet obtained any of the governmental or
regulatory approvals required to complete the merger.
There can be no assurance that the governmental reviewing authorities will
permit the applicable statutory waiting periods to expire, terminate the
applicable statutory waiting periods or clear the merger at all or without
restrictions or conditions that would have a materially adverse effect on the
combined company if the merger is completed. These restrictions and conditions
could include a complete or partial license, divestiture, spin-off or the
holding separate of assets or businesses. Under the terms of the merger
agreement, neither HP nor Compaq is required to comply with any restriction or
condition that would be reasonably likely to materially adversely impact the
benefits expected to be derived by HP and its subsidiaries, on a combined basis
with Compaq and its subsidiaries, as a result of the merger or would be
reasonably likely to materially adversely affect HP and its subsidiaries, on a
combined basis with Compaq and its subsidiaries. Either HP or Compaq may refuse
to complete the merger if any such restrictions or conditions are required by
governmental authorities as a condition to approving the merger. No additional
shareowner approval is expected to be required or sought for any decision by HP
or Compaq, after the special meeting of HP's shareowners and the special
meeting of Compaq's shareowners, to agree to any terms and conditions necessary
to resolve any regulatory objections to the merger, and shareowner approval
will not be sought unless shareowner approval is required to approve the terms
and conditions under applicable law.
In addition, during or after the statutory waiting periods and clearance of
the merger, and even after completion of the merger, either the Antitrust
Division of the United States Department of Justice, the Federal Trade
Commission or the European Commission could challenge or seek to block the
merger under the antitrust laws, as it deems necessary or desirable in the
public interest. In Canada, the Commissioner of Competition appointed under the
Competition Act (Canada) may challenge the merger at any time prior to or
within three years of completion if the merger prevents or lessens, or is
likely to prevent or lessen, competition substantially. Other competition
agencies with jurisdiction over the merger could also initiate action to
challenge or block the merger. In addition, in some jurisdictions, a
competitor, customer or other third party could initiate a private action under
the antitrust laws challenging or seeking to enjoin the merger, before or after
it is completed. HP and Compaq cannot be sure that a challenge to the merger
will not be made or that, if a challenge is made, HP and Compaq will prevail.
Listing of Shares of HP Common Stock Issued in the Merger on the New York Stock
Exchange and the Pacific Exchange
HP will use all reasonable efforts to cause the shares of HP common stock
issued in connection with the merger to be authorized for listing on the New
York Stock Exchange and the Pacific Exchange before the completion of the
merger, subject to official notice of issuance.
Delisting and Deregistration of Compaq Common Stock After the Merger
When the merger is completed, Compaq common stock will be delisted from the
New York Stock Exchange and deregistered under the Securities Exchange Act of
1934.
88
Restrictions on Sales of Shares of HP Common Stock Received in the Merger
The shares of HP common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable, except for shares of HP common stock issued to any person who is
deemed to be an "affiliate" of Compaq prior to the merger. Persons who may be
deemed to be "affiliates" of Compaq prior to the merger include individuals or
entities that control, are controlled by, or are under common control of Compaq
prior to the merger, and may include officers and directors, as well as
principal shareowners of Compaq prior to the merger. Affiliates of Compaq will
be notified separately of their affiliate status.
Persons who may be deemed to be affiliates of Compaq prior to the merger may
not sell any of the shares of HP common stock received by them in connection
with the merger except pursuant to:
. an effective registration statement under the Securities Act of 1933
covering the resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act of
1933; or
. any other applicable exemption under the Securities Act of 1933.
HP's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of shares of HP
common stock to be received in connection with the merger by persons who may be
deemed to be affiliates of Compaq prior to the merger.
No Appraisal Rights
Neither HP shareowners nor Compaq shareowners are entitled to dissenters'
rights of appraisal for their shares under the General Corporation Law of the
State of Delaware in connection with the merger.
89
BUSINESS OF THE COMBINED COMPANY
Overview of Business Structure
Following completion of the merger, the combined company will operate in
over 160 countries and expects to have approximately 145,000 employees after
expected headcount reductions through attrition and targeted job reductions. As
of July 31, 2001, unaudited pro forma combined consolidated total assets of HP
and Compaq were approximately $68.9 billion. In addition, for the nine months
ended July 31, 2001, unaudited pro forma combined consolidated total net
revenue for HP and Compaq was $62.6 billion and earnings from operations were
$963 million. For the year ended October 31, 2000, unaudited pro forma combined
consolidated total net revenue for HP and Compaq was $89.9 billion and earnings
from operations were $5.4 billion. These amounts are not intended to represent
or be indicative of the amounts that would have been reported had the merger
been completed as of the dates presented, and should not be taken as
representative of the future consolidated results of operations or financial
condition of HP. See the section entitled "Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements" beginning on page 92 of this joint
proxy statement/prospectus.
As soon as practicable following the merger, HP intends to merge Compaq into
HP. The combined company will retain its headquarters in Palo Alto, California
and will retain a significant presence in Houston, Texas, which will be a key
strategic center of engineering excellence and product development for the
combined company.
HP and Compaq plan to integrate their businesses and product lines and
organize the combined company's business into four major groups:
. Enterprise Systems;
. Services;
. Imaging and Printing Systems; and
. Personal Systems.
In addition to these primary business groups, the combined company will
include several corporate level organizations. Among these will be HP Labs,
which will include part of Compaq's research and development function, an
organization focused on corporate philanthropy and community responsibility and
a corporate operations organization focused on areas of cross-company
opportunity, including procurement.
Enterprise Systems
The Enterprise Systems group will be led by Mr. Blackmore, currently
Compaq's Executive Vice President, Worldwide Sales and Services, and will
include servers, storage and software. It will provide a full line of computing
systems from high-volume industry standard servers to high-end, fault-tolerant
systems; a wide range of storage solutions from midrange and high-end array
systems, to storage area networks and storage area management software; and
industry leading offerings in management software, integrated services
management and next generation operating environments.
Services
The Services group will be led by Ms. Livermore, currently President of HP
Services, and will provide consulting, outsourcing and support to help design,
build, and manage and support the Enterprise Systems group. The combined
services organization is expected to include 65,000 professionals around the
world. The business offerings of the Services group will include consulting,
education, design and installation services, ongoing support and maintenance,
in addition to proactive services like mission-critical support, comprehensive
outsourcing and next-generation utility-computing capabilities.
90
Imaging and Printing Systems
The Imaging and Printing group will be led by Mr. Joshi, currently HP's
President of Imaging and Printing Systems. The business offerings of the
Imaging and Printing group will continue to include the HP LaserJet and DeskJet
printer families (both monochrome and color), scanners, mopiers, fax machines,
digital senders, large-and wide-format printers, PC and digital photography
products and all-in-one products that combine multiple functions like scanning,
copying and printing in one device. HP's investment in, and pending acquisition
of, Indigo, N.V., a leading provider of high performance digital printing
systems used in the production of on-demand, short-run color digitally-printed
products, is designed to enhance HP's strategy in the evolving commercial
printing market. Indigo is expected to add a third high-speed color print
technology to HP's highly successful Inkjet and Laserjet technologies.
Personal Systems
The Personal Systems group will be led by Mr. Zitzner, currently HP's
President of Computing Systems, and will include business and consumer desktop
and mobile personal computers, handhelds, and new types of Internet-access
devices, personal storage devices, and digital music and entertainment devices.
The Personal Systems group will focus on serving customers through multiple
channels including strong distributor, reseller, and retail channel efforts, in
addition to directly serving customers through the Internet and by telephone.
Integration Office
HP recognizes the challenge inherent in integrating enterprises of the size
and complexity of HP and Compaq. HP also recognizes that a swift and successful
integration of the two companies is crucial to capturing the potential value of
the merger. Accordingly, HP has established an integration office that will
report directly to Ms. Fiorina. This office will be run jointly by Mr. McKinney
and Mr. Clarke, each a key executive officer at HP and Compaq, respectively.
Mr. McKinney currently serves as the President of HP's Business Customer
Organization and provides a proven record as a line manager and deep expertise
in the HP organization. Mr. Clarke currently serves as Compaq's Senior Vice
President, Finance and Administration, and Chief Financial Officer and provides
his depth of knowledge of the IT industry and of Compaq. Mr. Clarke also brings
significant expertise in finance and general corporate matters.
91
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated balance
sheet as of July 31, 2001 and the unaudited pro forma condensed combined
consolidated statements of earnings for the nine months ended July 31, 2001 and
for the year ended October 31, 2000 are based on the historical financial
statements of HP and Compaq after giving effect to the merger as a purchase of
Compaq by HP using the purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to the unaudited pro forma
condensed combined consolidated financial statements.
The unaudited pro forma condensed combined consolidated balance sheet as of
July 31, 2001 is presented to give effect to the proposed merger as if it
occurred on July 31, 2001 and, due to different fiscal period ends, combines
the historical balance sheet for HP at July 31, 2001 and the historical balance
sheet of Compaq at June 30, 2001. The unaudited pro forma condensed combined
consolidated statement of earnings of HP and Compaq for the nine months ended
July 31, 2001 is presented as if the combination had taken place on November 1,
2000 and, due to different fiscal period ends, combines the historical results
of HP for the nine months ended July 31, 2001 and the historical results of
Compaq for the nine months ended June 30, 2001. The unaudited pro forma
condensed combined consolidated statement of earnings of HP and Compaq for the
year ended October 31, 2000 is presented as if the combination had taken place
on November 1, 1999 and, due to different fiscal year ends, combines the
historical results of HP for the year ended October 31, 2000 with the
historical results of Compaq for the twelve months ended September 30, 2000.
Under the purchase method of accounting, the total estimated purchase price,
calculated as described in Note 1 to these unaudited pro forma condensed
combined consolidated financial statements, is allocated to the net tangible
and intangible assets of Compaq acquired in connection with the merger, based
on their fair values as of the completion of the merger. Independent valuation
specialists are currently conducting an independent valuation in order to
assist management of HP in determining the fair values of a significant portion
of these assets. The preliminary work performed by the independent valuation
specialists has been considered in management's estimates of the fair values
reflected in these unaudited pro forma condensed combined consolidated
financial statements. A final determination of these fair values, which cannot
be made prior to the completion of the merger, will include management's
consideration of a final valuation prepared by the independent valuation
specialists. This final valuation will be based on the actual net tangible and
intangible assets of Compaq that exist as of the date of completion of the
merger.
Further, the unaudited pro forma condensed combined consolidated financial
statements do not include any adjustments for liabilities resulting from
integration planning, as management of HP and Compaq are in the very early
stages of making these assessments and estimates of these costs are not
currently known. However, liabilities ultimately will be recorded for severance
or relocation costs related to Compaq employees, costs of vacating some
facilities (leased or owned) of Compaq, or other costs associated with exiting
activities of Compaq. In addition, HP may incur significant restructuring
charges upon completion of the merger or in subsequent quarters for severance
or relocation costs related to HP employees, costs of vacating some facilities
(leased or owned) of HP, or other costs associated with exiting activities of
HP.
Because these unaudited pro forma condensed combined consolidated financial
statements have been prepared based on preliminary estimates of fair values and
do not include liabilities which are not presently estimable as discussed
above, the actual amounts recorded as of the completion of the merger may
differ materially from the information presented in these unaudited pro forma
condensed combined consolidated financial statements. In addition to the
receipt of the final valuation, the impact of ongoing integration activities,
the timing of completion of the merger and other changes in Compaq's net
tangible and intangible assets which occur prior to completion of the merger
could cause material differences in the information presented.
The unaudited pro forma condensed combined consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements and accompanying notes of HP and Compaq incorporated by reference
into this joint proxy statement/prospectus and the summary selected historical
consolidated financial data included elsewhere in this joint proxy
statement/prospectus. The unaudited pro forma condensed combined consolidated
financial statements are not intended to represent or be indicative of the
consolidated results of operations or financial condition of HP that would have
been reported had the merger been completed as of the dates presented, and
should not be taken as representative of the future consolidated results of
operations or financial condition of HP.
92
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
of HP and Compaq
July 31, 2001
(In millions)
Historical
--------------- Pro Forma Pro Forma
HP Compaq Adjustments Combined
------- ------- ----------- ---------
Assets
Current assets:
Cash and cash equivalents.......................... $ 2,727 $ 3,829 $ -- $ 6,556
Short-term investments............................. 513 -- -- 513
Accounts receivable, net........................... 4,900 5,104 -- 10,004
Financing receivables, net......................... 2,153 1,067 -- 3,220
Inventory.......................................... 5,489 1,731 50 (a) 7,270
Other current assets............................... 5,180 3,191 -- 8,371
------- ------- ------- -------
Total current assets........................... 20,962 14,922 50 35,934
Property, plant and equipment, net.................... 4,613 3,300 1,100 (b) 9,013
Long-term investments and other assets................ 6,347 4,300 (1,989)(c) 8,658
Amortizable intangible assets, net.................... 36 1,492 2,608 (d) 4,136
Goodwill and intangible assets with indefinite lives.. 416 227 10,522 (e) 11,165
------- ------- ------- -------
Total assets................................... $32,374 $24,241 $12,291 $68,906
======= ======= ======= =======
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term borrowings............ $ 2,012 $ 1,209 $ -- $ 3,221
Accounts payable................................... 3,238 3,434 -- 6,672
Deferred revenue................................... 1,879 1,249 (249)(f) 2,879
Other accrued liabilities.......................... 6,821 4,546 150 (g) 11,517
------- ------- ------- -------
Total current liabilities...................... 13,950 10,438 (99) 24,289
Long-term debt........................................ 3,511 875 -- 4,386
Other liabilities..................................... 1,044 1,186 1,282 (h) 3,512
Total stockholders' equity............................ 13,869 11,742 11,108 (i) 36,719
------- ------- ------- -------
Total liabilities and stockholders' equity..... $32,374 $24,241 $12,291 $68,906
======= ======= ======= =======
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
93
Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
of HP and Compaq
Nine Months ended July 31, 2001
(In millions, except per share amounts)
Historical
---------------- Pro Forma Pro Forma
HP Compaq Adjustments Combined
------- ------- ----------- ---------
Net revenue:
Products................................................... $27,856 $23,999 $ -- $51,855
Services................................................... 5,846 4,937 -- 10,783
------- ------- ----- -------
Total net revenue...................................... 33,702 28,936 -- 62,638
Cost and expenses:
Cost of products sold and services/(1)/.................... 24,890 22,374 95 (j) 47,359
Research and development................................... 2,020 1,093 -- 3,113
Selling, general and administrative/(1)/................... 5,460 4,396 15 (b) 9,871
Restructuring and related charges.......................... 102 656 -- 758
Amortization of intangible assets.......................... 12 224 226 (d) 462
Amortization of goodwill................................... 112 22 (22)(e) 112
------- ------- ----- -------
Total cost and expenses................................ 32,596 28,765 314 61,675
------- ------- ----- -------
Earnings from operations...................................... 1,106 171 (314) 963
Interest and other, net....................................... (604) (1,446) -- (2,050)
------- ------- ----- -------
Earnings (loss) from continuing operations before taxes....... 502 (1,275) (314) (1,087)
Provision (benefit) for taxes................................. 39 (402) (110)(k) (473)
------- ------- ----- -------
Net earnings (loss) from continuing operations/(2)/........... $ 463 $ (873) $(204) $ (614)
======= ======= ===== =======
Net earnings (loss) per share from continuing operations/(2)/:
Basic...................................................... $ 0.24 $ (0.52) $ (0.20)
======= ======= =======
Diluted.................................................... $ 0.24 $ (0.52) $ (0.20)
======= ======= =======
Average number of shares and share equivalents:
Basic...................................................... 1,935 1,690 3,004
Diluted.................................................... 1,976 1,690 3,004
--------
(1) Historical amounts for amortization of intangibles and goodwill have been
reclassified to separate line items.
(2) Net earnings (loss) and net earnings (loss) per share from continuing
operations for HP are presented before extraordinary items.
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
94
Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
of HP and Compaq
Year ended October 31, 2000
(In millions, except per share amounts)
Historical Pro
--------------- Pro Forma Forma
HP Compaq Adjustments Combined
------- ------- ----------- --------
Net revenue:
Products............................................ $41,446 $34,599 $ -- $76,045
Services............................................ 7,336 6,485 -- 13,821
------- ------- ----- -------
Total net revenue............................... 48,782 41,084 -- 89,866
Cost and expenses:
Cost of products sold and services/(1)/............. 34,864 31,539 110 (j) 66,513
Research and development............................ 2,646 1,481 -- 4,127
Selling, general and administrative/(1)/............ 7,297 5,799 20 (b) 13,116
Amortization of intangible assets................... 7 281 319 (d) 607
Amortization of goodwill............................ 79 19 (19)(e) 79
------- ------- ----- -------
Total cost and expenses......................... 44,893 39,119 430 84,442
------- ------- ----- -------
Earnings from operations............................... 3,889 1,965 (430) 5,424
Interest and other, net................................ 736 333 -- 1,069
------- ------- ----- -------
Earnings from continuing operations before taxes....... 4,625 2,298 (430) 6,493
Provision for taxes.................................... 1,064 699 (151)(k) 1,612
------- ------- ----- -------
Net earnings from continuing operations/(2)/........... $ 3,561 $ 1,599 $(279) $ 4,881
======= ======= ===== =======
Net earnings per share from continuing operations/(2)/:
Basic............................................... $ 1.80 $ 0.94 $ 1.60
======= ======= =======
Diluted............................................. $ 1.73 $ 0.92 $ 1.54
======= ======= =======
Average number of shares and share equivalents:
Basic............................................... 1,979 1,698 3,053
Diluted............................................. 2,077 1,738 3,176
--------
(1) Historical amounts for amortization of intangibles and goodwill have been
reclassified to separate line items.
(2) Net earnings and net earnings per share from continuing operations for
Compaq are presented before cumulative effect of accounting change.
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
95
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements
1. Basis of Pro Forma Presentation
On September 4, 2001, HP and Compaq entered into a merger agreement which
will result in Compaq becoming a wholly-owned subsidiary of HP in a transaction
to be accounted for using the purchase method. The total estimated purchase
price of approximately $24.0 billion includes HP common stock valued at $22.5
billion, assumed stock options with a fair value of $1.4 billion and estimated
direct transaction costs of $150 million.
The unaudited pro forma condensed combined consolidated financial statements
provide for the issuance of approximately 1.1 billion shares of HP common
stock, based upon an exchange ratio of 0.6325 of a share of HP common stock for
each outstanding share of Compaq common stock as of June 30, 2001. The actual
number of shares of HP common stock to be issued will be determined based on
the actual number of shares of Compaq common stock outstanding at the
completion of the merger. The average market price per share of HP common stock
of $20.92 is based on an average of the closing prices for a range of trading
days (August 30, August 31, September 4 and September 5, 2001) around the
announcement date (September 3, 2001) of the proposed merger. Based on the
total number of Compaq options outstanding at June 30, 2001, HP would assume
options to purchase approximately 178.5 million shares of HP common stock at a
weighted average exercise price of $37.04. The actual number of options to be
assumed will be determined based on the actual number of Compaq options
outstanding at the completion of the merger.
The estimated total purchase price of the Compaq merger is as follows (in
millions):
Value of HP common stock issued... $22,450
Assumption of Compaq options...... 1,400
-------
Total value of HP securities... 23,850
Estimated direct transaction costs 150
-------
Total estimated purchase price.... $24,000
=======
Under the purchase method of accounting, the total estimated purchase price
as shown in the table above is allocated to Compaq's net tangible and
intangible assets based on their estimated fair values as of the date of the
completion of the merger. Based on the preliminary independent valuation, and
subject to material changes upon receipt of the final valuation and other
factors as described in the introduction to these unaudited pro forma condensed
combined consolidated financial statements on page 92 of this joint proxy
statement/prospectus, the preliminary estimated purchase price is allocated as
follows (in millions):
Preliminary estimated purchase price allocation:
Net tangible assets........................................... $10,275
Amortizable intangible assets:
Customer contracts and lists, distribution agreements..... 2,400
Developed and core technology, patents.................... 1,500
Other..................................................... 200
Goodwill and intangible assets with indefinite lives.......... 10,749
Net deferred tax liability.................................... (2,124)
In-process research and development........................... 1,000
-------
Total preliminary estimated purchase price allocation............ $24,000
=======
96
Of the total estimated purchase price, a preliminary estimate of $10.3
billion has been allocated to net tangible assets acquired and approximately
$4.1 billion has been allocated to amortizable intangible assets acquired. The
depreciation and amortization related to the fair value adjustment to net
tangible assets and the amortization related to the amortizable intangible
assets are reflected as pro forma adjustments to the unaudited pro forma
condensed combined consolidated statements of earnings.
Developed technology, which comprises products that have reached
technological feasibility, includes products in most of Compaq's product lines,
principally the Compaq Himalaya, Proliant, Enterprise Storage Array, and
AlphaServer products. Core technology and patents represent a combination of
Compaq processes, patents and trade secrets developed through years of
experience in design and development: clustering, fault tolerant systems,
proprietary Alpha processor architecture, and storage area networks. Compaq's
technology and products are designed for hardware, software, solutions and
services, including enterprise storage and computing solutions, fault tolerant
business critical solutions, communication products, and desktop and portable
personal computers. This proprietary know-how can be leveraged by Compaq to
develop new technology and improved products and manufacturing processes. HP
expects to amortize the developed and core technology and patents on a
straight-line basis over an average estimated life of 6 years.
Customer contracts represent existing contracts that relate primarily to
underlying customer relationships pertaining to the services provided by Compaq
Global Services, including contractual Customer Services relationships,
contractual Managed Services client relationships and contractual Systems
Integration consulting client relationships. Customer lists and distribution
agreements represent Compaq's relationships with its Enterprise and Personal
Systems installed base, and agreements with Enterprise value-added resellers.
HP expects to amortize the fair value of these assets, on a straight-line basis
over an average estimated life of 9 years.
Of the total estimated purchase price, approximately $10.7 billion has been
allocated to goodwill and intangible assets with indefinite lives. Goodwill
represents the excess of the purchase price of an acquired business over the
fair value of the underlying net tangible and intangible assets. Intangible
assets with indefinite lives consist primarily of the estimated fair value
allocated to the Compaq trade name. The Compaq trade name will not be amortized
as it is estimated to have an indefinite remaining useful life based on many
factors and considerations, including the length of time that the Compaq name
has been in use, the Compaq brand awareness and market position, and the
assumption of continued use of the Compaq brand within HP's overall product
portfolio.
In accordance with the Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," goodwill and intangible assets with
indefinite lives resulting from business combinations completed subsequent to
June 30, 2001 will not be amortized but instead will be tested for impairment
at least annually (more frequently if certain indicators are present). In the
event that the management of the combined company determines that the value of
goodwill or intangible assets with indefinite lives has become impaired, the
combined company will incur an accounting charge for the amount of impairment
during the fiscal quarter in which the determination is made.
Of the total estimated purchase price, a preliminary estimate of $1.0
billion has been allocated to in-process research and development and will be
charged to expense in the period during which the merger is completed. Due to
its non-recurring nature, the in-process research and development expense has
been excluded in the unaudited pro forma condensed combined consolidated
statements of earnings.
Compaq is currently developing new products that qualify as in-process
research and development in multiple product areas. Projects which qualify as
in-process research and development represent those that have not yet reached
technological feasibility. Technological feasibility is defined as being
equivalent to completion of a beta-phase working prototype in which there is no
remaining risk relating to the development.
97
Compaq is currently involved in numerous research and development projects,
which are focused on developing new products, integrating new technologies,
improving product performance and broadening features and functionalities. The
principal research and development efforts of Compaq are directed within the
Enterprise and Personal System businesses. There is a risk that these
developments and enhancements will not be competitive with other products using
alternative technologies that offer comparable functionality.
The value assigned to in-process research and development was determined by
considering the importance of each project to the overall development plan,
estimating costs to develop the purchased in-process research and development
into commercially viable products, estimating the resulting net cash flows from
the projects when completed and discounting the net cash flows to their present
value. The revenue estimates used to value the purchased in-process research
and development were based on estimates of relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of
new product introductions by Compaq and its competitors.
The rates utilized to discount the net cash flows to their present value are
based on Compaq's weighted average cost of capital. The weighted average cost
of capital was adjusted to reflect the difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets. Based on these factors, discount rates that
range from 25%-42% were deemed appropriate for valuing the in-process research
and development.
The estimates used in valuing in-process research and development were based
upon assumptions believed to be reasonable but which are inherently uncertain
and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur. In addition, some projects
which are currently in process may not be in process at completion of the
merger and new projects may be started prior to completion of the merger which
may be in process at the completion of the merger. Accordingly, actual results
may vary from the projected results.
2. Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the estimated purchase price,
to adjust amounts related to Compaq's net tangible and intangible assets to a
preliminary estimate of their fair values, to reflect the amortization expense
related to the estimated amortizable intangible assets, to reflect changes in
depreciation and amortization expense resulting from the estimated fair value
adjustments to net tangible assets and to reflect the income tax effect related
to the pro forma adjustments.
Intercompany balances or transactions between HP and Compaq were not
significant. No pro forma adjustments were required to conform Compaq's
accounting policies to HP's accounting policies. Certain reclassifications have
been made to conform Compaq's historical amounts to HP's presentation.
The pro forma combined provision for income taxes does not reflect the
amounts that would have resulted had HP and Compaq filed consolidated income
tax returns during the periods presented.
The pro forma adjustments included in the unaudited pro forma condensed
combined consolidated financial statements are as follows:
(a) Adjustment to record the preliminary estimate of the fair value of
Compaq's inventory.
(b) Adjustment to record the preliminary estimate of the fair value of
Compaq's property, plant and equipment and the resulting adjustment to
depreciation expense.
98
(c) Adjustments to reflect certain other long-term assets of Compaq at a
preliminary estimate of their fair values:
Pension assets......................................................... $ (343)
Valuation allowance related to deferred tax assets..................... (710)
Reclassification to offset the deferred tax assets against deferred tax
liabilities.......................................................... (936)
-------
$(1,989)
=======
The adjustment to the valuation allowance related to Compaq's net
deferred tax assets is based on a preliminary estimate of the tax assets
which can be utilized by the combined company. Upon the finalization of
the combined company's legal entity structure and the restructuring
plans, the valuation allowance may be adjusted further to reflect the
combined company's ability to utilize certain foreign net operating loss
carryforwards and certain other tax losses and credits.
(d) Adjustments to amortizable intangible assets and the resulting
adjustments to amortization expense:
Amortization Effect
------------------
Nine
Annual Months
------ ------
To reflect Compaq's intangible assets at a preliminary estimate of fair
value and related amortization expense............................... $ 4,100 $ 600 $ 450
To eliminate Compaq's historical intangible assets and related
amortization expense................................................. (1,492) (281) (224)
------- ----- -----
$ 2,608 $ 319 $ 226
======= ===== =====
(e) Adjustments to goodwill and intangible assets with indefinite lives:
Amortization Effect
------------------
Nine
Annual Months
------ ------
To reflect intangible assets with indefinite lives at a preliminary estimate
of fair value and goodwill.................................................. $10,749
To eliminate Compaq's historical goodwill and related
amortization expense........................................................ (227) $(19) $(22)
-------
$10,522
=======
(f) Adjustment to record the preliminary estimate of the fair value of Compaq's historical deferred
revenue.
(g) Adjustment to reflect the estimated direct transaction costs.
(h) Adjustments to deferred income taxes and other liabilities:
To reflect the deferred tax liability primarily resulting from the pro forma
adjustments related to intangible assets.................................... $ 2,124
Reclassification to offset the deferred tax assets against deferred tax
liabilities................................................................. (936)
To reflect pension liabilities at a preliminary estimate of their fair values. 94
-------
$ 1,282
=======
99
(i) Adjustments to stockholders' equity:
To record the value of HP shares to be issued and Compaq options to be
assumed in the transaction........................................... $ 23,850
To record the preliminary estimate of the fair value of in-process
research and development............................................. (1,000)
To eliminate Compaq's historical stockholders' equity.................. (11,742)
--------
$ 11,108
========
Year Nine Months
Ended Ended
October 31, 2000 July 31, 2001
---------------- -------------
(j) Adjustments to cost of products sold and services:
To record the related costs of products sold resulting from the increase in
inventory to its estimated fair value..................................... $ 50 $50
To record the related depreciation expense resulting from the fair value
adjustment to property, plant and equipment as noted in (b) above......... 60 45
---- ---
$110 $95
==== ===
(k) Adjustment to record the income tax effect of the pro forma adjustments.
3. Pro Forma Earnings Per Share
The pro forma basic and diluted earnings per share are based on the weighted
average number of shares of HP common stock outstanding during each period and
weighted average number of Compaq common stock outstanding during each period
multiplied by the exchange ratio. All HP historical and pro forma per-share
amounts reflect the retroactive effects of all HP stock splits including the
two-for-one stock split in the form of a stock dividend effective October 27,
2000.
100
COMPARISON OF RIGHTS OF HOLDERS OF HP COMMON STOCK AND COMPAQ COMMON STOCK
Upon completion of the merger, the shareowners of Compaq will become
shareowners of HP, and the HP certificate of incorporation and the HP bylaws
will govern the rights of former Compaq shareowners. Both HP and Compaq are
incorporated under Delaware law and are subject to the Delaware General
Corporation Law. The following is a summary of material differences between the
rights of holders of HP common stock and the rights of holders of Compaq common
stock. While we believe that this description covers the material differences
between the two, this summary may not contain all of the information that is
important to you.
Comparison of the Certificates of Incorporation and Bylaws of HP and Compaq
The following is a summary of the material differences between the
provisions of the certificate of incorporation and bylaws of each of HP and
Compaq. This summary is not intended to be a complete discussion of the
respective certificates of incorporation and bylaws of HP and Compaq and it is
qualified in its entirety by reference to the applicable Delaware General
Corporation Law as well as by reference to the respective certificates of
incorporation and bylaws of HP and Compaq. You should carefully read this
entire joint proxy statement/prospectus and the other documents we refer to in
this joint proxy statement/prospectus for a more complete understanding of the
differences between being a shareowner of HP and being a shareowner of Compaq.
HP and Compaq have filed with the Securities and Exchange Commission their
respective certificates of incorporation and bylaws and will send copies of
these documents to you upon your request. See the section entitled "Where You
Can Find More Information" beginning on page 113 of this joint proxy
statement/prospectus.
Authorized Capital Stock
HP's certificate of incorporation authorizes the issuance of 9,900,000,000
shares of capital stock, consisting of:
. 9,600,000,000 shares of common stock, par value $0.01 per share; and
. 300,000,000 shares of preferred stock, par value $0.01 per share.
Compaq's certificate of incorporation authorizes the issuance of
3,010,000,000 shares of capital stock, consisting of:
. 3,000,000,000 shares of common stock, par value $0.01 per share; and
. 10,000,000 shares of preferred stock, par value $0.01 per share.
Size of the Board of Directors
HP's certificate of incorporation provides that the number of directors
comprising the HP board of directors shall be no fewer than eight and no more
than 17. HP's certificate of incorporation further provides that the exact
number of directors comprising the HP board of directors shall be fixed, and
may be changed from time to time, within the foregoing limits, by an amendment
to HP's bylaws that has been duly adopted by the HP board of directors or HP
shareowners. HP's bylaws provide that within the range of eight to 17 directors
set forth in HP's certificate of incorporation, the exact number of directors
comprising the HP board of directors may be as fixed from time to time by the
HP board of directors. The HP board of directors currently has nine members.
Upon completion of the merger, the HP board of directors will have 13 members.
Compaq's bylaws provide that the number of directors comprising the Compaq
board of directors may be no fewer than seven and no more than 12. The exact
number of directors comprising the Compaq board of directors may be changed at
any time by resolution of the Compaq board of directors. The Compaq board of
directors currently has eight members.
101
Cumulative Voting
HP's certificate of incorporation provides that HP shareowners are entitled
to cumulate votes in connection with the election of directors.
Compaq shareowners are not entitled to cumulate votes in connection with the
election of directors.
Removal of Directors
HP's bylaws provide that any director, or the entire HP board of directors,
may be removed with or without cause by the holders of a majority of the shares
then entitled to vote at an election of directors. However, if and so long as
shareowners are entitled to cumulative voting in connection with the election
of directors, if less than the entire HP board of directors is to be removed,
no individual director may be removed from the HP board of directors without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted in an election of the entire HP
board of directors.
Compaq's certificate of incorporation and bylaws do not provide procedures
for the removal of Compaq directors. Under Delaware General Corporation Law,
any director, or the entire board of directors, may be removed with or without
cause by the affirmative vote of the holders of at least a majority of the
outstanding shares of a corporation entitled to vote in the election of
directors.
Filling Vacancies on the Board of Directors
HP's bylaws provide that vacancies on the HP board of directors may be
filled by a majority of the remaining directors, even if less than a quorum, or
by the sole remaining director. However, a vacancy created by the removal of a
director by the vote of the shareowners or by court order may be filled only by
the affirmative vote of a majority of the voting power of shares represented
and voting at a duly held shareowner meeting at which a quorum is present
(which shares voting affirmatively also constitute a majority of the required
quorum).
HP's bylaws further provide that vacancies on the HP board of directors and
newly created directorships resulting from an increase in the authorized number
of directors elected by all of the HP shareowners having the right to vote as a
single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. However, whenever
the holders of any class or classes of stock, or any series of any class of
stock, are entitled to elect one or more directors by the provisions of HP's
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series then in office, or by a sole remaining
director so elected.
HP's bylaws also provide that if, at the time of filling any vacancy or any
newly created directorship, the directors then in office constitute less than a
majority of the whole HP board of directors (as constituted immediately prior
to any such increase), then the Delaware Court of Chancery may, upon
application of any shareowner(s) holding at least 10% of the total number of
the then outstanding shares having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office, and such election shall be governed by the provisions of Section 211
of the Delaware General Corporation Law as far as applicable.
Compaq's bylaws provide that any vacancy on the Compaq board of directors,
caused by death, resignation or removal from office of any director or
otherwise, or an increase in the authorized number of directors, may be filled
by a majority of the remaining directors or the sole remaining director.
102
Ability to Call Special Meetings of the Board of Directors
HP's bylaws provide that special meetings of the HP board of directors for
any purpose(s) may be called at any time by the chairman of the board of
directors, the vice chairman of the board of directors, the president, the
chairman of the executive committee, any vice president, the secretary or a
majority of the directors then in office.
Compaq's bylaws provide that special meetings of the Compaq board of
directors may be called by the chairman of the board of directors or the
president, or the secretary on the written request of any two directors.
Ability to Call Special Meetings of Shareowners
HP's bylaws provide that a special meeting of HP shareowners may be called
at any time by the HP board of directors, the chairman of the board of
directors, the vice chairman of the board of directors, the chairman of the
executive committee or the president, and special meetings of HP shareowners
may not be called by any other person(s).
Compaq's bylaws provide that a special meeting of the Compaq shareowners may
be called at any time by the Compaq board of directors.
Limitations on Business Transacted at Special Meetings of Shareowners
HP's bylaws provide only such business shall be considered at a special
meeting of HP shareowners as shall have been stated in the notice for such
meeting.
Compaq's bylaws do not limit shareowners to transacting only that business
specified in the notice of the meeting. Compaq's shareowners may propose
business at a special shareowners meeting if the proposal is brought before the
special shareowners meeting in accordance with Compaq's shareowners advance
notice procedures.
Shareowner Nominations and Proposals at Shareowner Meetings
HP's bylaws allow shareowners to nominate candidates for election to the HP
board of directors at any annual meeting of HP shareowners. In addition, HP's
bylaws allow shareowners to propose business to be conducted at any annual
meeting of HP shareowners. However, nominations of candidates for election to
the HP board of directors and proposals for business to be conducted at an
annual meeting may only be made by a shareowner who has given timely written
notice to the corporate secretary of HP before the annual meeting.
Shareowner nominations of candidates for election to the HP board of
directors and proposals for business to be conducted at an annual meeting
cannot be brought before any annual meeting of HP shareowners unless the
nomination or proposal was brought before the annual meeting in accordance with
HP's shareowner advance notice procedures, as described in "Delivery and Notice
Requirements for Shareowner Nominations and Proposals" below.
Compaq's bylaws allow shareowners to nominate candidates for election to the
Compaq board of directors at any annual or any special shareowner meeting at
which the Compaq board of directors has determined that directors will be
elected. In addition, Compaq's bylaws allow shareowners to propose business
before any annual or special shareowner meeting. However, nominations and
proposals may only be made by a shareowner who has given timely written notice
to the corporate secretary of Compaq before the annual or special shareowner
meeting.
103
Shareowner nominations and proposals cannot be brought before any Compaq
shareowner meeting unless the nomination or proposal was brought before the
shareowner meeting in accordance with Compaq's shareowner advance notice
procedures, as described in "Delivery and Notice Requirements for Shareowner
Nominations and Proposals" below.
Delivery and Notice Requirements for Shareowner Nominations and Proposals
HP's bylaws provide that for business to be properly brought before an
annual meeting of HP shareowners by an HP shareowner, or for a nomination of
candidates for election to the HP board of directors to be properly made by an
HP shareowner, such shareowner must have given timely notice of the proposal
for business to be conducted or of such nomination of candidates for election
to the HP board of directors in writing to the secretary of HP. To be timely,
notice of a proposal for business to be conducted at an annual meeting of HP
shareowners or of a nomination of candidates for election to the HP board of
directors must be delivered to, or mailed and received at, the principal
executive offices of HP during the earlier period to occur of (1) not later
than the close of business on the 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of the preceding
year's meeting, or (2) not less than the later of the close of business on the
45th day nor earlier than the close of business on the 75th day prior to the
first anniversary of the date on which HP first sent or gave its proxy
statement to shareowners for the preceding year's annual meeting. However, if
HP did not have an annual meeting of HP shareowners in the previous year or if
the date of the annual meeting is more than 30 days before or more than 60 days
after the anniversary date of the previous year's annual meeting, to be timely,
notice of a proposal for business to be conducted at an annual meeting of HP
shareowners or of a nomination of candidates for election to the HP board of
directors must be received not earlier than the close of business on the 120th
day prior to the meeting and not later than the close of business on the later
of (A) the 90th day prior to such meeting and (B) the 10th day following the
day HP publicly announces the date of the annual meeting for the current year.
In addition, for a proposal for business to be conducted at an annual meeting,
an HP shareowner must have delivered a proxy statement and form of proxy to
holders of a sufficient number of shares of HP common stock to approve the
proposal.
Under Compaq's bylaws, notice of shareowner nominations or proposals to be
made at a shareowner meeting, to be timely, must be delivered to, or mailed and
received at, the principal executive offices of Compaq no less than 90 days
before the first anniversary of the immediately preceding year's annual meeting
of shareowners or, if the date of the meeting is more than 30 days before or
after the anniversary date, no less than 90 days before the date of the
meeting. However, if Compaq publicly announces the date of the shareowner
meeting less than 100 days before the date of the meeting, notice by the
shareowner must be received no later than the close of business on the tenth
day after Compaq publicly announces the date of the shareowner meeting.
Shareowner Action by Written Consent in Lieu of a Shareowner Meeting
HP's certificate of incorporation provides that no action may be taken by HP
shareowners except at an annual or special meeting of the shareowners called in
accordance with HP's bylaws, and that HP shareowners may not take action by
written consent.
Compaq's bylaws provide that Compaq shareowners may take action at an annual
meeting or a special meeting of shareowners. In addition, Compaq shareowners
may take action without a meeting, without prior notice and without a vote, if
a written consent is signed by the holders of outstanding stock having not less
than the minimum number of votes necessary to take action at a meeting at which
all shares entitled to vote were present and voted.
Amendment to Bylaws
The HP board of directors is expressly authorized to make, alter, amend or
repeal HP's bylaws. HP's shareowners entitled to vote may also adopt, amend or
repeal HP's bylaws. However, HP's bylaws provide that
104
the affirmative vote of the holders of 66 2/3% of the outstanding shares
entitled to vote is required to amend or delete the provisions of HP's bylaws
relating to:
. meetings of shareowners;
. the number, election and term of directors;
. resignation and vacancies of directors;
. indemnification of officers and directors; and
. amendments to HP's bylaws.
The Compaq board of directors is expressly authorized to adopt, amend, and
repeal Compaq's bylaws. Compaq's shareowners entitled to vote at any annual or
special meeting may also adopt, amend or repeal Compaq's bylaws in accordance
with Delaware General Corporation Law.
Payment of Expenses Incurred by Directors and Officers in Connection with
Legal Proceedings
HP's bylaws provide that HP shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative), by reason of the fact that such person is or was a director
or officer of HP, prior to the final disposition of the proceeding, all
expenses incurred by such person in connection with such proceeding. However,
such payment will be made only if HP receives an undertaking by or on behalf of
such person to repay all amounts advanced if it is ultimately determined that
such person is not entitled to be indemnified by HP as authorized by HP's
bylaws or otherwise.
HP's bylaws also provide that HP shall not be required to advance expenses
to any director or officer in connection with any proceeding initiated by such
officer or director unless the proceeding was authorized in advance by the HP
board of directors.
In addition, subject to some exceptions, HP will not advance expenses to an
officer of HP (unless such officer is also a director of HP) in any action,
suit or proceeding (whether civil, criminal, administrative or investigative),
if a determination is reasonably and promptly made by the HP board of directors
by a majority vote of a quorum consisting of directors who were not parties to
the proceeding (or if such quorum is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion), that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of HP.
Compaq's bylaws provide that Compaq may pay the expenses (including
attorneys' fees) incurred by any Compaq director, nominee or officer in
defending a civil, criminal or investigative action, suit or proceeding, in
advance of the final disposition of that action, suit or proceeding. However,
such payment will be made only if Compaq receives an undertaking by or on
behalf of the director, nominee or officer to repay all amounts advanced if it
is ultimately determined that the director, nominee or officer is not entitled
to be indemnified by Compaq as authorized by Compaq's bylaws.
No advance authorization by the Compaq board of directors is required prior
to the advance of expenses incurred by any Compaq director, nominee or officer
in connection with any proceeding initiated by such director, nominee or
officer.
105
Indemnification of Directors and Officers
Each of HP and Compaq's certificate of incorporation contains a provision
eliminating the personal liability of its directors to the company or its
shareowners for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by applicable law. The effect of this provision is
to eliminate the personal liability of directors to the company or its
shareowners for monetary damages for actions involving a breach of their
fiduciary duty of care, including any actions involving gross negligence. The
bylaws of HP generally provide for the mandatory indemnification of, and
payment of expenses incurred by, its directors and officers to the fullest
extent permitted by applicable law unless the proceedings were initiated by the
director or officer and not authorized by the board of directors. The bylaws of
Compaq generally provide for the mandatory indemnification of, and payment of
expenses incurred by, directors and officers to the fullest extent permitted by
applicable law. Each of HP and Compaq also have obtained directors' and
officers' liability insurance, which insures against liabilities that its
directors and officers may incur in such capacities. HP and Compaq have also
entered into indemnification agreements with their respective directors and
officers. The indemnification agreements provide indemnification to these
directors and officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
In addition, in accordance with the terms of the merger agreement and upon
completion of the merger, HP has agreed to cause the surviving corporation to
honor in all respects the obligations of Compaq under indemnification
agreements that existed between Compaq and Compaq's directors and officers
prior to completion of the merger. Furthermore, HP has agreed that the
certificate of incorporation and bylaws of the surviving corporation will
contain provisions indemnifying the directors and officers of Compaq at least
as favorable to the directors and officers of Compaq as those contained in
Compaq's certificate of incorporation and bylaws and that, for a period of six
years following completion of the merger, such provisions will not be modified
to adversely affect the rights of the directors, officers, employees or agents
of Compaq, unless required by law. HP also has agreed to cause the surviving
corporation to use all reasonable efforts to cause directors' and officers'
liability insurance policies covering the directors and officers of Compaq to
be maintained for a period of six years following completion of the merger on
terms comparable to the terms of the directors' and officers' liability
insurance policies maintained by Compaq as of the date of the merger agreement.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a court to award or a corporation's board of directors to grant
indemnification to directors and officers in terms that are sufficiently broad
to permit indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act of 1933. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling HP or Compaq pursuant to the foregoing provisions, HP has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
Shareowner Rights Plans
Under Delaware General Corporation Law, every corporation may create and
issue rights entitling the holders of such rights to purchase from the
corporation shares of its capital stock of any class or classes, subject to any
provisions in its certificate of incorporation. The price and terms of such
shares must be stated in the certificate of incorporation or in a resolution
adopted by the board of directors for the creation and issuance of such rights.
Each of HP and Compaq have entered into a shareowner rights agreement. The
terms of the rights agreements are complex and not easily summarized,
particularly as they relate to the acquisition of common stock and to
exercisability. This summary may not contain all of the information that is
important to you. Accordingly, you should carefully read the HP rights
agreement and the Compaq rights agreement, both of which are incorporated by
reference into this joint proxy statement/prospectus in their entirety.
106
HP Shareowner Rights Plan
On August 31, 2001, the HP board of directors declared a dividend
distribution of one right for each outstanding share of HP common stock to HP
shareowners of record at the close of business on September 17, 2001. Each
right is subject to the terms of HP's rights agreement.
HP's rights agreement provides that each share of HP's outstanding common
stock will have the right to purchase one one-thousandth of a share of HP's
Series A Participating Preferred Stock at an exercise price of $180.00, subject
to adjustment. Each share of HP common stock issued in connection with the
merger will have one right attached.
The rights under HP's rights agreement currently are attached to and trade
only together with outstanding certificates representing HP common stock. The
rights will separate from HP common stock and be represented by separate and
distinct certificates approximately ten days after someone acquires or
commences a tender offer for 15% or more of the outstanding HP stock.
After the rights separate from HP's common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent the rights.
All shares of HP common stock issued prior to the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on September 17, 2011 unless earlier redeemed or exchanged
by HP.
If an acquiror (which could be a person or group) obtains, or commences a
tender or exchange offer to obtain, 15% or more of HP common stock, then each
right will entitle the holder to purchase a number of shares of HP common stock
having a then current market value equal to two times the exercise price.
Each right will entitle the holder to purchase a number of shares of common
stock of the acquiring entity having a then current market value of twice the
purchase price if an acquiror obtains 15% or more of HP common stock and any of
the following occurs:
. HP merges into another entity;
. an acquiring entity merges into HP; or
. HP sells more than 50% of its assets or earning power.
Under HP's rights agreement, any rights that are or were owned by an
acquiror or its affiliates of more than 15% of HP's outstanding common stock
will be null and void.
HP's rights agreement provides that after an acquiror obtains 15% or more of
HP's outstanding common stock, but less than 50% of HP's outstanding common
stock, the HP board of directors may, at its option, exchange all or part of
the then outstanding and exercisable rights (other than rights owned by the
acquiror or its affiliates) for HP common stock. In such an event, the exchange
ratio is one common share per right, adjusted to reflect any stock split, stock
dividend or similar transaction.
At its option, the HP board of directors may redeem all of the outstanding
rights under the HP rights agreement at any time on or prior to the close of
business on the earlier of (1) the fifth day following the time that an
acquiror obtains 15% or more of HP's outstanding common stock or such later
date as may be determined by a majority of the board and publicly announced by
HP, or (2) September 17, 2011. The redemption price under HP's rights agreement
is $0.001 per right. The right to exercise the rights will terminate upon the
action of the HP board of directors ordering the redemption of the rights and
the only right of the holders of the rights will be to receive the redemption
price.
107
Holders of rights will have no rights as shareowners of HP, including
without limitation the right to vote or receive dividends, simply by virtue of
holding the rights.
The provisions of HP's rights agreement may be amended by the board of
directors prior to the date ten days after any person acquires 15% or more of
HP's common stock without approval of the holders of the rights. However, after
the date any person acquires 15% or more of HP's common stock, the rights
agreement may not be amended in any manner which would adversely affect the
interests of the holders of the rights, excluding any interests of the acquiror.
The rights issued under HP's rights agreement are designed to protect and
maximize the value of the outstanding equity interests in HP in the event of an
unsolicited attempt by an acquiror to take over HP in a manner or on terms that
are not approved by the HP board of directors. The rights are designed to deter
unfair tactics, including a gradual accumulation of shares in the open market
of a 15% or greater position, followed by a merger or a partial or two-tier
tender offer that does not treat all HP shareowners equally.
Subject to the restrictions described above, the rights may be redeemed by
HP at $0.001 per right at any time prior to the time when rights separate from
the common stock. Accordingly, the rights should not interfere with any merger
or business combination approved by the HP board of directors. The rights are
not intended to prevent a takeover of HP. However, the rights may have the
effect of rendering more difficult or discouraging an acquisition of HP deemed
undesirable by the HP board of directors. The rights will cause substantial
dilution to a person or group that attempts to acquire HP on terms or in a
manner not approved by the HP board of directors, except pursuant to an offer
conditioned upon redemption of the rights.
Compaq Shareowner Rights Plan
On September 3, 2001, the Compaq board of directors declared a dividend
distribution of one right for each outstanding share of Compaq common stock to
shareowners of record at the close of business on September 17, 2001, the
record date for the rights plan. Each right entitles the registered holder,
subject to the terms of the rights agreement, to purchase from Compaq a unit
consisting of one one-thousandth of a share of Compaq's Series A Junior
Participating Preferred Stock, par value $0.01 per share, at a purchase price
of $70 per unit, subject to adjustment.
The rights currently are attached to and trade together with outstanding
certificates representing Compaq common stock. The rights will separate from
Compaq common stock and be represented by separate and distinct certificates
approximately ten business days after a person or group:
. acquires (other than pursuant to the merger agreement) 10% or more of
the outstanding shares Compaq common stock;
. commences a tender or exchange offer for 10% or more of the outstanding
shares Compaq common stock; or
. enters into an agreement (other than the merger agreement) with Compaq
providing for an acquisition transaction (as defined in Compaq's rights
agreement).
For purposes of describing the rights plan, the date that the rights
separate from the common stock certificates is known as the distribution date.
Until the distribution date:
. the rights will be evidenced by the Compaq common stock certificates and
will be transferred only with such Compaq common stock certificates;
108
. new Compaq common stock certificates issued after the record date will
contain a notation incorporating the rights agreement by reference; and
. the surrender for transfer of any certificates for Compaq common stock
outstanding will also constitute the transfer of the rights associated
with the Compaq common stock represented by the certificate.
The rights are not exercisable until the distribution date and will expire
at 5:00 p.m. (Texas time) on September 3, 2011, unless the date is extended or
the rights are earlier redeemed or exchanged by Compaq as described below.
As soon as practicable after the distribution date, rights certificates will
be mailed to holders of record of the Compaq common stock as of the close of
business on the distribution date and, thereafter, the separate rights
certificates alone will represent the rights. Except as otherwise determined by
the Compaq board of directors, only shares of Compaq common stock issued prior
to the distribution date will be issued with rights.
If a person or group acquires or has the right to acquire 10% or more of the
outstanding shares of Compaq common stock, other than as a result of
repurchases of stock by Compaq or inadvertent actions by institutional or other
shareowners, and except pursuant to an offer for all outstanding shares of
Compaq common stock which the independent directors of Compaq determine to be
fair and in the best interests of Compaq and its shareowners, and other than
pursuant to the merger agreement, then each right will entitle the holder
(other than the acquiror or its affiliates) to purchase a number of shares of
Compaq common stock having a market value equal to two times the exercise price
of the right.
If, at any time following the date that a person or group acquires or has
the right to acquire 10% or more of the outstanding shares of Compaq common
stock (other than pursuant to the merger agreement):
. Compaq engages in a merger or other business combination transaction in
which Compaq is not the surviving corporation;
. Compaq engages in a merger or other business combination transaction in
which Compaq is the surviving corporation and the Compaq common stock is
changed or exchanged; or
. Compaq sells more than 50% of its assets or earning power;
then, each holder of a right (other than the acquiror or its affiliates) shall
thereafter have the right to receive, upon exercise, capital stock of the
acquiring company having a market value equal to two times the exercise price
of the right.
Under Compaq's rights agreement, any rights that are or were owned by a
person or group that acquired or has the right to acquire 10% or more of
Compaq's outstanding common stock will be null and void.
Compaq's rights agreement contains exchange provisions which provide that
after a person or group acquires or has the right to acquire 10% or more of
Compaq's outstanding common stock (other than pursuant to the merger agreement)
but less than 50% of Compaq's outstanding common stock, the Compaq board of
directors may, at its option, exchange all or part of the then outstanding and
exercisable rights (other than rights owned by the acquiror or its affiliates)
at an exchange ratio of one share of Compaq common stock or one one-thousandth
of a share of Compaq Series A Junior Participating Preferred Stock (or of a
share of a class or series of Compaq's preferred stock having equivalent
rights) per right, subject to adjustment.
At any time until ten business days following the public announcement that a
person or group acquired or has the right to acquire 10% or more of Compaq
common stock (other than pursuant to the merger agreement), Compaq may redeem
the rights in whole, but not in part, at a price of $0.001 per right (payable
in cash, Compaq common stock or other consideration deemed appropriate by the
Compaq board of directors). Immediately upon the action of the Compaq board of
directors ordering redemption of the rights, the rights will terminate and the
only right of the holders will be to receive the $0.001 redemption price.
109
The Compaq rights agreement includes a provision that, if a majority of the
Compaq board of directors is replaced within 180 days after a third party
publicly announces that it intends to engage in a transaction with Compaq that
would result in the third party acquiring or obtaining the right to acquire 10%
or more of Compaq common stock (other than pursuant to the merger agreement),
then, for 180 days after its election (this period is known as the special
period) the succeeding Compaq board of directors may redeem the rights only if
it undertakes value-enhancing procedures. In some circumstances, the
value-enhancing procedures could include the receipt of an opinion of a
disinterested financial advisor that the redemption of the rights would be in
the best interest of Compaq and its shareowners.
Prior to the distribution date, the Compaq board of directors may amend the
provisions of the Compaq rights agreement without the approval of the holders
of the rights. After the distribution date, the Compaq board of directors may
amend the provisions of the rights agreement in order to:
. cure any ambiguity;
. make changes which do not adversely affect the interests of holders of
rights (other than the interests of an acquiror); or
. shorten or lengthen any time period under the rights agreement.
No amendment may be made to the rights agreement during the special period
or at a time when the rights are not redeemable, except to cure any ambiguity
or correct or supplement any provision contained in the rights agreement which
may be defective or inconsistent with any other provision therein.
Until a right is exercised, the holder thereof, as such, will have no rights
as a shareowner of Compaq, including, without limitation, the right to vote or
to receive dividends.
The rights may have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire Compaq in a manner which
causes the rights to become discount rights unless the offer is conditional
upon a substantial number of rights being acquired. Accordingly, the existence
of the rights may deter acquirors from making takeover proposals or tender
offers. However, the rights are not intended to prevent a takeover, but rather
are designed to enhance the ability of the Compaq board of directors to
negotiate with an acquiror on behalf of all the shareowners.
Pursuant to Compaq's bylaws, the rights plan will terminate if the rights
plan is not approved by the affirmative vote of the holders of a majority of
the shares of Compaq's common stock voting on the matter at Compaq's next
annual meeting of shareowners.
110
FUTURE HP SHAREOWNER PROPOSALS
The time for HP shareowners to submit proposals for inclusion in HP's proxy
statement for HP's 2002 annual meeting of shareowners in accordance with the
standards contained in Securities and Exchange Commission Rule 14a-8 and HP's
bylaws has passed. Accordingly, no new shareowner proposals may be submitted to
HP for inclusion in HP's proxy statement for HP's 2002 annual meeting of
shareowners. In order to raise shareowner proposals or nominations from the
floor of HP's 2002 annual meeting of shareowners, HP shareowners must comply
with HP's bylaws, which, in general, require that notice must be received by
the corporate secretary of HP within the earlier to occur of the following two
periods:
. not earlier than the close of business 120 days prior the anniversary
date of the prior year's annual meeting and not later than the close of
business 90 days prior to the anniversary date of the prior year's
annual meeting; and
. not earlier than the close of business 75 days prior to the anniversary
of the date the prior year's proxy statement was first sent or given to
shareowners and not later than the close of business 45 days prior to
the anniversary of the date the prior year's proxy statement was first
sent or given to shareowners.
However, if the date of HP's shareowner meeting is moved more than 30 days
before or 60 days after the anniversary date of the prior year's meeting, then
the notice must be received no earlier than the close of business 120 days
prior to the meeting and no later than the close of business on the later of
the following two dates:
. 90 days prior to the meeting; and
. 10 days after public announcement of the meeting date.
In addition, in order to raise a proposal from the floor, the shareowner
must have delivered a proxy statement and form of proxy to holders of a
sufficient number of shares of HP common stock to approve the proposal and
provide the information required by HP's bylaws. In addition, a nomination for
director must include a statement by the nominee acknowledging that he or she
will owe a fiduciary obligation exclusively to the corporation and its
shareowners. You may contact the HP corporate secretary at HP's principal
executive offices for a copy of the relevant provisions of HP's bylaws
regarding the requirements for making shareowner proposals and nominations for
director.
FUTURE COMPAQ SHAREOWNER PROPOSALS
If the merger is not completed, Compaq will hold its 2002 annual meeting of
shareowners. The time for Compaq shareowners to submit proposals for inclusion
in Compaq's proxy statement for Compaq's 2002 annual meeting in accordance with
the standards contained in Securities and Exchange Commission Rule 14a-8 has
passed. Accordingly, no new shareowner proposals may be submitted to Compaq for
inclusion in Compaq's proxy statement for its 2002 meeting of shareowners.
In the event the merger is not completed and the Compaq 2002 annual meeting
is held, if a shareowner intends to present a proposal for consideration or
make a nomination for director at the 2002 annual meeting outside the processes
of Securities and Exchange Commission Rule 14a-8, the shareowner must meet the
requirements of Compaq's bylaws which require, in general, that notice must be
received by the corporate secretary of Compaq no earlier than 90 days in
advance of the anniversary date of the prior year's annual meeting (or if the
date of the meeting is more than 30 days before the anniversary date of the
prior year's annual meeting, the shareowner's notice must be received by the
corporate secretary of Compaq no earlier than 90 days in advance of the meeting
date). In the event that public disclosure of the date of the meeting is made
less than 100 days in advance of the date of the meeting, notice of the
shareowner must be received by the corporate secretary of Compaq not later than
the close of business on the tenth day following public disclosure of the
meeting date. A copy of the relevant bylaws provision may be obtained by
written request to Compaq Computer Corporation, P.O. Box 69200, Houston, Texas
77269-2000, Attention: Corporate Secretary.
111
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California will pass upon the validity of the shares of HP common stock offered
by this joint proxy statement/prospectus and certain federal income tax
consequences of the merger for HP.
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, will pass upon
certain federal income tax consequences of the merger for Compaq.
EXPERTS
The consolidated financial statements and schedule of Hewlett-Packard
Company at October 31, 2000 and for the year then ended, appearing in
Hewlett-Packard Company's Annual Report on Form 10-K for the year ended October
31, 2000, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Hewlett-Packard
Company as of October 31, 1999 and for each of the two years ended October 31,
1999 incorporated in this joint proxy statement/prospectus by reference to the
Annual Report on Form 10-K for the year ended October 31, 2000, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements and schedule of Compaq Computer
Corporation at December 31, 2000 and for the year then ended, appearing in
Compaq Computer Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Compaq Computer
Corporation as of December 31, 1999 and for each of the two years ended
December 31, 1999 incorporated in this joint proxy statement/prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
2000, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
112
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement/prospectus incorporates documents by reference
which are not presented in or delivered with this joint proxy
statement/prospectus. You should rely only on the information contained in this
joint proxy statement/prospectus and in the documents that we have incorporated
by reference into this joint proxy statement/prospectus. We have not authorized
anyone to provide you with information that is different from or in addition to
the information contained in this document and incorporated by reference into
this joint proxy statement/prospectus.
The following documents, which were filed by HP with the Securities and
Exchange Commission, are incorporated by reference into this joint proxy
statement/prospectus:
. HP's annual report on Form 10-K for the fiscal year ended October 31,
2000, filed with the Securities and Exchange Commission on January 25,
2001;
. HP's quarterly report on Form 10-Q for the period ended January 31,
2001, filed with the Securities and Exchange Commission on March 16,
2001;
. HP's quarterly report on Form 10-Q for the period ended April 30, 2001,
filed with the Securities and Exchange Commission on June 13, 2001;
. HP's quarterly report on Form 10-Q for the period ended July 31, 2001,
filed with the Securities and Exchange Commission on September 14, 2001;
. HP's current report on Form 8-K, dated November 13, 2000, filed with the
Securities and Exchange Commission on November 13, 2000;
. HP's current report on Form 8-K, dated December 6, 2000, filed with the
Securities and Exchange Commission on December 6, 2000;
. HP's current report on Form 8-K, dated January 11, 2001, filed with the
Securities and Exchange Commission on January 11, 2001;
. HP's current report on Form 8-K, dated February 2, 2001, filed with the
Securities and Exchange Commission on February 8, 2001;
. HP's current report on Form 8-K, dated February 15, 2001, filed with the
Securities and Exchange Commission on February 15, 2001;
. HP's current report on Form 8-K, dated April 18, 2001, filed with the
Securities and Exchange Commission on April 18, 2001;
. HP's current report on Form 8-K, dated May 16, 2001, filed with the
Securities and Exchange Commission on May 16, 2001;
. HP's current report on Form 8-K, dated May 24, 2001, filed with the
Securities and Exchange Commission on May 24, 2001;
. HP's current report on Form 8-K, dated June 4, 2001, filed with the
Securities and Exchange Commission on June 4, 2001;
. HP's current report on Form 8-K, dated June 4, 2001, filed with the
Securities and Exchange Commission on June 5, 2001;
. HP's current report on Form 8-K, dated June 6, 2001, filed with the
Securities and Exchange Commission on June 6, 2001;
. HP's current report on Form 8-K, dated July 5, 2001, filed with the
Securities and Exchange Commission on July 5, 2001;
113
. HP's two current reports on Form 8-K, dated July 26, 2001, filed with
the Securities and Exchange Commission on July 26, 2001;
. HP's current report on Form 8-K, dated August 16, 2001, filed with the
Securities and Exchange Commission on August 16, 2001;
. HP's current report on Form 8-K, dated August 31, 2001, filed with the
Securities and Exchange Commission on September 4, 2001 (as amended by
HP's Form 8-K/A filed with the Securities and Exchange Commission on
September 13, 2001);
. HP's current report on Form 8-K, dated September 6, 2001, filed with the
Securities and Exchange Commission on September 7, 2001 (as amended by
HP's Form 8-K/A filed with the Securities and Exchange Commission on
September 19, 2001);
. HP's current report on Form 8-K, dated September 17, 2001, filed with
the Securities and Exchange Commission on September 18, 2001;
. HP's current report on Form 8-K, dated November 5, 2001, filed with the
Securities and Exchange Commission on November 6, 2001;
. HP's current report on Form 8-K, dated November 14, 2001, filed with the
Securities and Exchange Commission on November 14, 2001;
. The description of HP's common stock contained in its registration
statement on Form 8-A, filed with the Securities and Exchange Commission
on or about November 6, 1957 and any amendment or report filed with the
Securities and Exchange Commission for the purposes of updating such
description; and
. The description of HP's preferred share purchase rights contained in its
registration statement on Form 8-A, filed with the Securities and
Exchange Commission on September 4, 2001 and any amendment or report
filed with the Securities and Exchange Commission for the purpose of
updating such description.
The following documents, which were filed by Compaq with the Securities and
Exchange Commission, are incorporated by reference into this joint proxy
statement/prospectus:
. Compaq's annual report on Form 10-K for the fiscal year ended December
31, 2000, filed with the Securities and Exchange Commission on February
9, 2001;
. Compaq's quarterly report on Form 10-Q for the period ended March 31,
2001, filed with the Securities and Exchange Commission on April 25,
2001;
. Compaq's quarterly report on Form 10-Q for the period ended June 30,
2001, filed with the Securities and Exchange Commission on July 26, 2001;
. Compaq's quarterly report on Form 10-Q for the period ended September
30, 2001, filed with the Securities and Exchange Commission on October
23, 2001;
. Compaq's two current reports on Form 8-K, dated January 23, 2001, filed
with the Securities and Exchange Commission on January 24, 2001;
. Compaq's current report on Form 8-K, dated January 26, 2001, filed with
the Securities and Exchange Commission on January 26, 2001;
. Compaq's current report on Form 8-K, dated February 14, 2001, filed with
the Securities and Exchange Commission on February 16, 2001;
. Compaq's current report on Form 8-K, dated March 15, 2001, filed with
the Securities and Exchange Commission on March 16, 2001;
. Compaq's current report on Form 8-K, dated April 23, 2001, filed with
the Securities and Exchange Commission on April 24, 2001;
. Compaq's current report on Form 8-K, dated March 31, 2001, filed with
the Securities and Exchange Commission on May 7, 2001;
114
. Compaq's current report on Form 8-K, dated June 25, 2001, filed with the
Securities and Exchange Commission on June 25, 2001;
. Compaq's current report on Form 8-K, dated July 10, 2001, filed with the
Securities and Exchange Commission on July 11, 2001 (as amended by
Compaq's Form 8-K/A filed with the Securities and Exchange Commission on
July 11, 2001);
. Compaq's current report on Form 8-K, dated July 25, 2001, filed with the
Securities and Exchange Commission on July 26, 2001;
. Compaq's current report on Form 8-K, dated September 3, 2001, filed with
the Securities and Exchange Commission on September 4, 2001 (as amended
by Compaq's Form 8-K/A filed with the Securities and Exchange Commission
on September 12, 2001);
. Compaq's current report on Form 8-K, dated September 4, 2001, filed with
the Securities and Exchange Commission on September 5, 2001;
. Compaq's current report on Form 8-K, dated September 17, 2001, filed
with the Securities and Exchange Commission on September 17, 2001;
. Compaq's current report on Form 8-K, dated October 1, 2001, filed with
the Securities and Exchange Commission on October 2, 2001;
. Compaq's current report on Form 8-K, dated October 23, 2001, filed with
the Securities and Exchange Commission on October 24, 2001;
. The description of Compaq's common stock contained in its registration
statement on Form 8-A, filed with the Securities and Exchange Commission
on or about April 30, 1984 and any amendment or report filed with the
Securities and Exchange Commission for the purpose of updating such
description; and
. The description of Compaq's preferred stock purchase rights contained in
its registration statement on Form 8-A, filed with the Securities and
Exchange Commission on September 7, 2001 and any amendment or report
filed with the Securities and Exchange Commission for the purpose of
updating such description.
In addition, all documents filed by HP and Compaq pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of
this joint proxy statement/prospectus and before the date of the HP and Compaq
special meetings are deemed to be incorporated by reference into, and to be a
part of, this joint proxy statement/prospectus from the date of filing of those
documents.
Any statement contained in this joint proxy statement/prospectus or in a
document incorporated or deemed to be incorporated by reference into this joint
proxy statement/prospectus will be deemed to be modified or superseded for
purposes of this joint proxy statement/prospectus to the extent that a
statement contained in this joint proxy statement/prospectus or any other
subsequently filed document that is deemed to be incorporated by reference into
this joint proxy statement/prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified
or superseded, to constitute a part of this joint proxy statement/prospectus.
HP has supplied all information contained or incorporated by reference in
this joint proxy statement/prospectus about HP, and Compaq has supplied all
information contained or incorporated by reference in this joint proxy
statement/prospectus about Compaq.
The documents incorporated by reference into this joint proxy
statement/prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
joint proxy statement/prospectus (not including exhibits to the information
unless those exhibits are specifically
115
incorporated by reference into this joint proxy statement/prospectus) to any
person, without charge, upon written or oral request. Any request for documents
should be made by , 200 to ensure timely delivery of the documents.
HP and Compaq shareowners may request a copy of information incorporated by
reference into this joint proxy statement/prospectus by contacting the investor
relations department for each of HP and Compaq at:
For information relating to HP: For information relating to Compaq:
Hewlett-Packard Company Compaq Computer Corporation
3000 Hanover Street P.O. Box 692000
Palo Alto, California 94304 Houston, Texas 77269-2000
Attention: Investor Relations Attention: Compaq Investor Relations, MS 110605
(650) 857-1501 (800) 433-2391
In addition, you may obtain copies of HP's information by making a request
through HP's investor relations website, http://www.hp.com/hpinfo/investor, or
sending an e-mail to investor_relations@hp.com.
You may obtain copies of Compaq's information by making a request through
Compaq's investor relations website,
http://www.shareholder.com/cpq/document_request.cfm, or by sending an e-mail to
investor.relations@compaq.com.
HP and Compaq file annual, quarterly and current reports, proxy and
information statements and other information with the Securities and Exchange
Commission. Copies of the reports, proxy and information statements and other
information filed by HP and Compaq with the Securities and Exchange Commission
may be inspected and copied at the public reference facilities maintained by
the Securities and Exchange Commission at:
Judiciary Plaza Citicorp Center
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy and information statements and other information concerning
HP and Compaq may be inspected at:
New York Stock Exchange
20 Broad Street
New York, New York 10005
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the Securities and Exchange
Commission web site is http://www.sec.gov.
HP has filed a registration statement on Form S-4 under the Securities Act
of 1933 with the Securities and Exchange Commission with respect to HP's common
stock to be issued to Compaq shareowners in connection with the merger. This
joint proxy statement/prospectus constitutes the prospectus of HP filed as part
of the registration statement. This joint proxy statement/prospectus does not
contain all of the information set forth in the registration statement because
certain parts of the registration statement are omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. The
registration statement and its exhibits are available for inspection and
copying as set forth above.
116
HP and Compaq shareowners should contact Georgeson Shareholder at the
address, telephone number or Internet address listed below with any questions
about the merger:
For HP shareowners: For Compaq shareowners:
Georgeson Shareholder Georgeson Shareholder
111 Commerce Road 111 Commerce Road
Carlstadt, New Jersey Carlstadt, New Jersey
07072 07072
@georgesonshareholder.com @georgesonshareholder.com
( ) - ( ) -
international calls ( ) international calls ( )
- -
This joint proxy statement/prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this joint
proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this joint proxy statement/prospectus nor any distribution of
securities pursuant to this joint proxy statement/prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated into this joint proxy
statement/prospectus by reference or in our affairs since the date of this
joint proxy statement/prospectus.
UNIX(R) is a registered trademark of The Open Group. Compaq, Alpha,
AlphaServer, Compaq Insight Manager, Himalaya, Non Stop and Proliant are
trademarks of Compaq Information Technologies Group, L.P. in the United States
and other countries.
117
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HEWLETT-PACKARD COMPANY,
HELOISE MERGER CORPORATION
AND
COMPAQ COMPUTER CORPORATION
Dated as of September 4, 2001
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..................................................... 1
1.1 The Merger........................................................ 2
1.2 Effective Time; Closing........................................... 2
1.3 Effect of the Merger.............................................. 2
1.4 Certificate of Incorporation and Bylaws........................... 2
1.5 Directors and Officers............................................ 2
1.6 Effect on Capital Stock........................................... 2
1.7 Surrender of Certificates......................................... 3
1.8 No Further Ownership Rights in Compaq Common Stock................ 5
1.9 Lost, Stolen or Destroyed Certificates............................ 5
1.10 Tax Consequences................................................. 5
1.11 Further Action................................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPAQ...................... 6
2.1 Organization; Standing and Power; Charter Documents; Subsidiaries. 6
2.2 Capital Structure................................................. 6
2.3 Authority; Non-Contravention; Necessary Consents.................. 8
2.4 SEC Filings; Financial Statements................................. 9
2.5 Absence of Certain Changes or Events.............................. 10
2.6 Taxes............................................................. 10
2.7 Intellectual Property............................................. 10
2.8 Compliance; Permits............................................... 11
2.9 Litigation........................................................ 11
2.10 Brokers' and Finders' Fees....................................... 11
2.11 Transactions with Affiliates..................................... 11
2.12 Employee Benefit Plans........................................... 12
2.13 Environmental Matters............................................ 14
2.14 Contracts........................................................ 14
2.15 Disclosure....................................................... 15
2.16 Board Approval................................................... 15
2.17 Fairness Opinion................................................. 15
2.18 Rights Plan...................................................... 16
2.19 Takeover Statutes................................................ 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HP AND MERGER SUB.......... 16
3.1 Organization; Standing and Power; Charter Documents; Subsidiaries. 16
3.2 Capital Structure................................................. 17
3.3 Authority; Non-Contravention; Necessary Consents.................. 18
3.4 SEC Filings; Financial Statements................................. 19
3.5 Absence of Certain Changes or Events.............................. 19
3.6 Taxes............................................................. 19
3.7 Intellectual Property............................................. 20
3.8 Compliance; Permits............................................... 20
3.9 Litigation........................................................ 20
3.10 Brokers' and Finders' Fees....................................... 20
3.11 Employee Benefit Plans........................................... 21
3.12 Environmental Matters............................................ 22
3.13 Contracts........................................................ 22
3.14 Disclosure....................................................... 22
i
Page
----
3.15 Board Approval.......................................................................... 23
3.16 Fairness Opinion........................................................................ 23
3.17 Rights Plan............................................................................. 23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................. 23
4.1 Conduct of Business...................................................................... 23
ARTICLE V ADDITIONAL AGREEMENTS................................................................. 28
5.1 Prospectus/Proxy Statement; Registration Statement....................................... 28
5.2 Meetings of Stockholders; Board Recommendation........................................... 29
5.3 Acquisition Proposals.................................................................... 29
5.4 Confidentiality; Access to Information; No Modification of Representations, Warranties or
Covenants............................................................................. 31
5.5 Public Disclosure........................................................................ 32
5.6 Regulatory Filings; Reasonable Efforts................................................... 32
5.7 Notification of Certain Matters.......................................................... 34
5.8 Third-Party Consents..................................................................... 34
5.9 Equity Awards and Employee Benefits...................................................... 34
5.10 Form S-8................................................................................ 36
5.11 Indemnification......................................................................... 36
5.12 Board of Directors and Executive Officers of HP......................................... 36
5.13 NYSE and PCX Listings................................................................... 37
5.14 Compaq Affiliates; Restrictive Legend................................................... 37
5.15 Treatment as Reorganization............................................................. 37
5.16 Rights Plans............................................................................ 37
5.17 Section 16 Matters...................................................................... 38
5.18 Merger Sub Compliance................................................................... 38
5.19 Conveyance Taxes........................................................................ 38
ARTICLE VI CONDITIONS TO THE MERGER............................................................. 38
6.1 Conditions to the Obligations of Each Party to Effect the Merger......................... 38
6.2 Additional Conditions to the Obligations of Compaq....................................... 39
6.3 Additional Conditions to the Obligations of HP........................................... 39
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................................... 40
7.1 Termination.............................................................................. 40
7.2 Notice of Termination; Effect of Termination............................................. 41
7.3 Fees and Expenses........................................................................ 41
7.4 Amendment................................................................................ 43
7.5 Extension; Waiver........................................................................ 43
ARTICLE VIII GENERAL PROVISIONS................................................................. 43
8.1 Non-Survival of Representations and Warranties........................................... 43
8.2 Notices.................................................................................. 43
8.3 Interpretation; Knowledge................................................................ 45
8.4 Counterparts............................................................................. 46
8.5 Entire Agreement; Third-Party Beneficiaries.............................................. 46
8.6 Severability............................................................................. 46
8.7 Other Remedies; Specific Performance..................................................... 46
8.8 Governing Law............................................................................ 46
8.9 Rules of Construction.................................................................... 46
8.10 Assignment.............................................................................. 47
8.11 Waiver of Jury Trial.................................................................... 47
ii
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of September 4, 2001, by and among Hewlett-Packard Company, a
Delaware corporation ("HP"), Heloise Merger Corporation, a Delaware corporation
and direct wholly-owned subsidiary of HP ("Merger Sub"), and Compaq Computer
Corporation, a Delaware corporation ("Compaq").
RECITALS
A. The respective Boards of Directors of HP, Merger Sub and Compaq have
deemed it advisable and in the best interests of their respective corporations
and stockholders that HP and Compaq consummate the business combination and
other transactions provided for herein in order to advance their respective
long-term strategic business interests.
B. The respective Boards of Directors of HP, Merger Sub and Compaq have
approved, in accordance with applicable provisions of the laws of the state of
Delaware ("Delaware Law"), this Agreement and the transactions contemplated
hereby, including the Merger (as defined in Section 1.1).
C. The Board of Directors of HP has resolved to recommend to its
stockholders approval of the issuance of shares of HP Common Stock (as defined
in Section 1.6(a)) in connection with the Merger (the "Stock Issuance").
D. The Board of Directors of Compaq has resolved to recommend to its
stockholders approval and adoption of this Agreement and approval of the Merger.
E. HP, as the sole stockholder of Merger Sub, has approved and adopted this
Agreement and approved the Merger.
F. HP, Merger Sub and Compaq desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
G. For United States federal income tax purposes, the parties intend that
the Merger qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the parties
intend, by executing this Agreement, to adopt a plan of reorganization within
the meaning of Section 354(a) of the Code.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
Compaq (the "Merger"), the separate corporate existence of Merger Sub shall
cease and Compaq shall continue as the surviving corporation. Compaq, as the
surviving corporation after the Merger, is hereinafter sometimes referred to as
the "Surviving Corporation."
A-1
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Certificate of
Merger") (the time of such filing with the Secretary of State of the State of
Delaware (or such later time as may be agreed in writing by Compaq and HP and
specified in the Certificate of Merger) being the "Effective Time") as soon as
practicable on or after the Closing Date (as defined below). The closing of the
Merger (the "Closing") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, located at 650 Page Mill Road,
Palo Alto, California, at a time and date to be specified by the parties, which
shall be no later than the second business day after the satisfaction or waiver
of the conditions set forth in Article VI, or at such other time, date and
location as the parties hereto agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Delaware Law.
1.4 Certificate of Incorporation and Bylaws. At the Effective Time, the
Certificate of Incorporation of Compaq shall be amended and restated in its
entirety to be identical to the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, until thereafter amended in
accordance with Delaware Law and as provided in such Certificate of
Incorporation; provided, however, that at the Effective Time, Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated in its entirety to read as follows: "The name of the corporation is
Compaq Computer Corporation." At the Effective Time, the Bylaws of Compaq shall
be amended and restated in their entirety to be identical to the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with Delaware Law and as provided in such
Bylaws.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of HP, Merger Sub, Compaq or the holders of any shares of
capital stock of Compaq, the following shall occur:
(a) Compaq Common Stock. Each share of the Common Stock, par value $0.01
per share, of Compaq (together with the associated Compaq Right (as defined
in Section 2.2(a)) under the Compaq Rights Agreement (as defined in Section
2.2(a)) ("Compaq Common Stock") issued and outstanding immediately prior to
the Effective Time, other than any shares of Compaq Common Stock to be
canceled pursuant to Section 1.6(c), will be canceled and extinguished and
automatically converted (subject to Section 1.6(f)) into the right to
receive 0.6325 of a validly issued, fully paid and nonassessable share (the
"Exchange Ratio") of the Common Stock, par value $0.01 per share, of HP
(together with any associated HP Right (as defined in Section 3.2(a)) under
the HP Rights Agreement (as defined in Section 3.2(a)) ("HP Common Stock")
upon surrender of the certificate representing such share of Compaq Common
Stock in the manner provided in Section 1.7 (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit (and bond, if
required) in the manner provided in Section 1.9).
(b) Repurchase Rights. If any shares of Compaq Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other agreement with
Compaq, then the shares of HP Common Stock issued in exchange for such
shares of Compaq Common Stock will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of HP Common Stock may accordingly be
marked with appropriate legends. Compaq shall take all action that may be
necessary to ensure that, from and after the Effective Time, the Surviving
Corporation is entitled to exercise any such repurchase option or other
right set forth in any such restricted stock purchase agreement or other
agreement.
A-2
(c) Cancellation of Treasury and HP Owned Stock. Each share of Compaq
Common Stock held by Compaq or HP or any direct or indirect wholly-owned
Subsidiary of Compaq or of HP immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof.
(d) Capital Stock of Merger Sub. Each share of common stock, par value
$0.01, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding
prior immediately to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable shares of common stock, par value $0.01
per share, of the Surviving Corporation.
(e) Stock Options; Employee Stock Purchase Plans. At the Effective Time,
all Compaq Options (as defined in Section 2.2(b)) outstanding under each
Compaq Stock Option Plan (as defined in Section 2.12(a) hereof) shall be
assumed by HP in accordance with Section 5.9. Rights outstanding under
Compaq's Employee Stock Purchase Plan and any other employee stock purchase
plan of Compaq (collectively, the "Compaq Purchase Plans") shall be treated
as set forth in Section 5.9(c).
(f) Fractional Shares. No fraction of a share of HP Common Stock will be
issued by virtue of the Merger, but in lieu thereof each holder of shares of
Compaq Common Stock who would otherwise be entitled to a fraction of a share
of HP Common Stock (after aggregating all fractional shares of HP Common
Stock that otherwise would be received by such holder) shall, upon surrender
of such holder's Certificate(s) (as defined in Section 1.7(c)), receive from
HP an amount of cash (rounded to the nearest whole cent), without interest,
equal to the product of: (i) such fraction, multiplied by (ii) the average
closing price of one share of HP Common Stock for the ten (10) most recent
trading days that HP Common Stock has traded ending on the trading day one
day prior to the Effective Time, as reported on the New York Stock Exchange,
Inc. ("NYSE") Composite Transactions Tape.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the appropriate effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into HP Common Stock or Compaq Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to HP
Common Stock or Compaq Common Stock having a record date on or after the
date hereof and prior to the Effective Time.
1.7 Surrender of Certificates.
(a) Exchange Agent. HP shall select Computershare Investor Services LLC or
another institution reasonably satisfactory to Compaq to act as the exchange
agent (the "Exchange Agent") in the Merger.
(b) HP to Provide Common Stock. Promptly after the Effective Time, HP shall
enter into an agreement with the Exchange Agent, reasonably satisfactory to
Compaq, which shall provide that HP shall make available to the Exchange Agent
for exchange in accordance with this Article I, the shares of HP Common Stock
issuable pursuant to Section 1.6(a) in exchange for outstanding shares of
Compaq Common Stock. In addition, HP shall make available as necessary from
time to time after the Effective Time as needed, cash in an amount sufficient
for payment in lieu of fractional shares pursuant to Section 1.6(f) and any
dividends or distributions which holders of shares of Compaq Common Stock may
be entitled pursuant to Section 1.7(d). Any cash and HP Common Stock deposited
with the Exchange Agent shall hereinafter be referred to as the "Exchange Fund."
(c) Exchange Procedures. Promptly after the Effective Time, HP shall cause
the Exchange Agent to mail to each holder of record (as of the Effective Time)
of a certificate or certificates (the "Certificates") which immediately prior
to the Effective Time represented outstanding shares of Compaq Common Stock
whose shares were converted into the right to receive shares of HP Common Stock
pursuant to Section 1.6(a), cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d): (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as HP may reasonably specify) and (ii)
instructions for use in effecting the
A-3
surrender of the Certificates in exchange for certificates representing whole
shares of HP Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of Certificates for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by HP, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificates shall be entitled to
receive in exchange therefor the number of whole shares of HP Common Stock
(after taking into account all Certificates surrendered by such holder) to
which such holder is entitled pursuant to Section 1.6(a) (which shall be in
uncertificated book entry form unless a physical certificate is requested or is
otherwise required by applicable law or regulation), payment in lieu of
fractional shares which such holder has the right to receive pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the ownership of the
number of full shares of HP Common Stock into which such shares of Compaq
Common Stock shall have been so converted and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance with
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date hereof with respect to HP Common
Stock with a record date after the Effective Time and no payment in lieu of
fractional shares pursuant to Section 1.6(f) will be paid to the holders of any
unsurrendered Certificates with respect to the shares of HP Common Stock
represented thereby until the holders of record of such Certificates shall
surrender such Certificates. Subject to applicable law, following surrender of
any such Certificates, the Exchange Agent shall deliver to the record holders
thereof, without interest (i) promptly after such surrender, the number of
whole shares of HP Common Stock issued in exchange therefor along with payment
in lieu of fractional shares pursuant to Section 1.6(f) and the amount of any
such dividends or other distributions with a record date after the Effective
Time and theretofore paid with respect to such whole shares of HP Common Stock
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time and a payment date
subsequent to such surrender payable with respect to such whole shares of HP
Common Stock.
(e) Transfers of Ownership. If shares of HP Common Stock are to be issued in
a name other than that in which the Certificates surrendered in exchange
therefor are registered, it will be a condition of the issuance thereof that
the Certificates so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the Persons (as defined in Section 8.3(d))
requesting such exchange will have paid to HP or any agent designated by it any
transfer or other Taxes (as defined in Section 2.6) required by reason of the
issuance of shares of HP Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of HP or any agent designated by it that such Tax has been paid or
is not payable.
(f) Required Withholding. Each of the Exchange Agent and the Surviving
Corporation shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any holder or
former holder of Compaq Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of state,
local or foreign Tax law or under any other applicable Legal Requirement (as
defined in Section 2.2(d)). To the extent such amounts are so deducted or
withheld, the amount of such consideration shall be treated for all purposes
under this Agreement as having been paid to the Person to whom such
consideration would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of HP Common Stock or Compaq Common Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
A-4
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by HP on a daily basis; provided that
no such investment or loss thereon shall affect the amounts payable to Compaq
stockholders pursuant to this Article I. Any interest and other income
resulting from such investment shall become a part of the Exchange Fund, and
any amounts in excess of the amounts payable to Compaq stockholders pursuant to
this Article I shall promptly be paid to HP.
(i) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates six (6) months after the
Effective Time shall, at the request of the Surviving Corporation, be delivered
to the Surviving Corporation or otherwise on the instruction of the Surviving
Corporation, and any holders of the Certificates who have not surrendered such
Certificates in compliance with this Section 1.7 shall after such delivery to
Surviving Corporation look only to the Surviving Corporation for the shares of
HP Common Stock pursuant to Section 1.6(a), cash in lieu of any fractional
shares pursuant to Section 1.6(f) and any dividends or other distributions
pursuant to Section 1.7(d) with respect to the shares of Compaq Common Stock
formerly represented thereby. Any such portion of the Exchange Fund remaining
unclaimed by holders of shares of Compaq Common Stock immediately prior to such
time as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 2.3(c)) shall, to the extent
permitted by law, become the property of HP free and clear of any claims or
interest of any Person previously entitled thereto.
1.8 No Further Ownership Rights in Compaq Common Stock. All shares of HP
Common Stock issued upon the surrender for exchange of shares of Compaq Common
Stock in accordance with the terms hereof (including any cash paid in respect
thereof pursuant to Section 1.6(f) and 1.7(d)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Compaq
Common Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Compaq Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of HP Common Stock,
cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d);
provided, however, that HP may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against HP, Compaq or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties hereto adopt this Agreement as a plan of reorganization
within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).
1.11 Further Action. At and after the Effective Time, the officers and
directors of HP and the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Compaq and Merger Sub, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on
behalf of Compaq and Merger Sub, any other actions and things to vest, perfect
or confirm of record or otherwise in the Surviving Corporation any and all
right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
A-5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPAQ
Compaq represents and warrants to HP and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by Compaq to HP dated as of the date hereof and certified by a duly authorized
officer of Compaq (the "Compaq Disclosure Letter"), as follows:
2.1 Organization; Standing and Power; Charter Documents; Subsidiaries.
(a) Organization; Standing and Power. Compaq and each of its Subsidiaries
(as defined below) is a corporation or other organization duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing would not reasonably be expected to have a Material Adverse Effect (as
defined in Section 8.3(c)) on Compaq, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure to so qualify or
to be good standing, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Compaq. For purposes of this
Agreement, "Subsidiary," when used with respect to any party, shall mean any
corporation or other organization, whether incorporated or unincorporated, at
least a majority of the securities or other interests of which having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(b) Charter Documents. Compaq has delivered or made available to HP: (i) a
true and correct copy of the Certificate of Incorporation (including any
Certificate of Designations) and Bylaws of Compaq, each as amended to date
(collectively, the "Compaq Charter Documents") and (ii) the certificate of
incorporation and bylaws, or like organizational documents (collectively,
"Subsidiary Charter Documents"), of each of its Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC")), and each such instrument is in full force and effect.
Compaq is not in violation of any of the provisions of the Compaq Charter
Documents and each Subsidiary is not in violation of its respective Subsidiary
Charter Documents, except in the case of a Subsidiary, as would not reasonably
be expected to have a Material Adverse Effect on Compaq.
(c) Subsidiaries. Exhibit 21 to Compaq's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 includes all the Subsidiaries of Compaq
which are Significant Subsidiaries. All the outstanding shares of capital stock
of, or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are, except as set
forth in such Exhibit 21, owned directly or indirectly by Compaq, free and
clear of all pledges, claims, liens, charges, encumbrances, options and
security interests of any kind or nature whatsoever (collectively, "Liens"),
including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests, except for restrictions
imposed by applicable securities laws.
2.2 Capital Structure.
(a) Capital Stock. The authorized capital stock of Compaq consists of: (i)
3,000,000,000 shares of Compaq Common Stock, par value $0.01 per share and (ii)
10,000,000 shares of preferred stock, par value $0.01 per share (the "Compaq
Preferred Stock"), 3,000,000 of which shares have been designated as Series A
Junior Participating Preferred Stock, all of which will be reserved for
issuance upon exercise of preferred stock
A-6
purchase rights (the "Compaq Rights") issuable pursuant to the rights agreement
approved by the Board of Directors of Compaq in connection with its approval of
this Agreement substantially in the form previously provided to HP (the "Compaq
Rights Agreement"). At the close of business on June 30, 2001: (i)
1,753,000,000 shares of Compaq Common Stock were issued and outstanding, (ii)
59,000,000 shares of Compaq Common Stock were issued and held by Compaq in its
treasury, and (iii) no shares of Compaq Preferred Stock were issued and
outstanding. All of the outstanding shares of capital stock of Compaq are, and
all shares of capital stock of Compaq which may be issued as contemplated or
permitted by this Agreement will be, when issued, duly authorized and validly
issued, fully paid and nonassessable and not subject to any preemptive rights.
Upon consummation of the Merger, (A) the shares of HP Common Stock issued in
exchange for any shares of Compaq Common Stock that are subject to a Contract
(as defined below) pursuant to which Compaq has the right to repurchase, redeem
or otherwise reacquire any shares of Compaq Common Stock will, without any
further act of HP, Merger Sub, Compaq or any other Person, become subject to
the restrictions, conditions and other provisions contained in such Contract
and (B) HP will automatically succeed to and become entitled to exercise
Compaq's rights and remedies under any such Contract. For purposes of this
Agreement, "Contract" shall mean any written, oral or other agreement,
contract, subcontract, settlement agreement, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature, as in effect as of the date hereof or as may hereinafter be in
effect.
(b) Stock Options. As of the close of business on August 14, 2001: (i)
279,538,000 shares of Compaq Common Stock are subject to issuance pursuant to
outstanding options to purchase Compaq Common Stock under the Compaq Stock
Option Plans that are Compaq Broad Plans (equity or other equity-based awards,
whether payable in cash, shares or otherwise granted under or pursuant to the
Compaq Stock Option Plans (whether Compaq Broad Plans (as defined in Section
2.12(a)) or otherwise) are referred to in this Agreement as "Compaq Options"),
(ii) as of the date hereof, 17,400,000 shares of Compaq Common Stock are
reserved for future issuance under the Compaq Purchase Plans, and (iii) 600,000
shares of Compaq Common Stock are subject to issuance pursuant to outstanding
options to purchase Compaq Common Stock (A) which are issued other than
pursuant Compaq Broad Plans and (B) other than shares reserved for issuance
under the Compaq Purchase Plans. Section 2.2(b) of the Compaq Disclosure Letter
sets forth a list of each outstanding Compaq Stock Option (excluding Compaq
Rights) issued other than pursuant to (1) Compaq Broad Plans and (2) the Compaq
Purchase Plans, and (a) the name and location of the holder of the such Compaq
Option, (b) the number of shares of Compaq Common Stock subject to such Compaq
Option, (c) the exercise price of such Compaq Option, (4) the date on which
such Compaq Option was granted, (d) the applicable vesting schedule, and the
extent to which such Compaq Option is vested and exercisable as of June 30,
2001, and (e) the date on which such Compaq Option expires. All shares of
Compaq Common Stock subject to issuance under the Compaq Stock Option Plans and
the Compaq Purchase Plan, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. There are no
commitments or agreements of any character to which Compaq is bound obligating
Compaq to accelerate the vesting of any Compaq Option as a result of the Merger
(whether alone or upon the occurrence of any additional or subsequent events).
Except as set forth on Section 2.2(b) of the Compaq Disclosure Letter, there
are no outstanding or authorized stock appreciation, phantom stock, profit
participation or other similar rights with respect to Compaq.
(c) Voting Debt. No bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders may vote ("Voting Debt")
of Compaq is issued or outstanding as of the date hereof.
(d) Other Securities. Except as otherwise set forth in this Section 2.2, as
of June 30, 2001, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Compaq or any of its Subsidiaries is a party or by which any of them is bound
obligating Compaq or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock,
Voting Debt or other voting securities of Compaq or any of its Subsidiaries, or
obligating Compaq or any of its Subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment,
A-7
agreement, arrangement or undertaking. All outstanding shares of Compaq Common
Stock, all outstanding Compaq Options, and all outstanding shares of capital
stock of each Subsidiary of Compaq have been issued and granted in compliance
in all material respects with (i) all applicable securities laws and all other
applicable Legal Requirements (as defined below) and (ii) all requirements set
forth in applicable material Contracts. For purposes of this Agreement, "Legal
Requirements" shall mean any federal, state, local, municipal, foreign or other
law, statute, constitution, principle of common law, resolution, ordinance,
code, order, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Entity.
(e) No Changes. Since June 30, 2001 and through the date hereof, other than
(i) pursuant to the exercise of Compaq Options outstanding as of June 30, 2001
issued pursuant to the Compaq Stock Option Plans, (ii) under the Compaq
Purchase Plan, (iii) pursuant to repurchases from Employees (as defined in
Section 2.12(a)) following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements or (iv) pursuant to end of
month stock option grants in July 2001 and August 2001 in the ordinary course
of business consistent with past practice under Stock Options Plans of Compaq
that are Compaq Broad Plans, there has been no change in (A) the outstanding
capital stock of Compaq, (B) the number of Compaq Options outstanding, or (C)
the number of other options, warrants or other rights to purchase Compaq
capital stock.
2.3 Authority; Non-Contravention; Necessary Consents.
(a) Authority. Compaq has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby has been duly authorized by all necessary
corporate action on the part of Compaq and no other corporate proceedings on
the part of Compaq are necessary to authorize the execution and delivery of
this Agreement or to consummate the Merger and the other transactions
contemplated hereby, subject only to the approval and adoption of this
Agreement and the approval of the Merger by Compaq's stockholders and the
filing of the Certificate of Merger pursuant to Delaware Law. The affirmative
vote of the holders of a majority of the outstanding shares of Compaq Common
Stock to approve and adopt this Agreement and approve the Merger is the only
vote of the holders of any class or series of Compaq capital stock necessary to
approve and adopt this Agreement, approve the Merger and consummate the Merger
and the other transactions contemplated hereby. This Agreement has been duly
executed and delivered by Compaq and, assuming due execution and delivery by HP
and Merger Sub, constitutes the valid and binding obligation of Compaq,
enforceable against Compaq in accordance with its terms.
(b) Non-Contravention. The execution and delivery of this Agreement by
Compaq does not, and performance of this Agreement by Compaq will not: (i)
conflict with or violate the Compaq Charter Documents or any Subsidiary Charter
Documents of any Subsidiary of Compaq, (ii) subject to obtaining the approval
and adoption of this Agreement and the approval of the Merger by Compaq's
stockholders as contemplated in Section 5.2 and compliance with the
requirements set forth in Section 2.3(c), conflict with or violate any material
Legal Requirement applicable to Compaq or any of its Subsidiaries or by which
Compaq or any of its Subsidiaries or any of their respective properties is
bound or affected, or (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both would
become a material default) under, or impair Compaq's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material Lien on any of the material properties or assets of
Compaq or any of its Subsidiaries pursuant to, any Compaq Material Contract (as
defined in Section 2.14). Section 2.3(b) of the Compaq Disclosure Letter lists
all consents, waivers and approvals under any of Compaq's or any of its
Subsidiaries' Contracts required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if individually or
in the aggregate not obtained, would result in a Material Adverse Effect on
Compaq or the Surviving Corporation.
(c) Necessary Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with any supranational, national, state,
municipal, local or foreign government, any instrumentality,
A-8
subdivision, court, administrative agency or commission or other governmental
authority or instrumentality, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity") is required to be
obtained or made by Compaq in connection with the execution and delivery of
this Agreement or the consummation of the Merger and other transactions
contemplated hereby, except for: (i) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which Compaq and/or HP are
qualified to do business, (ii) the filing of the Prospectus/Proxy Statement (as
defined in Section 2.15) with the SEC in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the effectiveness of
the Registration Statement (as defined in Section 2.15), (iii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal, foreign and state securities (or
related) laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and Council Regulation No. 4064/89 of the European
Community, as amended (the "EC Merger Regulation"), (iv) the consents listed on
Section 2.3(c) of the Compaq Disclosure Letter; (v) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities or "blue sky" laws and the
securities laws of any foreign country, and (vi) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to Compaq or HP or materially adversely affect the
ability of the parties hereto to consummate the Merger within the time frame in
which the Merger would otherwise be consummated in the absence of the need for
such consent, approval, order, authorization, registration, declaration or
filings. The consents, approvals, orders, authorizations, registrations,
declarations and filings set forth in (i) through (v) are referred to herein as
the "Necessary Consents."
2.4 SEC Filings; Financial Statements.
(a) SEC Filings. Compaq has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated by reference)
required to be filed by it with the SEC since January 1, 1998. Compaq has made
available to HP all such registration statements, prospectuses, reports,
schedules, forms, statements and other documents in the form filed with the
SEC. All such required registration statements, prospectuses, reports,
schedules, forms, statements and other documents (including those that Compaq
may file subsequent to the date hereof), as amended, are referred to herein as
the "Compaq SEC Reports." As of their respective dates, the Compaq SEC Reports
(i) were prepared in accordance and complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Compaq SEC Reports and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except to the extent corrected prior to the date
hereof by a subsequently filed Compaq SEC Report. None of Compaq's Subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Compaq
SEC Reports (the "Compaq Financials"), including each Compaq SEC Report filed
after the date hereof until the Closing: (i) complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, (ii) was prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q, 8-K or any successor form under the Exchange
Act), and (iii) fairly presented in all material respects the consolidated
financial position of Compaq and its consolidated Subsidiaries as at the
respective dates thereof and the consolidated results of Compaq's operations
and cash flows for the periods indicated. The balance sheet of Compaq contained
in the Compaq SEC Reports as of December 31, 2000 is hereinafter referred to as
the "Compaq Balance Sheet." Except as disclosed in the Compaq Financials, since
the date of the Compaq Balance Sheet and through the date hereof, neither
Compaq nor any of its Subsidiaries has any liabilities required under GAAP to
be set forth on a consolidated balance sheet
A-9
(absolute, accrued, contingent or otherwise) which, individually or in the
aggregate, would be reasonably expected to have a Material Adverse Effect on
Compaq, except for liabilities incurred since the date of the Compaq Balance
Sheet in the ordinary course of business consistent with past practices and
liabilities incurred pursuant to this Agreement.
2.5 Absence of Certain Changes or Events. Since the date of the Compaq
Balance Sheet and through the date hereof there has not been: (i) any Material
Adverse Effect on Compaq, (ii) any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, stock or property) in
respect of, any of Compaq's or any of its Subsidiaries' capital stock, or any
purchase, redemption or other acquisition by Compaq or any of its Subsidiaries
of any of Compaq's capital stock or any other securities of Compaq or its
Subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for (A) repurchases from Employees following
their termination pursuant to the terms of their pre-existing stock option or
purchase agreements, or (B) the Compaq Rights Dividend, or (iii) any split,
combination or reclassification of any of Compaq's or any of its Subsidiaries'
capital stock.
2.6 Taxes. For the purposes of this Agreement, the term "Tax" or,
collectively, "Taxes," shall mean any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts, and any obligations with respect to such amounts arising as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any period or under any agreements or arrangements with any other
Person and including any liability for taxes of a predecessor entity. Compaq
and each of its Subsidiaries have filed all material federal, state, local and
foreign returns, estimates, information statements and reports relating to
Taxes ("Tax Returns") required to be filed by any of them and have paid, or
have adequately reserved (in accordance with GAAP) for the payment of, all
Taxes required to be paid (whether or not shown on any Tax Returns), and the
most recent financial statements contained in the Compaq SEC Reports reflect an
adequate reserve (in accordance with GAAP) for all Taxes payable by Compaq and
its Subsidiaries through the date of such financial statements. No material
deficiencies for any Taxes have been asserted or assessed, or, to the Knowledge
(as defined in Section 8.3(b)) of Compaq, proposed, against Compaq or any of
its Subsidiaries that are not subject to adequate reserves (in accordance with
GAAP). No audit or other examination of any Tax Return of Compaq or any of its
Subsidiaries is presently in progress, nor has Compaq or any of its
Subsidiaries been notified of any request for such an audit or other
examination. Neither Compaq nor any of its Subsidiaries has taken any action or
knows of any fact, agreement or plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
2.7 Intellectual Property.
(a) No Infringement. To the Knowledge as of the date hereof of Compaq, the
products, services and operations of Compaq do not infringe or misappropriate
the Intellectual Property (as defined below) of any third party where such
infringement or misappropriation, individually or in the aggregate, would be
reasonably expected to have a material adverse effect on any material division
or business unit or other material operating group of product or service
offerings of Compaq or otherwise have a Material Adverse Effect on Compaq.
"Intellectual Property" shall mean any or all of the following and all rights
in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing, (iii) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world, (iv) all industrial designs and any registrations
and applications therefor throughout the world, (v) all mask works and any
registrations and applications therefor throughout the world, (vi) all trade
names, logos, URLs, common law trademarks and service marks, trademark and
service mark registrations and
A-10
applications therefor throughout the world, (vii) all databases and data
collections and all rights therein throughout the world, (viii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world, and (ix) any similar or equivalent rights to any of the foregoing
anywhere in the world.
(b) No Impairment. The Merger (including the assignment by operation of law
of any Contract to the Surviving Corporation) will not result in: (i) HP or any
Subsidiary of HP (other than Compaq and its Subsidiaries, but only to the
extent existing prior to the Merger) being bound by any material non-compete or
other material restriction on the operation of any business of HP or its
Subsidiaries, (ii) HP or any Subsidiary of HP (other than Compaq and its
Subsidiaries, but only to the extent existing prior to the Merger) granting any
rights or licenses to any material Intellectual Property of HP or any
Subsidiary of HP to any third party (including a covenant not to sue with
respect to any material Intellectual Property of HP or any Subsidiary of HP),
or (iii) the termination or breach of any Contract to which Compaq is a party,
which termination or breach would reasonably be expected to have a material
adverse effect on any material division or business unit or other material
operating group of product or service offerings of the Surviving Corporation or
HP or otherwise have a Material Adverse Effect on either of them.
2.8 Compliance; Permits.
(a) Compliance. Neither Compaq nor any of its Subsidiaries is, in any
material respect, in conflict with, or in default or in violation of any Legal
Requirement applicable to Compaq or any of its Subsidiaries or by which Compaq
or any of its Subsidiaries or any of their respective businesses or properties
is, or Compaq believes is reasonably likely to be, bound or affected, except,
in each case, or in the aggregate, for conflicts, violations and defaults that
would not have a Material Adverse Effect on Compaq. As of the date hereof, no
material investigation or review by any Governmental Entity is pending or, to
the Knowledge of Compaq, has been threatened in a writing delivered to Compaq
or any of its Subsidiaries, against Compaq or any of its Subsidiaries. There is
no material judgment, injunction, order or decree binding upon Compaq or any of
its Subsidiaries which has or would reasonably be expected to have the effect
of prohibiting or materially impairing any material business practice of Compaq
or any of its Subsidiaries, any acquisition of material property by Compaq or
any of its Subsidiaries or the conduct of business by Compaq and its
Subsidiaries as currently conducted.
(b) Permits. Compaq and its Subsidiaries hold, to the extent legally
required, all permits, licenses, variances, exemptions, orders and approvals
from Governmental Entities ("Permits") that are required for the operation of
the business of Compaq, as currently conducted, the failure to hold which would
reasonably be expected to have a Material Adverse Effect on Compaq
(collectively, "Compaq Permits"). As of the date hereof, no suspension or
cancellation of any of the Compaq Permits is pending or, to the Knowledge of
Compaq, threatened. Compaq and its Subsidiaries are in compliance in all
material respects with the terms of the Compaq Permits.
2.9 Litigation. As of the date hereof, there are no claims, suits, actions
or proceedings pending or, to the Knowledge of Compaq, overtly threatened
against Compaq or any of its Subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated hereby or which would reasonably be expected, either singularly or
in the aggregate with all such claims, actions or proceedings, to be material
to the Compaq.
2.10 Brokers' and Finders' Fees. Except for fees payable to Salomon Smith
Barney pursuant to an engagement letter dated July 19, 2001, a copy of which
has been provided to HP, Compaq has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.11 Transactions with Affiliates. Except as set forth in the Compaq SEC
Reports, since the date of the Compaq's last proxy statement filed with the
SEC, no event has occurred as of the date hereof that would be
A-11
required to be reported by Compaq pursuant to Item 404 of Regulation S-K
promulgated by the SEC (substituting, for the purposes of this representation
and warranty, each appearance of $60,000 in Item 404 with $500,000). Section
2.11 of the Compaq Disclosure Letter identifies each Person who is an
"affiliate" (as that term is used in Rule 145 promulgated under the Securities
Act) of Compaq as of the date hereof.
2.12 Employee Benefit Plans.
(a) Documents. Section 2.12(a) of the Compaq Disclosure Letter sets forth a
list of the following: (i) all severance and employment agreements of Compaq
with directors or executive officers, (ii) all material severance programs and
policies of each of Compaq or its Subsidiaries, (iii) all plans or agreement of
Compaq or its Subsidiaries relating to any of its current or former employees,
consultants or directors (each, an "Employee") pursuant to which benefits would
vest or an amount would become payable or the terms of which would otherwise be
altered, in any case by virtue of the transactions contemplated hereby (whether
alone or upon the occurrence of any additional or subsequent events), (iv) each
document embodying each Retirement Plan (as defined in Section 2.12(c)) of
Compaq (a "Compaq Retirement Plan"), (v) each Compaq Purchase Plan, and (vi)
each stock option plan, stock award plan, stock appreciation right plan,
phantom stock plan, stock option, other equity or equity-based compensation
plan, equity or other equity based award to any Person (whether payable in
cash, shares or otherwise) (to the extent not issued pursuant to any of the
foregoing plans) or other plan or Contract of any nature with any Person
(whether or not an Employee) pursuant to which any stock, option, warrant or
other right to purchase or acquire capital stock of Compaq or right to payment
based on the value of Compaq capital stock has been granted or otherwise
issued, but, in any case excluding the Compaq Purchase Plans (collectively,
"Compaq Stock Option Plans"). Compaq has delivered or made available to HP for
review each of the items listed on Section 2.12(a) of the Compaq Disclosure
Letter and a current actuarial valuation and/or audited statement of assets and
liabilities for each Compaq Retirement Plan. Section 2.12(a) of the Compaq
Disclosure Letter also identifies whether each Compaq Stock Option Plan (A) is
a "broadly-based" plan, as defined in Section 312.04(h) of the NYSE Listed
Company Manual or (B) has been approved by Compaq's stockholders (plans which
are either "broadly-based" plans or approved by Compaq's stockholders (as
identified on Section 2.12(a) of the Compaq Disclosure Letter) are referred to
herein as "Compaq Broad Plans").
(b) Benefit Plan Compliance.
(i) With respect to each material collective bargaining agreement, bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, stock-related or
performance award, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, loan (other than travel allowances and relocation
packages), fringe benefit, disability, sabbatical and other plan, arrangement
or understanding providing benefits to any Employee, employment agreement,
consulting agreement or severance agreement with any current or former officer
or director of Compaq or its Subsidiaries, or any material employment
agreement, consulting agreement or severance agreement for any Employee
(collectively, "Benefit Plans") of Compaq or any of its Subsidiaries ("Compaq
Benefit Plans"), no material event has occurred and there exists no material
condition or set of circumstances, in connection with which Compaq or any of
its Subsidiaries would be subject to any material liability under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable Legal Requirement.
(ii) Each Compaq Benefit Plan has been, in all material respects,
administered and operated in accordance with its terms, with the applicable
provisions of ERISA, the Code and all other applicable material Legal
Requirements and the terms of all applicable collective bargaining agreements.
Each Compaq Benefit Plan, including any material amendments thereto, that is
capable of approval by, and/or registration for and/or qualification for
special tax status with, the appropriate taxation, social security and/or
supervisory authorities in the relevant country, state, territory or the like
(each, an "Approval") has received such Approval or there remains a period of
time in which to obtain such Approval retroactive to the date of any material
amendment that has not previously received such Approval.
A-12
(iii) To the Knowledge of Compaq, no material oral or written representation
or commitment with respect to any material aspect of any Compaq Benefit Plan
has been made to an Employee of Compaq or any of its Subsidiaries by an
authorized Compaq Employee that is not materially in accordance with the
written or otherwise preexisting terms and provisions of such Compaq Benefit
Plans. To the Knowledge of Compaq, neither Compaq nor any of its Subsidiaries
has entered into any agreement, arrangement or understanding, whether written
or oral, with any trade union, works council or other Employee representative
body or any material number or category of its Employees which would prevent,
restrict or materially impede the implementation of any lay-off, redundancy,
severance or similar program within its or their respective workforces (or any
part of them).
(iv) There are no material unresolved claims or disputes under the terms of,
or in connection with, any Compaq Benefit Plan (other than routine undisputed
claims for benefits), and no action, legal or otherwise, has been commenced
with respect to any material claim.
(c) Retirement Plan Funding. The latest actuarial valuation of each Funded
Retirement Plan (as defined below) of Compaq or its Subsidiaries discloses
that, as of the effective date of the valuation, the aggregate value of the
assets of such Funded Retirement Plan is equal to or greater than the aggregate
value of its liabilities assessed on an ongoing and terminated basis and
calculated in accordance with the actuarial methods and assumptions used in
such valuation pursuant to such Funded Retirement Plan and applicable Legal
Requirements and GAAP. In respect of each Retirement Plan of Compaq or its
Subsidiaries that is not a Funded Retirement Plan, Compaq or its Subsidiaries
have made adequate provision for accrued liabilities in accordance with
applicable Legal Requirements. For purposes of this Agreement, "Retirement
Plan" shall mean a material arrangement for the provision of Retirement Benefit
Rights (as defined below) to Employees (and, if applicable, beneficiaries
thereof). For purposes of this Agreement, "Retirement Benefit Rights" shall
mean, with respect to an entity, any pension, lump sum, gratuity, or a like
benefit provided or generally intended to be provided on retirement or on death
in respect of an Employee's relationship as a service provider to an entity or
its Subsidiaries. Material post-retirement health benefits and any other
self-insured health benefit arrangements are deemed to be "Retirement Benefit
Rights." Material deferred compensation payments required to be made to an
Employee in respect of the termination of employment are also deemed to be
"Retirement Benefit Rights." "Funded Retirement Plan" means, with respect to
party, a Retirement Plan under which the assets to satisfy the benefit
obligations are legally segregated from the general assets of such party or its
Subsidiaries and are not subject to the creditors of such party or its
Subsidiaries.
(d) Multiple Employer and Multiemployer Plans. At no time has Compaq or any
other person or entity under common control within the meaning of Section
414(b), (c), (m) or (o) of the Code (a "Controlled Group Affiliate") with
Compaq participated in and/or been obligated to contribute to any Compaq
Benefit Plan in which any persons which are not or were not at the relevant
time, Controlled Group Affiliates of Compaq and/or their Employees, have
participated. No Compaq Benefit Plan is a "multiemployer plan" within the
meaning of Section 3(37) of ERISA.
(e) Continuation Coverage. No Compaq Benefit Plan provides health benefits
(whether or not insured), with respect to Employees after retirement or other
termination of service (other than coverage mandated by applicable Legal
Requirements or benefits, the full cost of which is borne by the Employee)
other than individual arrangements the amounts of which are not material.
(f) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Compaq Benefit Plan that will or may result in any material payment
(whether of severance pay or otherwise), acceleration of payment, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee. There is no contract, agreement,
plan or arrangement with an Employee to which Compaq or any of its Subsidiaries
is a party as of the date of this Agreement, that, individually or collectively
and as a result of the transaction contemplated hereby (whether
A-13
alone or upon the occurrence of any additional or subsequent events), would
reasonably be expected to give rise to the payment of any amount that would not
be deductible pursuant to Section 280G of the Code.
(g) Labor. No collective bargaining agreement is being negotiated or
renegotiated in any material respect by Compaq or any of its Subsidiaries. As
of the date of this Agreement, there is no material labor dispute, strike or
work stoppage against Compaq or any of its Subsidiaries pending or, to the
Knowledge of Compaq, threatened which may materially interfere with the
respective business activities of Compaq or any of its Subsidiaries. As of the
date of this Agreement, to the Knowledge of Compaq, none of Compaq, any of its
Subsidiaries or any of their respective representatives or Employees has
committed any material unfair labor practice in connection with the operation
of the respective businesses of Compaq or any of its Subsidiaries, and there is
no material charge or complaint against Compaq or any of its Subsidiaries by
the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
2.13 Environmental Matters.
(a) Hazardous Material. Except as would not result in a Material Adverse
Effect on Compaq, no underground storage tanks and no amount of any substance
that has been designated by any Governmental Entity or by applicable federal,
state or local law to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial
supplies, (a "Hazardous Material") are present, as a result of the actions of
Compaq or any of its Subsidiaries or any affiliate of Compaq, or, to the
Knowledge of Compaq, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that Compaq or any of its
Subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a Material
Adverse Effect on Compaq: (i) neither Compaq nor any of its Subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
Employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date and (ii) neither Compaq nor any of its Subsidiaries
has disposed of, transported, sold, used, released, exposed its Employees or
others to or manufactured any product containing a Hazardous Material
(collectively, "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
2.14 Contracts.
(a) Material Contracts. For purposes of this Agreement, "Compaq Material
Contract" shall mean:
(i) any "material contracts" (as such term is defined in Item 601(b)(10)
of Regulation S-K of the SEC) with respect to Compaq and its Subsidiaries;
(ii) any Contract containing any covenant: (A) limiting the right of
Compaq or its Subsidiaries to engage in any material line of business, make
use of any material Intellectual Property or compete with any Person in any
material line of business, (B) granting any exclusive distribution or supply
rights, or (C) otherwise having an adverse effect on the right of Compaq and
its Subsidiaries to sell, distribute or manufacture any material products or
services or to purchase or otherwise obtain any material software,
components, parts or subassemblies;
(iii) any Contract, or group of Contracts with a Person (or group of
affiliated Persons), the termination or breach of which would be reasonably
expected to have a material adverse effect on any material division
A-14
or business unit or other material operating group of product or service
offerings of Compaq or otherwise have a Material Adverse Effect on Compaq;
and
(iv) (A) all Contracts with the top two (2) providers (as measured by
fees paid under such Contracts) pursuant to which Compaq licenses operating
system software for use in its end-user products, (B) all Contracts with the
top two (2) providers (as measured by fees paid under such Contracts)
pursuant to which Compaq purchases microprocessors, (C) all Contracts with
the top five (5) distributors of Compaq's end-user products (as measured by
revenues received under such Contracts) pursuant to which Compaq distributes
its end-user products, and (D) all Contracts with the top five (5)
third-party manufacturers (as measured by fees paid under such Contracts)
pursuant to which such Compaq products (or subassemblies thereof) are
manufactured.
(b) Schedule. Section 2.14(b) of the Compaq Disclosure Letter sets forth a
list of all Compaq Material Contracts to which is a party or is bound by as of
the date hereof which are described in Sections 2.14(a)(i) and 2.14(a)(iv)
hereof.
(c) No Breach. All Compaq Material Contracts are valid and in full force and
effect except to the extent they have previously expired in accordance with
their terms or if the failure to be in full force and effect, individually or
in the aggregate, would not reasonably be expected to be material to Compaq.
Neither Compaq nor any of its Subsidiaries has violated any provision of, or
committed or failed to perform any act which, with or without notice, lapse of
time or both would constitute a default under the provisions of, any Compaq
Material Contract, except in each case for those violations and defaults which,
individually or in the aggregate, would not reasonably be expected to be
material to Compaq.
2.15 Disclosure. None of the information supplied or to be supplied by or on
behalf of Compaq for inclusion or incorporation by reference in the
registration statement on Form S-4 (or similar successor form) to be filed with
the SEC by HP in connection with the issuance of HP Common Stock in the Merger
(including amendments or supplements thereto) (the "Registration Statement")
will, at the time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading. None of the information supplied or to be supplied by
or on behalf of Compaq for inclusion or incorporation by reference in the
Prospectus/Proxy Statement to be filed with the SEC as part of the Registration
Statement (the "Prospectus/Proxy Statement"), will, at the time the
Prospectus/Proxy Statement is mailed to the stockholders of Compaq or HP, at
the time of the HP Stockholders' Meeting or Compaq Stockholders' Meeting or as
of the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. The Prospectus/Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated by the SEC thereunder. Notwithstanding the
foregoing, no representation or warranty is made by Compaq with respect to
statements made or incorporated by reference therein about HP supplied by HP
for inclusion or incorporation by reference in the Registration Statement or
the Prospectus/Proxy Statement.
2.16 Board Approval. The Board of Directors of Compaq has, by resolutions
duly adopted by unanimous vote at a meeting of all Directors duly called and
held and not subsequently rescinded or modified in any way (the "Compaq Board
Approval") has duly (i) determined that the Merger is fair to, and in the best
interests of, Compaq and its stockholders and declared the Merger to be
advisable, (ii) approved this Agreement, and (iii) recommended that the
stockholders of Compaq approve and adopt this Agreement and approve the Merger
and directed that such matter be submitted to Compaq's stockholders at the
Compaq Stockholders' Meeting.
2.17 Fairness Opinion. Compaq's Board of Directors has received a written
opinion from Salomon Smith Barney, dated as of September 3, 2001, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to Compaq stockholders and has delivered to HP a copy of such opinion.
A-15
2.18 Rights Plan. The Board of Directors of Compaq has approved the Compaq
Rights Agreement and has declared a dividend of one Compaq Right per share of
Compaq Common Stock to each holder of Compaq Common Stock (the "Compaq Rights
Dividend"). Compaq has (a) delivered to HP an accurate copy of the Compaq
Rights Agreement approved by the Board of Directors of Compaq and proposed to
be entered into with the Rights Agents named thereunder, (b) declared the
Compaq Rights Dividend, and (c) fixed the record date for the Compaq Rights
Dividend as September 17, 2001 and the payment date for the Compaq Rights
Dividend no later than September 27, 2001. Compaq has taken all action so that
(i) HP shall not be an "Acquiring Person" thereunder and (ii) the entering into
of this Agreement and the Merger and the other transactions contemplated hereby
will not result in the grant of any rights to any Person under the Compaq
Rights Agreement or enable or require the Compaq Rights to be exercised,
distributed or triggered.
2.19 Takeover Statutes. The Board of Directors of Compaq has taken all
actions so that the restrictions contained in Section 203 of the Delaware
General Corporation Law applicable to a "business combination" (as defined in
such Section 203), and any other similar Legal Requirement, will not apply to
HP during the pendency of this Agreement, including the execution, delivery or
performance of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HP
AND MERGER SUB
HP and Merger Sub represent and warrant to Compaq, subject to the exceptions
specifically disclosed in writing in the disclosure letter supplied by HP and
Merger Sub to Compaq dated as of the date hereof and certified by a duly
authorized officer of each of HP and Merger Sub (the "HP Disclosure Letter"),
as follows:
3.1 Organization; Standing and Power; Charter Documents; Subsidiaries.
(a) Organization; Standing and Power. HP and each of its Subsidiaries is a
corporation or other organization duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing would not
reasonably be expected to have a Material Adverse Effect on HP, and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure to
so qualify or to be good standing, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on HP.
(b) Charter Documents. HP has delivered or made available to Compaq (i) a
true and correct copy of the Certificate of Incorporation (including any
Certificate of Designations) and Bylaws of HP, each as amended to date
(collectively, the "HP Charter Documents") and (ii) the Subsidiary Charter
Documents of each of its Significant Subsidiaries, and each such instrument is
in full force and effect. HP is not in violation of any of the provisions of
the HP Charter Documents and each Subsidiary is not in violation of its
respective Subsidiary Charter Documents, except in the case of a Subsidiary, as
would not reasonably be expected to have a Material Adverse Effect on HP.
(c) Subsidiaries. Exhibit 21 to HP's Annual Report on Form 10-K for the
fiscal year ended October 31, 2000 includes all the Subsidiaries of HP which
are Significant Subsidiaries. All the outstanding shares of capital stock of,
or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are, except as set
forth in such Exhibit 21, owned directly or indirectly by HP, free and clear of
all Liens, including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or
A-16
other ownership interests, except for restrictions imposed by applicable
securities laws, except in the case of a Subsidiary, as would not reasonably be
expected to have a Material Adverse Effect on HP or a material adverse effect
on such Subsidiary.
3.2 Capital Structure.
(a) Capital Stock. The authorized capital stock of HP consists of: (i)
9,600,000,000 shares of HP Common Stock, par value $0.01 per share and (ii)
300,000,000 shares of preferred stock, par value $0.01 per share the "HP
Preferred Stock"), of which 4,500,000 shares have been designated as Series A
Participating Preferred Stock, all of which will be reserved for issuance upon
exercise of preferred stock purchase rights (the "HP Rights") issuable pursuant
to the rights agreement approved by the Board of Directors of HP in connection
with its approval of this Agreement substantially in the form previously
provided to Compaq (the "HP Rights Agreement"). At the close of business of
July 31, 2001: (i) 1,939,159,231 shares of HP Common Stock were issued and
outstanding, (ii) no shares of HP Common Stock were issued and held by HP in
its treasury, and (iii) no shares of HP Preferred Stock were issued and
outstanding. All of the outstanding shares of capital stock of HP are, and all
shares of capital stock of HP which may be issued as contemplated or permitted
by this Agreement will be, when issued, duly authorized and validly issued,
fully paid and nonassessable and not subject to any preemptive rights.
(b) Stock Options. As of the close of business on July 31, 2001: (i)
212,000,000 shares of HP Common Stock are subject to issuance pursuant to
outstanding options to purchase HP Common Stock under the stock option, stock
award, stock appreciation or phantom stock plans of HP (the "HP Stock Option
Plans") (stock options, stock awards, stock appreciation rights, phantom stock
awards, stock-related awards and performance awards granted by HP pursuant to
the HP Stock Option Plans are referred to in this Agreement as "HP Options"),
(ii) ) 98,700,000 shares of HP Common Stock are reserved for future issuance
under the employee stock purchase plans of HP, and (iii) 80,000 shares of HP
Common Stock are subject to issuance pursuant to outstanding options, rights or
warrants to purchase HP Common Stock issued other than pursuant to the HP Stock
Option Plans and the HP employee stock purchase plans. All shares of HP Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation or other similar rights with respect to HP.
(c) Voting Debt. No Voting Debt of HP is issued or outstanding as of the
date hereof.
(d) Other Securities. Except as otherwise set forth in this Section 3.2, as
of July 31, 2001, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which HP
or any of its Subsidiaries is a party or by which any of them is bound
obligating HP or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock, Voting Debt
or other voting securities of HP or any of its Subsidiaries, or obligating HP
or any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. All outstanding shares of HP Common Stock, all outstanding HP
Options, and all outstanding shares of capital stock of each Subsidiary of HP
have been issued and granted in compliance in all material respects with (i)
all applicable securities laws and all other applicable Legal Requirements and
(ii) all requirements set forth in applicable material Contracts.
(e) No Changes. Since July 31, 2001 and through the date hereof, other than
(i) pursuant to the exercise of HP Options outstanding as of July 31, 2001
issued pursuant to the HP Option Plans, (ii) under the HP employee stock
purchase plans, (iii) repurchases of securities pursuant to HP's publicly
announced repurchase programs existing as of July 31, 2001, or (iv) repurchases
from Employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, there has been no change in
(A) the outstanding capital stock of HP, (B) the number of HP Options
outstanding, or (C) the number of other options, warrants or
A-17
other rights to purchase HP capital stock, which, individually or in the
aggregate, would constitute a material change in the capitalization of HP.
(f) Merger Sub Capital Stock. The authorized capital stock of Merger Sub
consists of 1,000 shares of common stock, par value $0.01 per share, of which
1,000 shares issued and outstanding. HP is the sole stockholder of Merger Sub
and is the legal and beneficial owner of all 1,000 issued and outstanding
shares. Merger Sub was formed by counsel to HP at the direction of HP on August
30, 2001, solely for purposes of effecting the Merger and the other
transactions contemplated hereby. Except as contemplated by this Agreement,
Merger Sub does not hold, nor has it held, any material assets or incurred any
material liabilities nor has Merger Sub carried on any business activities
other than in connection with the Merger and the transactions contemplated by
this Agreement. All of the outstanding shares of capital stock of Merger Sub
have been duly authorized and validly issued, and are fully paid and
nonassessable and not subject to any preemptive rights.
3.3 Authority; Non-Contravention; Necessary Consents.
(a) Authority. Each of HP and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly authorized
by all necessary corporate action on the part of HP and Merger Sub and no other
corporate proceedings on the part of HP or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or to consummate the
Merger and the other transactions contemplated hereby, subject only to the
approval of the Stock Issuance by HP's stockholders, the approval and adoption
of this Agreement and the approval of the Merger by HP as Merger Sub's sole
stockholder and the and the filing of the Certificate of Merger pursuant to
Delaware Law. The affirmative vote of the holders of a majority of the
outstanding shares of HP Common Stock present in person or by proxy in favor of
the Stock Issuance at a meeting duly called and held for approval of the Stock
Issuance is the only vote of the holders of any class or series of HP capital
stock necessary to approve the Stock Issuance, and no other vote of the holders
of any class or series of HP Capital Stock is necessary to approve and adopt
this Agreement, approve the Merger and consummate the Merger and the other
transactions contemplated hereby. This Agreement has been duly executed and
delivered by HP and Merger Sub and, assuming due execution and delivery by
Compaq, constitutes the valid and binding obligation of HP, enforceable against
HP and Merger Sub in accordance with its terms.
(b) Non-Contravention. The execution and delivery of this Agreement by HP
and Merger Sub does not, and performance of this Agreement by HP will not: (i)
conflict with or violate the HP Charter Documents, the certificate of
incorporation or bylaws of Merger Sub or any other Subsidiary Charter Documents
of any Subsidiary of HP, (ii) subject to obtaining the approval and adoption of
this Agreement and the approval of the Stock Issuance by HP's stockholders as
contemplated in Section 5.2 and compliance with the requirements set forth in
Section 3.3(c), conflict with or violate any material Legal Requirement
applicable to HP, Merger Sub or any of HP's other Subsidiaries or by which HP,
Merger Sub or any of HP's other Subsidiaries or any of their respective
properties is bound or affected, or (iii) result in any material breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or impair HP's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material Lien on any of the material properties or assets of HP
or any of its Subsidiaries pursuant to, any HP Material Contract (as defined in
Section 3.13). Section 3.3(b) of the HP Disclosure Letter lists all consents,
waivers and approvals under any of HP's or any of its Subsidiaries' Contracts
required to be obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate not obtained,
would result in a Material Adverse Effect on HP or the Surviving Corporation.
(c) Necessary Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required to
be obtained or made by HP in connection with the execution and delivery of this
Agreement or the consummation of the Merger and other transactions contemplated
hereby,
A-18
except for (i) the Necessary Consents and (ii) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to HP, Merger Sub or Compaq or materially adversely
affect the ability of the parties hereto to consummate the Merger within the
time frame in which the Merger would otherwise be consummated in the absence of
the need for such consent, approval, order, authorization, registration,
declaration or filings.
3.4 SEC Filings; Financial Statements.
(a) SEC Filings. HP has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated by reference)
required to be filed by it with the SEC since January 1, 1998. HP has made
available to Compaq all such registration statements, prospectuses, reports,
schedules, forms, statements and other documents in the form filed with the
SEC. All such required registration statements, prospectuses, reports,
schedules, forms, statements and other documents (including those that HP may
file subsequent to the date hereof), as amended, are referred to herein as the
"HP SEC Reports." As of their respective dates, the HP SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such HP SEC
Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
to the extent corrected prior to the date hereof by a subsequently filed HP SEC
Report. None of HP's Subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the HP SEC
Reports (the "HP Financials"), including each HP SEC Report filed after the
date hereof until the Closing: (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (ii)
was prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited interim financial statements, as may be permitted by the
SEC on Form 10-Q, 8-K or any successor form under the Exchange Act), and (iii)
fairly presented in all material respects the consolidated financial position
of HP and its consolidated Subsidiaries as at the respective dates thereof and
the consolidated results of HP's operations and cash flows for the periods
indicated. The balance sheet of HP contained in the HP SEC Reports as of
October 31, 2000 is hereinafter referred to as the "HP Balance Sheet." Except
as disclosed in the HP Financials, since the date of the HP Balance Sheet and
through the date hereof, neither HP nor any of its Subsidiaries has any
liabilities required under GAAP to be set forth on a consolidated balance sheet
(absolute, accrued, contingent or otherwise) which, individually or in the
aggregate, would be reasonably expected to have a Material Adverse Effect on
HP, except for liabilities incurred since the date of the HP Balance Sheet in
the ordinary course of business consistent with past practices and liabilities
incurred pursuant to this Agreement.
3.5 Absence of Certain Changes or Events. Since the date of the HP Balance
Sheet and through the date hereof there has not been: (i) any Material Adverse
Effect on HP, (ii) any declaration, setting aside or payment of any dividend
on, or other distribution (whether in cash, stock or property) in respect of,
any of HP's or any of its Subsidiaries' capital stock, or any purchase,
redemption or other acquisition by HP or any of its Subsidiaries of any of HP's
capital stock or any other securities of HP or its Subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for (A) repurchases from Employees following their termination pursuant to the
terms of their pre-existing stock option or purchase agreements or (B)
repurchases pursuant to HP's public stock repurchase programs existing as of
July 31, 2001, or (C) the HP Rights Dividend, or (iii) any split, combination
or reclassification of any of HP's or any of its Subsidiaries' capital stock.
3.6 Taxes. HP and each of its Subsidiaries have filed all material Tax
Returns required to be filed by any of them and have paid, or have adequately
reserved (in accordance with GAAP) for the payment of, all Taxes required to be
paid (whether or not shown on any Tax Returns), and the most recent financial
statements
A-19
contained in the HP SEC Reports reflect an adequate reserve (in accordance with
GAAP) for all Taxes payable by HP and its Subsidiaries through the date of such
financial statements. No material deficiencies for any Taxes have been asserted
or assessed, or to the Knowledge of HP, proposed, against HP or any of its
Subsidiaries that are not subject to adequate reserves (in accordance with
GAAP). Neither the HP nor any of its Subsidiaries has taken any action or knows
of any fact, agreement or plan or other circumstance that is reasonably likely
to prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
3.7 Intellectual Property.
(a) No Infringement. To the Knowledge as of the date hereof of HP, the
products, services and operations of HP do not infringe or misappropriate the
Intellectual Property of any third party where such infringement or
misappropriation, individually or in the aggregate, would be reasonably
expected to have a material adverse effect on any material division or business
unit or other material operating group of product or service offerings of HP or
otherwise have a Material Adverse Effect on HP.
(b) No Impairment. The Merger will not result in the termination or breach
of any Contract to which HP is a party, which termination or breach would
reasonably be expected to have a material adverse effect on any material
division or business unit or other material operating group of product or
service offerings of HP or otherwise have a Material Adverse Effect on HP.
3.8 Compliance; Permits.
(a) Compliance. Neither HP nor any of its Subsidiaries is, in any material
respect, in conflict with, or in default or in violation of any Legal
Requirement applicable to HP or any of its Subsidiaries or by which HP or any
of its Subsidiaries or any of their respective businesses or properties is, or
HP believes is reasonably likely to be, bound or affected, except, in each
case, or in the aggregate, for conflicts, violations and defaults that would
not have a Material Adverse Effect on HP. As of the date hereof, no material
investigation or review by any Governmental Entity is pending or, to the
Knowledge of HP, has been threatened in a writing delivered to HP or any of its
Subsidiaries, against HP or any of its Subsidiaries. There is no material
judgment, injunction, order or decree binding upon HP or any of its
Subsidiaries which has or would reasonably be expected to have the effect of
prohibiting or materially impairing any material business practice of HP or any
of its Subsidiaries, any acquisition of material property by HP or any of its
Subsidiaries or the conduct of business by HP and its Subsidiaries as currently
conducted.
(b) Permits. HP and its Subsidiaries hold, to the extent legally required,
all Permits that required for the operation of the business of HP, as currently
conducted, the failure to hold which would reasonably be expected to have a
Material Adverse Effect on HP (collectively, "HP Permits"). As of the date
hereof, no suspension or cancellation of any of the HP Permits is pending or,
to the Knowledge of HP, threatened. HP and its Subsidiaries are in compliance
in all material respects with the terms of the HP Permits.
3.9 Litigation. As of the date hereof, there are no claims, suits, actions
or proceedings pending or, to the Knowledge of HP, overtly threatened against
HP or any of its Subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated hereby
or which would reasonably be expected, either singularly or in the aggregate
with all such claims, actions or proceedings, to be material to HP.
3.10 Brokers' and Finders' Fees. Except for fees payable to Goldman, Sachs &
Co. pursuant to an engagement letter dated July 25, 2001, a copy of which has
been provided to Compaq, HP has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
A-20
3.11 Employee Benefit Plans.
(a) Benefit Plan Compliance.
(i) With respect to the Benefit Plan of HP or any of its Subsidiaries
("HP Benefit Plan"), no material event has occurred and there exists no
material condition or set of circumstances, in connection with which HP or
any of its Subsidiaries would be subject to any material liability under the
ERISA, the Code or any other applicable Legal Requirement.
(ii) Each HP Benefit Plan has been, in all material respects,
administered and operated in accordance with its terms, with the applicable
provisions of ERISA, the Code and all other applicable material Legal
Requirements and the terms of all applicable collective bargaining
agreements. Each HP Benefit Plan, including any material amendments thereto,
that is capable of Approval has received such Approval or there remains a
period of time in which to obtain such Approval retroactive to the date of
any material amendment that has not previously received such Approval.
(iii) To the Knowledge of HP, no material oral or written representation
or commitment with respect to any material aspect of any HP Benefit Plan has
been made to an Employee of HP or any of its Subsidiaries by an authorized
HP Employee that is not materially in accordance with the written or
otherwise preexisting terms and provisions of such HP Benefit Plans. To the
Knowledge of HP, neither HP nor any of its Subsidiaries has entered into any
agreement, arrangement or understanding, whether written or oral, with any
trade union, works council or other Employee representative body or any
material number or category of its Employees which would prevent, restrict
or materially impede the implementation of any lay-off, redundancy,
severance or similar program within its or their respective workforces (or
any part of them).
(iv) There are no material unresolved claims or disputes under the terms
of, or in connection with, any HP Benefit Plan (other than routine
undisputed claims for benefits), and no action, legal or otherwise, has been
commenced with respect to any material claim.
(b) Retirement Plan Funding. The latest actuarial valuation of each Funded
Retirement Plan of HP or its Subsidiaries discloses that, as of the effective
date of the valuation, the aggregate value of the assets of such Funded
Retirement Plan is equal to or greater than the aggregate value of its
liabilities assessed on an ongoing and terminated basis and calculated in
accordance with the actuarial methods and assumptions used in such valuation
pursuant to such Funded Retirement Plan and applicable Legal Requirements and
GAAP. In respect of each Retirement Plan of HP or its Subsidiaries that is not
a Funded Retirement Plan, HP or its Subsidiaries have made adequate provision
for accrued liabilities in accordance with applicable Legal Requirements.
(c) Multiple Employer and Multiemployer Plans. At no time has HP or
Controlled Group Affiliate with HP participated in and/or been obligated to
contribute to any HP Benefit Plan in which any persons which are not or were
not at the relevant time, Controlled Group Affiliates of HP and/or their
Employees, have participated. No HP Benefit Plan is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA.
(d) Continuation Coverage. No HP Benefit Plan provides health benefits
(whether or not insured), with respect to Employees after retirement or other
termination of service (other than coverage mandated by applicable Legal
Requirements or benefits, the full cost of which is borne by the Employee)
other than individual arrangements the amounts of which are not material.
(e) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any HP Benefit Plan that will or may result in any material payment
(whether of severance pay or otherwise), acceleration of payment, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee. There is no contract, agreement,
plan or arrangement with an Employee to which HP or any of its Subsidiaries is
a party as of the date of this Agreement, that, individually or collectively
and as a result of the transaction contemplated hereby (whether alone or upon
A-21
the occurrence of any additional or subsequent events), would reasonably be
expected to give rise to the payment of any amount that would not be deductible
pursuant to Section 280G of the Code.
(f) Labor. No collective bargaining agreement is being negotiated or
renegotiated in any material respect by HP or any of its Subsidiaries. As of
the date of this Agreement, there is no material labor dispute, strike or work
stoppage against HP or any of its Subsidiaries pending or, to the Knowledge of
HP, threatened which may materially interfere with the respective business
activities of HP or any of its Subsidiaries. As of the date of this Agreement,
to the Knowledge of HP, none of HP, any of its Subsidiaries or any of their
respective representatives or Employees has committed any material unfair labor
practice in connection with the operation of the respective businesses of HP or
any of its Subsidiaries, and there is no material charge or complaint against
HP or any of its Subsidiaries by the National Labor Relations Board or any
comparable governmental agency pending or threatened in writing.
3.12 Environmental Matters.
(a) Hazardous Material. Except as would not result in a Material Adverse
Effect on HP, no underground storage tanks and no amount of any Hazardous
Material are present, as a result of the actions of HP or any of its
Subsidiaries or any affiliate of HP, or, to the Knowledge of HP, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that HP or any of its Subsidiaries has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a Material
Adverse Effect on HP (i) neither HP nor any of its Subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
Employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date and (ii) neither HP nor any of its Subsidiaries has
engaged in any Hazardous Materials Activities in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
3.13 Contracts. All HP Material Contracts (as defined below) are valid and
in full force and effect except to the extent they have previously expired in
accordance with their terms or if the failure to be in full force and effect,
individually or in the aggregate, would not reasonably be expected to be
material to HP. Neither HP nor any of its Subsidiaries has violated any
provision of, or committed or failed to perform any act which, with or without
notice, lapse of time or both would constitute a default under the provisions
of, any HP Material Contract, except in each case for those violations and
defaults which, individually or in the aggregate, would not reasonably be
expected to be material to HP. For purposes of this Agreement, "HP Material
Contract" shall mean any Contract, or group of Contracts, with a Person (or
group of affiliated Persons) the termination or breach of which would be
reasonably expected to have a material adverse effect on any material division
or business unit or other material operating group of product or service
offerings of HP or otherwise have a Material Adverse Effect on HP.
3.14 Disclosure. None of the information supplied or to be supplied by or on
behalf of HP or Merger Sub for inclusion or incorporation by reference in the
Registration Statement will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. None of the
information supplied or to be supplied by or on behalf of HP and Merger Sub for
inclusion or incorporation by reference in the Prospectus/Proxy Statement,
will, at the time the Prospectus/Proxy Statement is mailed to the stockholders
of HP or Compaq, at the time of the HP Stockholders' Meeting or Compaq
Stockholders' Meeting or as of the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading. The
Prospectus/Proxy Statement will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder.
A-22
Notwithstanding the foregoing, no representation or warranty is made by HP with
respect to statements made or incorporated by reference therein about Compaq
supplied by Compaq for inclusion or incorporation by reference in the
Registration Statement or the Prospectus/Proxy Statement.
3.15 Board Approval. The Board of Directors of HP has, by resolutions duly
adopted by unanimous vote at a meeting of all Directors duly called and held
and not subsequently rescinded or modified in any way (the "HP Board Approval")
has duly (i) determined that the Merger is fair to, and in the best interests
of, HP and its stockholders and declared the Merger to be advisable, (ii)
approved this Agreement, and (iii) recommended that the stockholders of HP
approve the Stock Issuance and directed that such matter be submitted to HP's
stockholders at the HP Stockholders' Meeting.
3.16 Fairness Opinion. HP's Board of Directors has received a written
opinion from Goldman, Sachs & Co., dated as of September 3, 2001, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to HP and has delivered to Compaq a copy of such opinion.
3.17 Rights Plan. The Board of Directors of HP has approved the HP Rights
Agreement and has declared a dividend of one HP Right per share of HP Common
Stock to each holder of HP Common Stock (the "HP Rights Dividend"). HP has (a)
delivered to Compaq an accurate copy of the HP Rights Agreement approved by the
Board of Directors of HP and proposed to be entered into with the Rights Agents
named thereunder, (b) declared the HP Rights Dividend, and (c) fixed the record
date for the HP Rights Dividend as September 17, 2001 and the payment date for
the HP Rights Dividend no later than September 27, 2001. HP has taken all
action so that (i) Compaq shall not be an "Acquiring Person" thereunder and
(ii) the entering into of this Agreement and the Merger and the other
transactions contemplated hereby will not result in the grant of any rights to
any Person under the HP Rights Agreement or enable or require the HP Rights to
be exercised, distributed or triggered.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business.
(a) Ordinary Course. During the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, each of HP and Compaq, and each of its respective
Subsidiaries shall, except as otherwise expressly contemplated by this
Agreement or to the extent that the other party hereto shall otherwise consent
in writing, carry on its business, in all material respects, in the usual,
regular and ordinary course, in substantially the same manner as heretofore
conducted, and use all reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present executive officers and key Employees, and
(iii) preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
(b) Required Consent. In addition, without limiting the generality of
Section 4.1(a), except as permitted by the terms of this Agreement, and except
as provided in Article IV of the Compaq Disclosure Letter or Article IV of the
HP Disclosure Letter (as the case may be), without the prior written consent of
the other party hereto, during the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, each of HP and Compaq shall not do any of the following,
and shall not permit their respective Subsidiaries to do any of the following:
(i) Enter into any new line of business material to it and its
Subsidiaries taken as a whole;
(ii) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock
A-23
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock, other than (A) declaration
and payment of regular quarterly cash dividends on its Common Stock at a
rate not in excess of the regular quarterly cash dividend most recently
declared prior to the date hereof with the usual record and payment dates
for such dividends in accordance with its past practice, (B) any such
transaction by a Subsidiary of it that remains a Subsidiary of it after
consummation of such transaction, in the ordinary course of business
consistent with past practice, and (C) in the case of Compaq, the Compaq
Rights Dividend and other securities pursuant to the Compaq Rights Plan and
in the case of HP, the HP Rights Dividend and other securities pursuant to
the HP Rights Plan, in each case as contemplated hereby and thereby;
(iii) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock or the capital stock of its Subsidiaries, except
(A) repurchases of unvested shares at cost in connection with the
termination of the employment relationship with any employee pursuant to
stock option or purchase agreements in effect on the date hereof or entered
into the ordinary course of business consistent with past practice after the
date hereof and (B) repurchases by HP pursuant to HP's publicly announced
repurchase programs existing as of July 31, 2001, and (C) as set forth in
Section 4.1(b)(iii) of the HP Disclosure Letter or Section 4.1(b)(iii) of
the Compaq Disclosure Letter (as the case may be);
(iv) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock, Voting Debt or any securities convertible into
shares of capital stock or Voting Debt, or subscriptions, rights, warrants
or options to acquire any shares of capital stock or Voting Debt or any
securities convertible into shares of capital stock or Voting Debt, or enter
into other agreements or commitments of any character obligating it to issue
any such securities or rights, other than: (A) issuances of HP Common Stock
or Compaq Common Stock upon the exercise of HP Options or Compaq Options,
respectively, existing on the date hereof in accordance with their present
terms (including cashless exercises) or granted pursuant to clause (F)
hereof, (B) issuance of shares of Compaq Common Stock to participants in the
Compaq Purchase Plan pursuant to the terms thereof and issuance of shares of
HP Common Stock to participants in the HP employee stock purchase plans
pursuant to the terms thereof, (C) issuances of HP Common Stock or Compaq
Common Stock upon the exercise of other options, warrants or other rights of
HP or Compaq, respectively, in each case outstanding on the date hereof in
accordance with their present terms (including cashless exercises), (D) in
the case of Compaq, the Compaq Rights Dividend and other securities pursuant
to the Compaq Rights Plan and in the case of HP, the HP Rights Dividend and
other securities pursuant to the HP Rights Plan, in each case as
contemplated hereby and thereby, (E) issuances of shares of Compaq Common
Stock in connection with Compaq Permitted Acquisitions (as defined below)
and issuance of shares of HP Common Stock in connection with HP Permitted
Acquisitions (as defined below), (F) grants of stock options or other stock
based awards of or to acquire, in the case of Compaq, Compaq Common Stock
granted under the Compaq Stock Option Plans that are Compaq Broad Plans
outstanding on the date hereof, and in the case of HP, HP Common Stock
granted under the HP Stock Option Plans outstanding on the date hereof, in
each case in the ordinary course of business consistent with past practices
in connection with annual compensation reviews or ordinary course promotions
or to new hires and which options or stock based awards have a vesting
schedule no more favorable than ratable monthly installments that vest over
not less than three years and do not accelerate, or become subject to
acceleration, directly or indirectly, as a result of the approval or
consummation of the Merger and/or termination of employment following the
Merger (other than, following the Merger, upon retirement, death or total
and permanent disability or in connection with a reduction in force in
accordance with HP's policies relating to formal reductions in force or
similar workforce management programs in effect from time to time following
the Merger or as otherwise set forth in Section 4.1(b)(xiii) of the Compaq
Disclosure Schedule with respect to Compaq's Chief Executive Officer and
Tiers I, II and III employees), but in no event shall the period for
exercisability under such option following termination of employment be
extended beyond one year following a termination of employment for any
reason other than retirement, death or total and permanent disability, and
(G) as set forth in Section 4.1(b)(iv) of the HP Disclosure Letter or
Section 4.1(b)(iv) of the Compaq Disclosure Letter (as the case may be);
A-24
(v) Cause, permit or propose any amendments to its Charter Documents or
any of the Subsidiary Charter Documents of its Subsidiaries, except to the
extent necessary to implement the HP Rights Plan or Compaq Rights Plan, and,
in the case of HP, to the extent necessary to comply with its obligations
under Section 5.12;
(vi) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any Person or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or
in the aggregate, to its business, other than: (A) in the case of Compaq,
Compaq Permitted Acquisitions (it being agreed that prior to entering into
any binding agreement, agreement in principle, letter of intent, memorandum
of understanding or similar agreement with respect to any Compaq Permitted
Acquisition, Compaq shall first consult with HP's Chief Executive Officer or
Chief Financial Officer or a designee thereof with respect to any such
Compaq Permitted Acquisition with consideration in excess of fifty million
dollars ($50,000,000.00) individually and shall in good faith consider the
advice of HP with respect to such acquisition) and (B) in the case of HP, HP
Permitted Acquisitions (it being agreed that prior to it being agreed that
prior to entering into any binding agreement, agreement in principle, letter
of intent, memorandum of understanding or similar agreement with respect to
any HP Permitted Acquisition, HP shall first consult with Compaq's Chief
Executive Officer or Chief Financial Officer or a designee thereof with
respect to any such HP Permitted Acquisition with consideration in excess of
fifty million dollars ($50,000,000.00) individually and shall in good faith
consider the advice of Compaq with respect to such acquisition);
For purposes of this Agreement, "Compaq Permitted Acquisitions" shall
mean any of transactions described in this subparagraph (vi) above (1) (a)
which are in the existing line of business, or a related line of business,
of Compaq and its Subsidiaries, (b) in which the fair market value of the
total consideration (including the value of indebtedness acquired or
assumed) issued in exchange therefor shall not exceed one billion dollars
($1,000,000,000.00) in the aggregate, (c) which do not present a material
risk of delaying the Merger or making it more difficult to obtain any
Necessary Consent, and (d) in which one or more of such transactions do not
require approval of Compaq stockholders, (2) which are internal
reorganizations solely involving existing wholly-owned (except for de
minimis local ownership as required under applicable foreign Legal
Requirements) Subsidiaries of Compaq, or (3) which are set forth in Section
4.1(b)(vi) of the Compaq Disclosure Letter (it being understood that items
set forth on Section 4.1(b)(vi) of the Compaq Disclosure Letter shall not
apply against the dollar limitation set forth in clause (b) of this
sentence);
For purposes of this Agreement, "HP Permitted Acquisitions" shall mean
any of transactions described in this subparagraph (vi) above (1) (a) which
are in the existing line of business, or a related line of business, of HP
and its Subsidiaries, (b) in which the fair market value of the total
consideration (including the value of indebtedness acquired or assumed)
issued in exchange therefor shall not exceed one billion five hundred
million dollars ($1,500,000,000.00) in the aggregate, (c) which do not
present a material risk of delaying the Merger or making it more difficult
to obtain any Necessary Consent, and (d) in which one or more of such
transactions do not require approval of HP stockholders, (2) which are
internal reorganizations solely involving existing wholly-owned (except for
de minimis local ownership as required under applicable foreign Legal
Requirements) Subsidiaries of HP, or (3) which are set forth in Section
4.1(b)(vi) of the HP Disclosure Letter (it being understood that items set
forth on Section 4.1(b)(vi) of the HP Disclosure Letter shall not apply
against the dollar limitation set forth in clause (b) of this sentence);
(vii) Enter into any joint ventures, strategic partnerships or alliances
that are material to any of its divisions or business units if such entry
would (A) present a material risk of delaying the Merger or make it more
difficult to obtain any Necessary Consent or (B) require a consent of the
other party thereto to consummate the Merger;
(viii) Except as previously disclosed in the HP SEC Reports, in the case
of HP, or the Compaq SEC Reports, in the case of Compaq, in each case prior
to the date hereof, sell, lease, license, mortgage or
A-25
otherwise encumber or dispose of any properties or assets which are
material, individually or in the aggregate, to its business, except in the
ordinary course of business consistent with past practice;
(ix) Make any loans, advances or capital contributions to, or investments
in, any other Person, other than: (A) to finance, in the case of Compaq,
Compaq Permitted Acquisitions or, in the case of HP, HP Permitted
Acquisitions (it being understood in each case that any such loans,
advances, contributions or investments shall be considered consideration
provided in exchange therefor), (B) loans or investments by it or a
Subsidiary of it to or in it or any Subsidiary of it, (C) employee loans or
advances made in the ordinary course of business or (D) in the ordinary
course of business consistent with past practice which are not, individually
or in the aggregate, material to it and its Subsidiaries taken as a whole
(provided that none of such transactions referred to in this clause (D)
presents a material risk of delaying the Merger or making it more difficult
to obtain any Necessary Consent);
(x) Except as required by GAAP or the SEC as concurred in by its
independent auditors, make any material change in its methods or principles
of accounting since the date of, in the case of Compaq, the Compaq Balance
Sheet, and, in the case of HP, the HP Balance Sheet;
(xi) In the case of Compaq, make or change any material Tax election;
(xii) Settle any material claim (including any Tax claim), action or
proceeding involving money damages, except (A) in the ordinary course of
business consistent with past practice or (B) to the extent subject to
reserves existing as of the date hereof in accordance with GAAP;
(xiii) Except as required by Legal Requirements or Contracts currently
binding on Compaq or its Subsidiaries, (1) increase in any manner the amount
of compensation or fringe benefits of, pay any bonus to or grant severance
or termination pay to any executive officer or director of Compaq or key
employee of Compaq or any material Subsidiary, division or business unit of
Compaq (collectively, "Compaq Key Employees") or materially increase the
foregoing with respect to Employees of Compaq and its Subsidiaries
generally, (2) make any increase in or commitment to increase any Compaq
Benefit Plan (including any severance plan), adopt or amend or make any
commitment to adopt or amend any Compaq Benefit Plan or make any
contribution, other than regularly scheduled contributions, to any Compaq
Benefit Plan, (3) waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of Compaq Options or restricted stock,
or reprice any Compaq Options or authorize cash payments in exchange for any
Compaq Options, (4) enter into any employment, severance, termination or
indemnification agreement with any Compaq Employee, (5) make any material
oral or written representation or commitment with respect to any material
aspect of any Compaq Benefit Plan that is not materially in accordance with
the existing written terms and provision of such Compaq Benefit Plan, (6)
grant any stock appreciation right, phantom stock award, stock-related award
or performance award (whether payable in cash, shares or otherwise) (each, a
"SAR") to any Person (including any Compaq Employee), or (7) enter into any
agreement with any Compaq Employee the benefits of which are (in whole or in
part) contingent or the terms of which are materially altered upon the
occurrence of a transaction involving Compaq of the nature contemplated
hereby; provided, however, that nothing herein shall be construed as
prohibiting Compaq from (a) granting Compaq Options (including SARs) under
the Compaq Stock Option Plans that are Compaq Broad Plans outstanding on the
date hereof (or under any deferred compensation plan existing as of the date
hereof) in the ordinary course of business consistent with past practices in
connection with annual compensation reviews or ordinary course promotions or
to new hires (or, in the case of SARs not granted under Compaq Broad Plans,
in accordance with the terms of the applicable deferred compensation plans)
and which options have a vesting schedule no more favorable than ratable
monthly installments that vest over not less than three years and do not
accelerate, or become subject to acceleration, directly or indirectly, as a
result of the approval or consummation of the Merger and/or termination of
employment following the Merger (other than, following the Merger, upon
retirement, death or total and permanent disability or in connection with a
reduction in force in accordance with HP's policies relating to formal
reductions in force or similar workforce management programs in effect from
time to time following the Merger or as otherwise set forth in Section
4.1(b)(xiii) of the Compaq Disclosure Schedule with respect to Compaq's
Chief Executive
A-26
Officer and Tiers I, II and III employees), but in no event shall the period
for exercisability under such option following termination of employment be
extended beyond one year following a termination of employment for any
reason other than retirement, death or total and permanent disability, (b)
increasing compensation or fringe benefits and payment of bonuses to
Employees of Compaq in the ordinary course of business consistent with past
practices in connection with annual compensation reviews or ordinary course
promotions, (c) granting severance or termination pay to any Employee (other
than any executive officer or director) of Compaq in the ordinary course of
business consistent with past practices in connection with the termination
of an Employee's employment in such reasonable amounts as Compaq deems
advisable, in its good faith judgment, to avoid a material risk of
litigation, or (d) taking any action set forth in Section 4.1(b)(xiii) of
the Compaq Disclosure Schedule; or (e) entering into any employment,
severance, termination or indemnification agreement with any Compaq Employee
in the ordinary course of business consistent with past practice and (i)
solely with respect to Employees other than any Compaq Key Employee and (ii)
with respect to any Compaq Key Employee, if such employment is "at-will" and
does not contain severance or termination payments (it being understood that
at the time of, and in connection with, the termination of any Compaq Key
Employee's employment, Compaq may enter into severance and/or termination
under the circumstances set forth in clause (c) of this Section
4.1(b)(xiii));
(xiv) Subject HP or the Surviving Corporation or any of their respective
Subsidiaries to any non-compete or other material restriction on any of
their respective businesses following the Closing;
(xv) In the case of Compaq, enter into any agreement or commitment the
effect of which would be to grant to a third party following the Merger any
actual or potential right of license to any material Intellectual Property
owned by HP or any of its Subsidiaries; or
(xvi) Agree in writing or otherwise to take any of the actions described
in (i) through (xiv) above.
(c) Consultation. In addition, without limiting the generality of Section
4.1(a) or Section 4.1(b), prior to taking any of the following actions, the
party seeking to do so shall first consult with the other party's Chief
Executive Officer or Chief Financial Officer or a designee thereof and shall in
good faith consider the advice of such party with respect to such action:
(i) Enter into any binding agreement, agreement in principle, letter of
intent, memorandum of understanding or similar agreement with respect to any
material joint venture, strategic partnership or alliance;
(ii) Enter into, modify or amend in a manner adverse in any material
respect to such party, or terminate any Compaq Material Contract, in the
case of Compaq, or HP Material Contract, in the case of HP, or waive,
release or assign any material rights or claims thereunder, in each case, in
a manner adverse in any material respect to such party, other than any
modification, amendment or termination of any such Compaq Material Contract
or HP Material Contract, as the case may be, in the ordinary course of
business, consistent with past practice;
(iii) Grant any exclusive rights with respect to any material
Intellectual Property of such party; or
(iv) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
it, guarantee any debt securities of another Person, enter into any "keep
well" or other agreement to maintain any financial statement condition of
any other Person (other than any wholly-owned Subsidiary of it) or enter
into any arrangement having the economic effect of any of the foregoing
(collectively, "Indebtedness") other than, in the case of Compaq, Permitted
Compaq Indebtedness, and in the case of HP, Permitted HP Indebtedness (as
defined below);
For purposes of this Agreement, "Permitted Compaq Indebtedness" shall
mean the following Indebtedness: up to one billion dollars
($1,000,000,000.00) additional Indebtedness under existing debt facilities
or like replacement debt facilities in excess of Indebtedness of Compaq
outstanding as of the date hereof;
A-27
For purposes of this Agreement, "Permitted HP Indebtedness" shall mean
the following Indebtedness: up to one billion five hundred million dollars
($1,500,000,000.00) additional Indebtedness under existing debt facilities
or like replacement debt facilities in excess of Indebtedness of Compaq
outstanding as of the date hereof;
(v) Agree in writing or otherwise to take any of the actions described in
(i) through (iv) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Prospectus/Proxy Statement; Registration Statement. As promptly as
practicable after the execution of this Agreement, HP and Compaq will prepare
and file with the SEC the Prospectus/Proxy Statement, and HP will prepare and
file with the SEC the Registration Statement in which the Prospectus/Proxy
Statement is to be included as a prospectus. HP and Compaq will provide each
other with any information which may be required in order to effectuate the
preparation and filing of the Prospectus/Proxy Statement and the Registration
Statement pursuant to this Section 5.1. Each of HP and Compaq will respond to
any comments from the SEC, will use all reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing and to keep the Registration
Statement effective as long as is necessary to consummate the Merger and the
transactions contemplated hereby. Each of HP and Compaq will notify the other
promptly upon the receipt of any comments from the SEC or its staff in
connection with the filing of, or amendments or supplements to, the
Registration Statement and/or the Prospectus/Proxy Statement. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Prospectus/Proxy Statement, the Registration Statement, HP or Compaq, as
the case may be, will promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff, and/or mailing to stockholders
of HP and/or Compaq, such amendment or supplement. Each of HP and Compaq shall
cooperate and provide the other (and its counsel) with a reasonable opportunity
to review and comment on any amendment or supplement to the Registration
Statement and Prospect/Proxy Statement prior to filing such with the SEC, and
will provide each other with a copy of all such filings made with the SEC. Each
of HP and Compaq will cause the Prospectus/Proxy Statement to be mailed to its
respective stockholders at the earliest practicable time after the Registration
Statement is declared effective by the SEC. HP shall also use all reasonable
efforts to take any action required to be taken by it under any applicable
state securities laws in connection with the issuance of HP Common Stock in the
Merger and the conversion of Compaq Options into options to acquire HP Common
Stock, and Compaq shall furnish any information concerning Compaq and the
holders of Compaq Common Stock and Compaq Options as may be reasonably
requested in connection with any such action.
5.2 Meetings of Stockholders; Board Recommendation.
(a) Meeting of Stockholders. Promptly after the Registration Statement is
declared effective under the Securities Act, each of HP and Compaq will take
all action necessary in accordance with Delaware Law and its respective
Certificate of Incorporation and Bylaws to call, hold and convene a meeting of
its respective stockholders to consider, in the case of HP, the Stock Issuance,
and, in the case of Compaq, adoption and approval of this Agreement and
approval of the Merger (each, a "Stockholders' Meeting") to be held as promptly
as practicable (without limitation, within 60 days, if practicable) after the
declaration of effectiveness of the Registration Statement. Each of HP and
Compaq will use all reasonable efforts to hold their respective Stockholders'
Meetings on the same date. Subject to Section 5.3(d), each of HP and Compaq
will use all reasonable efforts to solicit from its respective stockholders
proxies in favor of, in the case of HP, the Stock Issuance, and, in the case of
Compaq, the adoption and approval of this Agreement and the approval of the
Merger, and will take all other action necessary or advisable to secure the
vote or consent of their respective stockholders required by the rules of NYSE
or the Pacific Stock Exchange ("PCX") or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, HP or
Compaq, as the case may be, may adjourn or postpone its Stockholders' Meeting
to the extent necessary to ensure that any
A-28
necessary supplement or amendment to the Prospectus/Proxy Statement is provided
to its respective stockholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which the Stockholders' Meeting is
originally scheduled (as set forth in the Prospectus/Proxy Statement) there are
insufficient shares of Common Stock of HP or Compaq, as the case may be,
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of such Stockholders' Meeting. Each of HP and Compaq shall
ensure that its respective Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited by its in connection with
the Stockholders' Meeting are solicited in compliance with Delaware Law, its
Certificate of Incorporation and Bylaws, the rules of the NYSE and PCX and all
other applicable Legal Requirements.
(b) Board Recommendation. Except to the extent expressly permitted by
Section 5.3(d): (i) the Board of Directors of each of HP and Compaq shall
recommend that the respective stockholders of HP and Compaq vote in favor of,
in the case of HP, the Stock Issuance, and, in the case of Compaq, adoption and
approval of this Agreement and approval of the Merger, at their respective
Stockholders' Meetings, (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of HP has recommended that
HP's stockholders vote in favor of the Stock Issuance at the HP Stockholders'
Meeting and the Board of Directors of Compaq has recommended that Compaq's
stockholders vote in favor of adoption and approval of this Agreement and
approval of the Merger at the Compaq Stockholders' Meeting, and (iii) neither
the Board of Directors of HP or Compaq nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify
in a manner adverse to the other party, the recommendation of its respective
Board of Directors that the respective stockholders of HP and Compaq vote in
favor of, in the case of HP, the Stock Issuance, and, in the case of Compaq,
adoption and approval of this Agreement and the Merger.
5.3 Acquisition Proposals.
(a) No Solicitation. Each of HP and Compaq agrees that neither it nor any of
its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use all reasonable efforts to cause its
and its Subsidiaries' Employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to (and shall not authorize any of them to) directly or
indirectly: (i) solicit, initiate, encourage, knowingly facilitate or induce
any inquiry with respect to, or the making, submission or announcement of, any
Acquisition Proposal (as defined in Section 5.3(g)) with respect to itself,
(ii) participate in any discussions or negotiations regarding, or furnish to
any Person any nonpublic information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Acquisition Proposal with respect to
itself, (iii) engage in discussions with any Person with respect to any
Acquisition Proposal with respect to itself, except as to the existence of
these provisions, (iv) approve, endorse or recommend any Acquisition Proposal
with respect to itself (except to the extent specifically permitted pursuant to
Section 5.3(d)), or (v) enter into any letter of intent or similar document or
any contract agreement or commitment contemplating or otherwise relating to any
Acquisition Proposal or transaction contemplated thereby with respect to
itself. HP and Compaq, as the case may be, and their respective Subsidiaries
will each immediately cease any and all existing activities, discussions or
negotiations with any third parties conducted heretofore with respect to any
Acquisition Proposal with respect to itself.
(b) Notification of Unsolicited Acquisition Proposals.
(i) As promptly as practicable after receipt of any Acquisition Proposal
or any request for nonpublic information or inquiry which it reasonably
believes would lead to an Acquisition Proposal, HP or Compaq, as the case
may be, shall provide the other party hereto with oral and written notice of
the material terms and conditions of such Acquisition Proposal, request or
inquiry, and the identity of the Person or group making any such Acquisition
Proposal, request or inquiry and a copy of all written materials provided in
connection with such Acquisition Proposal, request or inquiry. The recipient
of the Acquisition Proposal, request or inquiry shall provide the other
party hereto as promptly as practicable oral and written notice setting
forth all such information as is reasonably necessary to keep the other
party informed in all material
A-29
respects of the status and details (including material amendments or
proposed material amendments) of any such Acquisition Proposal, request or
inquiry and shall promptly provide to the other party hereto a copy of all
written materials subsequently provided in connection with such Acquisition
Proposal, request or inquiry.
(ii) HP or Compaq, as the case may be, shall provide the other party
hereto with forty-eight (48) hours prior notice (or such lesser prior notice
as is provided to the members of its Board of Directors) of any meeting of
the its Board of Directors at which its Board of Directors is reasonably
expected to consider any Acquisition Proposal.
(c) Superior Offers. Notwithstanding anything to the contrary contained in
Section 5.3(a), in the event that HP or Compaq, as the case may be, receives an
unsolicited, bona fide written Acquisition Proposal with respect to itself from
a third party that its Board of Directors has in good faith concluded
(following the receipt of the advice of its outside legal counsel and its
financial advisor), is, or is reasonably likely to result in, a Superior Offer
(as defined in Section 5.3(g)), it may then take the following actions (but
only if and to the extent that its Board of Directors concludes in good faith,
following the receipt of advice of its outside legal counsel, that the failure
to do so is reasonably likely to result in a breach of its fiduciary
obligations under applicable law):
(i) Furnish nonpublic information to the third party making such
Acquisition Proposal, provided that (A) (1) concurrently with furnishing any
such nonpublic information to such party, it gives the other party hereto
written notice of its intention to furnish nonpublic information and (2) it
receives from the third party an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such third party on its behalf,
the terms of which are at least as restrictive as the terms contained in the
Confidentiality Agreement (as defined in Section 5.4) and (B)
contemporaneously with furnishing any such nonpublic information to such
third party, it furnishes such nonpublic information to the other party
hereto (to the extent such nonpublic information has not been previously so
furnished); and
(ii) Engage in negotiations with the third party with respect to the
Acquisition Proposal, provided that concurrently with entering into
negotiations with such third party, it gives the other party hereto written
notice of the its intention to enter into negotiations with such third party.
(d) Changes of Recommendation. In response to the receipt of a Superior
Offer, the Board of Directors of HP or Compaq, as the case may be, may
withhold, withdraw, amend or modify its recommendation in favor of the Merger,
and, in the case of a Superior Offer that is a tender or exchange offer made
directly to its stockholders, may recommend that its stockholders accept the
tender or exchange offer (any of the foregoing actions, whether by a Board of
Directors or a committee thereof, a "Change of Recommendation"), if all of the
following conditions in clauses (i) through (v) are met:
(i) A Superior Offer with respect to it has been made and has not been
withdrawn;
(ii) Its Stockholders' Meeting has not occurred;
(iii) It shall have (A) provided to the other party hereto written notice
which shall state expressly (1) that it has received a Superior Offer, (2)
the material terms and conditions of the Superior Offer and the identity of
the Person or group making the Superior Offer, and (3) that it intends to
effect a Change of Recommendation and the manner in which it intends to do
so, (B) provided to the other party hereto a copy of all written materials
delivered to the Person or group making the Superior Offer in connection
with such Superior Offer, and (C) made available to the other party hereto
all materials and information made available to the Person or group making
the Superior Offer in connection with such Superior Offer;
(iv) Its Board of Directors has concluded in good faith, after receipt of
advice of its outside legal counsel, that, in light of such Superior Offer,
the failure of the Board of Directors to effect a Change of Recommendation
is reasonably likely to result in a breach of its fiduciary obligations to
its stockholders under applicable law; and
A-30
(v) It shall not have breached in any material respect any of the
provisions set forth in Section 5.2 or this Section 5.3.
(e) Continuing Obligation to Call, Hold and Convene Stockholders' Meeting;
No Other Vote. Notwithstanding anything to the contrary contained in this
Agreement, the obligation of HP or Compaq, as the case may be, to call, give
notice of, convene and hold its Stockholders' Meeting shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
to it of any Acquisition Proposal with respect to it, or by any Change of
Recommendation. Neither HP nor Compaq shall submit to the vote of its
respective stockholders any Acquisition Proposal, or propose to do so.
(f) Compliance with Tender Offer Rules. Nothing contained in this Agreement
shall prohibit either party or its respective Board of Directors from taking
and disclosing to its stockholders a position contemplated by Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act; provided that the content of any
such disclosure thereunder shall be governed by the terms of this Agreement.
Without limiting the foregoing proviso, neither party shall effect a Change of
Recommendation unless specifically permitted pursuant to the terms of Section
5.3(d).
(g) Certain Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Acquisition Proposal," with respect to a party, shall mean any offer
or proposal, relating to any transaction or series of related transactions
involving: (A) any purchase from such party or acquisition by any Person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) of more than a ten percent (10%) interest in the
total outstanding voting securities of such party or any of its Subsidiaries
or any tender offer or exchange offer that if consummated would result in
any Person or group beneficially owning ten percent (10%) or more of the
total outstanding voting securities of such party or any of its Subsidiaries
or any merger, consolidation, business combination or similar transaction
involving such party or any of its Subsidiaries, (B) any sale, lease (other
than in the ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition or disposition of more
than ten percent (10%) of the assets of such party (including its
Subsidiaries taken as a whole), or (C) any liquidation or dissolution of
such party (provided, however, a HP Permitted Acquisition shall not be
deemed an Acquisition Proposal with respect to HP and a Compaq Permitted
Acquisition shall not be deemed an Acquisition Proposal with respect to
Compaq and the transactions contemplated hereby shall not be deemed an
Acquisition Proposal in any case); and
(ii) "Superior Offer," with respect to party, shall mean an unsolicited,
bona fide written offer made by a third party to acquire, directly or
indirectly, pursuant to a tender offer, exchange offer, merger,
consolidation or other business combination, all or substantially all of the
assets of such party or a majority of the total outstanding voting
securities of such party and as a result of which the stockholders of such
party immediately preceding such transaction would hold less than fifty
percent (50%) of the equity interests in the surviving or resulting entity
of such transaction or any direct or indirect parent or subsidiary thereof,
on terms that the Board of Directors of such party has in good faith
concluded (following the receipt of advice of its outside legal counsel and
its financial adviser), taking into account, among other things, all legal,
financial, regulatory and other aspects of the offer and the Person making
the offer, to be more favorable, from a financial point of view, to such
party's stockholders (in their capacities as stockholders) than the terms of
the Merger and is reasonably capable of being consummated.
5.4 Confidentiality; Access to Information; No Modification of
Representations, Warranties or Covenants.
(a) Confidentiality. The parties acknowledge that Compaq and HP have
previously executed a Confidentiality Agreement dated June 29, 2001 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms and each of HP and Compaq
will hold, and will cause its respective directors, officers, Employees, agents
and advisors (including attorneys,
A-31
accountants, consultants, bankers and financial advisors) to hold, any
Evaluation Material (as defined in the Confidentiality Agreement) confidential
in accordance with the terms of the Confidentiality Agreement.
(b) Access to Information. Each of Compaq, Merger Sub and HP will afford the
other and the other's accountants, counsel and other representatives reasonable
access during normal business hours to its properties, books, records and
personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of product
development efforts, properties, results of operations and personnel, as such
other party may reasonably request, and, during such period, upon request by
the other party hereto, each of HP and Merger Sub, on the one hand, and Compaq,
on the other hand, shall, and shall cause each of their respective Subsidiaries
to, furnish promptly to the other party a copy of any report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws; provided,
however, that any party may restrict the foregoing access to the extent that
any law, treaty, rule or regulation of any Governmental Entity applicable to
such party requires such party or its Subsidiaries to restrict or prohibit
access to any such properties or information.
(c) No Modification of Representations and Warranties or Covenants. No
information or knowledge obtained in any investigation or notification pursuant
to this Section 5.4, Section 5.6 or Section 5.7 shall affect or be deemed to
modify any representation or warranty contained herein, the covenants or
agreements of the parties hereto or the conditions to the obligations of the
parties hereto under this Agreement.
5.5 Public Disclosure. Without limiting any other provision of this
Agreement, HP and Compaq will consult with each other before issuing, and
provide each other the opportunity to review, comment upon and concur with, and
use all reasonable efforts to agree on any press release or public statement
with respect to this Agreement and the transactions contemplated hereby,
including the Merger, and any Acquisition Proposal and will not issue any such
press release or make any such public statement prior to such consultation and
(to the extent practicable) agreement, except as may be required by law or any
listing agreement with the NYSE, PCX or any other applicable national or
regional securities exchange. The parties have agreed to the text of the joint
press release announcing the signing of this Agreement.
5.6 Regulatory Filings; Reasonable Efforts.
(a) Regulatory Filings. Each of HP, Merger Sub and Compaq shall coordinate
and cooperate with one another and shall each use all reasonable efforts to
comply with, and shall each refrain from taking any action that would impede
compliance with, all Legal Requirements, and as promptly as practicable after
the date hereof, each of HP, Merger Sub and Compaq shall make all filings,
notices, petitions, statements, registrations, submissions of information,
application or submission of other documents required by any Governmental
Entity in connection with the Merger and the transactions contemplated hereby,
including, without limitation: (i) Notification and Report Forms with the
United States Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice ("DOJ") as required by the HSR Act,
(ii) a Form CO with the European Commission as required by the EC Merger
Regulation, (iii) any other filing necessary to obtain any Necessary Consent,
(iv) filings under any other comparable pre-merger notification forms required
by the merger notification or control laws of any applicable jurisdiction, as
agreed by the parties hereto, and (v) any filings required under the Securities
Act, the Exchange Act, any applicable state or securities or "blue sky" laws
and the securities laws of any foreign country, or any other Legal Requirement
relating to the Merger. Each of HP and Compaq will cause all documents that it
is responsible for filing with any Governmental Entity under this Section
5.6(a) to comply in all material respects with all applicable Legal
Requirements.
(b) Exchange of Information. HP, Merger Sub and Compaq each shall promptly
supply the other with any information which may be required in order to
effectuate any filings or application pursuant to Section 5.6(a). Except where
prohibited by applicable Legal Requirements, and subject to the Confidentiality
Agreement, each of Compaq and HP shall consult with the other prior to taking a
position with respect to any such filing, shall permit the other to review and
discuss in advance, and consider in good faith the views of the other in
A-32
connection with any analyses, appearances, presentations, memoranda, briefs,
white papers, arguments, opinions and proposals before making or submitting any
of the foregoing to any Governmental Entity by or on behalf of any party hereto
in connection with any investigations or proceedings in connection with this
Agreement or the transactions contemplated hereby (including under any
antitrust or fair trade Legal Requirement), coordinate with the other in
preparing and exchanging such information and promptly provide the other (and
its counsel) with copies of all filings, presentations or submissions (and a
summary of any oral presentations) made by such party with any Governmental
Entity in connection with this Agreement or the transactions contemplated
hereby, provided that with respect to any such filing, presentation or
submission, each of HP and Compaq need not supply the other (or its counsel)
with copies (or in case of oral presentations, a summary) to the extent that
any law, treaty, rule or regulation of any Governmental Entity applicable to
such party requires such party or its Subsidiaries to restrict or prohibit
access to any such properties or information.
(c) Notification. Each of HP, Merger Sub and Compaq will notify the other
promptly upon the receipt of: (i) any comments from any officials of any
Governmental Entity in connection with any filings made pursuant hereto and
(ii) any request by any officials of any Governmental Entity for amendments or
supplements to any filings made pursuant to, or information provided to comply
in all material respects with, any Legal Requirements. Whenever any event
occurs that is required to be set forth in an amendment or supplement to any
filing made pursuant to Section 5.6(a), HP, Merger Sub or Compaq, as the case
may be, will promptly inform the other of such occurrence and cooperate in
filing with the applicable Governmental Entity such amendment or supplement.
(d) Reasonable Efforts. Subject to the express provisions of Section 5.2 and
Section 5.3 hereof and upon the terms and subject to the conditions set forth
herein, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using all reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause the conditions
precedent set forth in Article VI to be satisfied, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all necessary consents, approvals or waivers from third parties, including all
Necessary Consents, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by
any court or other Governmental Entity vacated or reversed, and (v) the
execution or delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, Compaq and
its Board of Directors shall, if any takeover statute or similar Legal
Requirement is or becomes applicable to the Merger, this Agreement or any of
the transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
Legal Requirement on the Merger, this Agreement and the transactions
contemplated hereby.
(e) Limitation on Divestiture. Notwithstanding anything in this Agreement to
the contrary, nothing contained in this Agreement shall be deemed to require HP
or Compaq or any Subsidiary or affiliate thereof to take or agree to take any
Action of Divestiture (as defined below) which would be reasonably likely
materially adversely impact the benefits expected to be derived by HP and its
Subsidiaries (on a combined basis with Compaq and its Subsidiaries) as a result
of the transactions contemplated hereby or would be reasonably likely to
materially adversely affect HP and its Subsidiaries (on a combined basis with
Compaq and its Subsidiaries) following the Merger (a "Restricted Divestiture").
For purposes of this Agreement, an "Action of Divestiture"
A-33
shall mean (i) making proposals, executing or carrying out agreements or
submitting to Legal Requirements providing for the license, sale or other
disposition or holding separate (through the establishment of a trust or
otherwise) of any assets or categories of assets that are material to HP,
Compaq or any of their respective Subsidiaries or the holding separate of
Compaq capital stock or imposing or seeking to impose any limitation on the
ability of HP, Compaq or any of their respective Subsidiaries, to conduct their
respective businesses or own such assets or to acquire, hold or exercise full
rights of ownership of Compaq's business or (ii) otherwise taking any step to
avoid or eliminate any impediment which may be asserted under any Legal
Requirement governing competition, monopolies or restrictive trade practices.
5.7 Notification of Certain Matters.
(a) By Compaq. Compaq shall give prompt notice to HP and Merger Sub of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Compaq to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3(a) or 6.3(b) would not be satisfied.
(b) By HP. HP and Merger Sub shall give prompt notice to Compaq of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of HP to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.2(a) or 6.2(b) would not be satisfied.
5.8 Third-Party Consents. As soon as practicable following the date hereof,
HP and Compaq will each use all reasonable efforts to obtain any material
consents, waivers and approvals under any of its or its Subsidiaries'
respective Contracts required to be obtained in connection with the
consummation of the transactions contemplated hereby.
5.9 Equity Awards and Employee Benefits.
(a) Assumption of Stock Options. At the Effective Time, each then
outstanding Compaq Option (including each Compaq SAR), whether or not
exercisable at the Effective Time and regardless of the respective exercise (or
base) prices thereof, will be assumed by HP. Each Compaq Option so assumed by
HP under this Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Compaq Option (including any
applicable stock option agreement or other document evidencing such Compaq
Option) immediately prior to the Effective Time (including any repurchase
rights or vesting provisions), except that (i) each Compaq Option will be
exercisable (or will become exercisable in accordance with its terms) for (or
will relate to, in the case of a Compaq SAR)) that number of whole shares of HP
Common Stock equal to the product of the number of shares of Compaq Common
Stock that were issuable upon exercise of such Compaq Option (or, in the case
of Compaq SARs, the number of shares of Compaq Common Stock subject to such
Compaq SAR) immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of HP Common Stock
and (ii) the per share exercise price for the shares of HP Common Stock
issuable upon exercise of such assumed Compaq Option (or the base price to
which the assumed Compaq SAR relates) will be equal to the quotient determined
by dividing the exercise price per share of Compaq Common Stock at which such
Compaq Option was exercisable (or the base price subject to the Compaq SAR)
immediately prior to the Effective Time by the Exchange Ratio, rounded up to
the nearest whole cent. Each assumed Compaq Option (including each Compaq SAR)
shall be vested immediately following the Effective Time as to the same
percentage of the total number of shares subject thereto as it was vested as to
immediately prior to the Effective Time, except to the extent such Compaq
Option (or Compaq SAR) by its terms in effect prior to the date hereof provides
for acceleration of vesting. As soon as reasonably practicable, HP will issue
to each Person who holds an assumed Compaq Option (including each Compaq SAR) a
document evidencing the foregoing assumption of such Compaq Option (including
each Compaq SAR) by HP.
A-34
(b) Incentive Stock Options. The conversion of Compaq Options provided for
in Section 5.9(a), with respect to any options which are intended to be
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
(c) Termination of Compaq Employee Stock Purchase Plans. Prior to the
Effective Time, each of the Compaq Purchase Plans shall be terminated. The
rights of participants in each Compaq Purchase Plan with respect to any
offering period then underway under such Compaq Purchase Plan shall be
determined by treating the last business day prior to, or if more
administratively advisable, the last payroll date of Compaq immediately prior
to, the Effective Time, as the last day of such offering period and by making
such other pro-rata adjustments as may be necessary to reflect the shortened
offering period but otherwise treating such shortened offering period as a
fully effective and completed offering period for all purposes under such
Compaq Purchase Plan. Prior to the Effective Time, Compaq shall take all
actions (including, if appropriate, amending the terms of such Compaq Purchase
Plan that are necessary to give effect to the transactions contemplated by this
Section 5.9(c).
(d) Employee Compensation. For a twelve (12) month period following the
Effective Time, HP will use all reasonable efforts to provide generally to
those of its employees and employees of the Surviving Corporation who shall
have been employees of Compaq immediately prior to the Effective Time
("Continuing Employees"), a total compensation (including benefits) package
that, in the aggregate, is generally comparable to the total compensation
(including benefits) package provided to those employees prior to the execution
of this Agreement.
(e) Service Credit. Following the Effective Time, HP will use all reasonable
efforts to give each Continuing Employee full credit for prior service with
Compaq or its Subsidiaries for purposes of (i) eligibility and vesting under
any HP Benefit Plan, (ii) determination of benefits levels under any vacation
or severance HP Benefit Plan and (iii) determination of "retiree" status under
any equity compensation HP Benefit Plan, for which the Continuing Employee is
otherwise eligible and in which the Continuing Employee is offered
participation, in each case except where such crediting would (A) result in a
duplication of benefits or (B) otherwise cause HP or its Subsidiaries or any HP
Benefit Plan or trust relating thereto to accrue or pay for benefits that
relate to any time period prior to the Continuing Employee's participation in
the HP Benefit Plan.
(f) Employee Communications. With respect to matters described in Section
5.9, Compaq will use all reasonable efforts to consult with HP (and consider in
good faith the advice of HP) prior to sending any notices or other
communication materials to its Employees.
(g) Plan Documents. Without limiting the generality of Section 5.4(b), as
promptly as practicable following the date hereof (if practicable, with thirty
(30) days from the date hereof), Compaq shall provide access to HP to copies
of: (i) all documents embodying all Compaq Benefit Plans, (ii) the most recent
annual actuarial valuations and/or audited statement of assets and liabilities
for each Compaq Retirement Plan, if any, for each Compaq Benefit Plan, (iii)
the three (3) most recent annual reports, returns, securities registration
statements or other filings, if any, required to be filed with any Governmental
Entity under applicable Legal Requirement in connection with each Compaq
Benefit Plan, (iv) the most recent Approval for each Compaq Benefit Plan, as
applicable, (v) all material correspondence to or from any Governmental Entity
relating to any Compaq Benefit Plan, (vi) all material communications to
Employees regarding in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
under any Compaq Benefit Plan or proposed Compaq Benefit Plan, and (vii) a
summary with respect to each Compaq Option outstanding as of the date of this
Agreement of: (a) the particular Compaq Stock Option Plan (if any) pursuant to
which such Compaq Option was granted, (b) the name and location of the holder
or receipt of such Compaq Option, (c) the number of shares of Compaq Common
Stock subject to such Compaq Option or value covered thereby, (d) the exercise
or base price of such Compaq Option, (e) the date on which such Compaq Option
was granted, (f) the applicable vesting schedule and the extent to which such
Compaq Option is vested and exercisable as of the date of this Agreement, and
(g) the date on which such Compaq Option expires.
A-35
5.10 Form S-8. HP agrees to file a registration statement on Form S-8 for
the shares of HP Common Stock issuable with respect to assumed Compaq Options
to the extent Form S-8 is available as soon as is reasonably practicable after
the Effective Time and shall maintain the effectiveness of such registration
statement thereafter for so long as any of such options or other rights remain
outstanding.
5.11 Indemnification.
(a) Indemnity. From and after the Effective Time, HP will, and will cause
the Surviving Corporation to, fulfill and honor in all respects the obligations
of Compaq pursuant to any indemnification agreements between Compaq and its
directors and officers immediately prior to the Effective Time (the
"Indemnified Parties"), subject to applicable law. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will contain provisions
with respect to exculpation and indemnification that are at least as favorable
to the Indemnified Parties as those contained in the Certificate of
Incorporation and Bylaws of the Company as in effect on the date hereof, which
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who, immediately prior to the Effective Time,
were directors, officers, employees or agents of Compaq, unless such
modification is required by law.
(b) Insurance. For a period of six years after the Effective Time, HP will
cause the Surviving Corporation to use all reasonable efforts to cause to be
maintained in directors' and officers' liability insurance maintained by Compaq
covering those persons who are covered by Compaq's directors' and officers'
liability insurance policy as of the date hereof on terms comparable to those
applicable to the current directors and officers of Compaq for a period of six
(6) years; provided, however, that in no event will the Surviving Corporation
be required to expend in excess of one hundred fifty percent (150%) of the
annual premium currently paid by Compaq for such coverage (and to the extent
annual premium would exceed one hundred fifty percent (150%) of the annual
premium currently paid by Compaq for such coverage, the Surviving Corporation
shall use all reasonable efforts to cause to be maintained the maximum amount
of coverage as is available for such one hundred fifty percent (150%) of such
annual premium).
(c) Third-Party Beneficiaries. This Section 5.11 is intended to be for the
benefit of, and shall be enforceable by the Indemnified Parties and their heirs
and personal representatives and shall be binding on HP and the Surviving
Corporation and its successors and assigns. In the event HP or the Surviving
Corporation or its successor or assign (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any Person, then, and in each case, proper
provision shall be made so that the successor and assign of HP or the Surviving
Corporation, as the case may be, honor the obligations set forth with respect
to HP or the Surviving Corporation, as the case may be, in this Section 5.11.
5.12 Board of Directors and Executive Officers of HP.
(a) Compaq Designated Directors. The Board of Directors of HP will take all
actions necessary such that effective as of immediately following the Effective
Time, five (5) directors of Compaq reasonably acceptable to HP, including
Michael D. Capellas, shall become members of the Board of Directors of HP (the
"Compaq Designated Directors") and the Board of Directors of HP will have no
more than two directors who are employees of HP immediately following the
Effective Time (it being understood that in the event that at the Effective
Time Michael D. Capellas is unable or unavailable to serve as a director of HP,
Compaq shall be entitled to designate an alternative person reasonably
acceptable to HP to serve as a member of the HP Board of Directors in lieu of
Michael D. Capellas.
(b) Board Committees. It is the intention of the Board of Directors of HP
that (i) there will be at least one Compaq Designated Director on each
committee of the Board of Directors of HP and (ii) the chairman of at least
A-36
one of the following committees of the Board of Directors of HP will be a
Compaq Designated Director: (A) Audit, (B) Compensation, (C) Finance and
Investment, and (D) Nominating and Governance.
(c) Executive Officers. HP will negotiate in good faith with certain persons
who are current senior executives of HP and Compaq who are expected to become
(or continue to be) senior executives of HP following the Merger for such
persons to accept the positions and the terms of employment previously
discussed between Compaq and HP.
5.13 NYSE and PCX Listings. Prior to the Effective Time, HP agrees to use
all reasonable efforts to authorize for listing on NYSE and PCX the shares of
HP Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger, subject to official notice of issuance.
5.14 Compaq Affiliates; Restrictive Legend. Compaq will use all reasonable
efforts to deliver or cause to be delivered to HP, as promptly as practicable
on or following the date hereof, from each person who may reasonably be deemed
to be an affiliate of Compaq for purposes of Rule 145 promulgated under the
Securities Act an executed affiliate agreement pursuant to which such affiliate
shall agree to be bound by the provision of Rule 145 promulgated under the
Securities Act in a form provided by HP and reasonably acceptable to Compaq. HP
will give stop transfer instructions to its transfer agent with respect to any
HP Common Stock received pursuant to the Merger by any stockholder of Compaq
who may reasonably be deemed to be an affiliate of Compaq for purposes of Rule
145 promulgated under the Securities Act and there will be placed on the
certificates representing such HP Common Stock, or any substitutions therefor,
a legend stating in substance that the shares were issued in a transaction to
which Rule 145 promulgated under the Securities Act applies and may only be
transferred (i) in conformity with Rule 145 or (ii) in accordance with a
written opinion of counsel, reasonably acceptable to HP, in form and substance
that such transfer is exempt from registration under the Securities Act.
5.15 Treatment as Reorganization. None of HP, Merger Sub or Compaq shall,
and they shall not permit any of their respective Subsidiaries to, take any
action prior to or following the Closing that would reasonably be expected to
cause the Merger to fail to qualify as a reorganization with the meaning of
Section 368(a) of the Code.
5.16 Rights Plans.
(a) Compaq Rights Plan. Compaq shall, and shall cause its transfer agent, as
rights agent, to, enter into the Compaq Rights Agreement as promptly as
practicable after the date hereof (but in no event later than three (3)
business days following the date hereof). Compaq shall set the record date for
the Compaq Rights Dividend as September 17, 2001 and shall pay the Compaq
Rights Dividend not later than September 27, 2001. Compaq shall not redeem the
Compaq Rights or amend or modify (including by delay of the "Distribution Date"
thereunder) or terminate the Compaq Rights Plan prior to the Effective Time
unless, and only to the extent that: (i) it is required to do so by order of a
court of competent jurisdiction or (ii) its Board of Directors has concluded in
good faith, after receipt of advice of its outside legal counsel, that, in
light of a Superior Offer with respect to it, the failure to effect such
amendment, modification or termination is reasonably likely to result in a
breach of its Board of Directors' fiduciary obligations to its stockholders
under applicable law.
(b) HP Rights Plan. HP shall, and shall cause its transfer agent, as rights
agent, to, enter into the HP Rights Agreement as promptly as practicable after
the date hereof (but in no event later than three (3) business days following
the date hereof). HP shall set the record date for the HP Rights Dividend as
September 17, 2001 and shall pay the HP Rights Dividend not later than
September 27, 2001. HP shall not redeem the HP Rights or amend or modify
(including by delay of the "Distribution Date" thereunder) or terminate the HP
Rights Plan prior to the Effective Time unless, and only to the extent that:
(i) it is required to do so by order of a court of competent jurisdiction or
(ii) its Board of Directors has concluded in good faith, after receipt of
advice of its outside legal counsel, that, in light of a Superior Offer with
respect to it, the failure to effect such amendment,
A-37
modification or termination is reasonably likely to result in a breach of its
Board of Directors' fiduciary obligations to its stockholders under applicable
law.
5.17 Section 16 Matters. Prior to the Effective Time, HP and Compaq shall
take all such steps as may be required (to the extent permitted under
applicable law) to cause any dispositions of Compaq Common Stock (including
derivative securities with respect to Compaq Common Stock) or acquisitions of
HP Common Stock (including derivative securities with respect to HP Common
Stock) resulting from the transactions contemplated by Article I of this
Agreement by each individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to Compaq to be exempt under
Rule 16b-3 promulgated under the Exchange Act.
5.18 Merger Sub Compliance. HP shall cause Merger Sub to comply with all of
Merger Sub's obligations under or relating to this Agreement. Merger Sub shall
not engage in any business which is not in connection with the merger with and
into Compaq pursuant to this Agreement.
5.19 Conveyance Taxes. HP, Merger Sub and Compaq shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer or stamp taxes, any transfer, recording,
registration or other fees or any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. All such
taxes will be paid by the party bearing the legal responsibility for such
payment; provided, however, that, as between HP and Compaq, Compaq shall pay on
behalf of those Persons holding Compaq Common Stock immediately prior to the
Effective Time any real estate transfer or similar Taxes payable by such Person
in connection with Merger.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law, by the stockholders of Compaq and the Stock Issuance
shall have been approved by the stockholders of HP.
(b) No Order. No Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which (i) is in effect and (ii) has the
effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger (which illegality or prohibition would have a material impact on
HP and its Subsidiaries, on a combined basis with Compaq and its
Subsidiaries, if the Merger were consummated notwithstanding such statute,
rule, regulation, executive order, decree, injunction or other order).
(c) Registration Statement Effective; Prospectus/Proxy Statement. The SEC
shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Prospectus/Proxy Statement, shall have
been initiated or threatened in writing by the SEC.
(d) HSR Act; EC Merger Regulation. All waiting periods (and any extension
thereof) under the HSR Act relating to the transactions contemplated hereby
will have expired or terminated early. Any required approval of the Merger
of the European Commission shall have been obtained pursuant to the EC
Merger Regulation, respectively. All other material foreign antitrust
approvals required to be obtained prior to the Merger in connection with the
transactions contemplated hereby shall have been obtained.
A-38
(e) No Governmental Restriction. There shall not be any pending or
overtly threatened suit, action or proceeding asserted by any Governmental
Authority (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement, the effect of which restraint or prohibition if obtained
would cause the condition set forth in Section 6.1(b) to not be satisfied or
(ii) seeking to require HP or Compaq or any Subsidiary or affiliate to
effect a Restricted Divestiture.
(f) Tax Opinions. HP and Compaq shall each have received written opinions
from Wilson Sonsini Goodrich & Rosati, Professional Corporation and Skadden,
Arps, Slate, Meagher & Flom, LLP, respectively, in form and substance
reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and such opinions shall not have been withdrawn.
(g) NYSE and PCX Listing. The shares of HP Common Stock to be issued in
the Merger and the transactions contemplated hereby shall have been
authorized for listing on each of the NYSE and PCX, subject to official
notice of issuance.
6.2 Additional Conditions to the Obligations of Compaq. The obligation of
Compaq to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Compaq:
(a) Representations and Warranties. The representations and warranties of
HP and Merger Sub contained in this Agreement shall be true and correct on
the date hereof and as of the Closing Date with the same force and effect as
if made on the Closing Date (except that those representations and
warranties which address matters only as of a particular date shall have
been true and correct only on such date), except, in each case, or in the
aggregate, as does not constitute a Material Adverse Effect on HP at the
Closing Date (it being understood that, for purposes of determining the
accuracy of such representations and warranties, any update of or
modification to the HP Disclosure Letter made or purported to have been made
after the execution of this Agreement shall be disregarded). Compaq shall
have received a certificate with respect to the foregoing signed on behalf
of HP, with respect to the representations and warranties of HP, by an
authorized senior executive officer of HP and a certificate with respect to
the foregoing signed on behalf of Merger Sub, with respect to the
representations and warranties of Merger Sub, by an authorized officer of
Merger Sub.
(b) Agreements and Covenants. HP and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date, and Compaq shall have received a certificate with respect to
the foregoing signed on behalf of HP, with respect to the covenants of HP,
by an authorized senior executive officer of HP and a certificate with
respect to the foregoing signed on behalf of Merger Sub, with respect to the
covenants of Merger Sub, by an authorized officer of Merger Sub.
(c) Material Adverse Effect. No Material Adverse Effect on HP shall have
occurred since the date hereof and be continuing.
6.3 Additional Conditions to the Obligations of HP. The obligations of HP
and Merger Sub to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by HP and
Merger Sub:
(a) Representations and Warranties. The representations and warranties of
Compaq contained in this Agreement shall be true and correct on the date
hereof and as of the Closing Date with the same force and effect as if made
on the Closing Date (except that those representations and warranties which
address matters only as of a particular date shall have been true and
correct only on such date), except, in each case, or in the aggregate, as
does not constitute a Material Adverse Effect on Compaq at the Closing Date
(it being understood that, for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Compaq
Disclosure Letter made or purported to have been made after the
A-39
execution of this Agreement shall be disregarded). HP and Merger Sub shall
have received a certificate with respect to the foregoing signed on behalf
of Compaq by an authorized senior executive officer of Compaq.
(b) Agreements and Covenants. Compaq shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and HP and Merger Sub shall have received a certificate to such effect
signed on behalf of Compaq by an authorized senior executive officer of
Compaq.
(c) Material Adverse Effect. No Material Adverse Effect on Compaq shall
have occurred since the date hereof and be continuing.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after the requisite approvals of the stockholders of Compaq or HP:
(a) by mutual written consent duly authorized by the Boards of Directors
of HP and Compaq;
(b) by either Compaq or HP if the Merger shall not have been consummated
by May 31, 2002 (which date shall be extended to August 30, 2002, if the
Merger shall not have been consummated as of the result of a failure to
satisfy the conditions set forth in Section 6.1(b), Section 6.1(d) or
Section 6.1(e)) (as appropriate, the "End Date"); provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a material breach of this
Agreement;
(c) by either Compaq or HP if a Governmental Entity shall have issued an
order, decree or ruling or taken any other action (including the failure to
have taken an action), in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, which order,
decree, ruling or other action is final and nonappealable;
(d) by either Compaq or HP if the required approval of the stockholders
of HP contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of HP stockholders
duly convened therefor or at any adjournment thereof; provided, however,
that the right to terminate this Agreement under this Section 7.1(d) shall
not be available to HP where the failure to obtain HP stockholder approval
shall have been caused by the action or failure to act of HP and such action
or failure to act constitutes a material breach by HP of this Agreement;
(e) by either Compaq or HP if the required approval of the stockholders
of Compaq contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a meeting of the Compaq
stockholders duly convened therefore or at any adjournment thereof;
provided, however, that the right to terminate this Agreement under this
Section 7.1(e) shall not be available to Compaq where the failure to obtain
Compaq stockholder approval shall have been caused by the action or failure
to act of Compaq and such action or failure to act constitutes a material
breach by Compaq of this Agreement;
(f) by HP (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of Compaq)
if a Triggering Event (as defined below in this Section 7.1) with respect to
Compaq shall have occurred;
(g) by Compaq (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of HP) if
a Triggering Event with respect to HP shall have occurred;
(h) by Compaq, upon a breach of any representation, warranty, covenant or
agreement on the part of HP set forth in this Agreement, or if any
representation or warranty of HP shall have become untrue, in
A-40
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided that
if such inaccuracy in HP's representations and warranties or breach by HP is
curable by HP prior to the End Date through the exercise of reasonable
efforts, then Compaq may not terminate this Agreement under this Section
7.1(h) prior to sixty (60) days following the receipt of written notice from
Compaq to HP of such breach, provided that HP continues to exercise all
reasonable efforts to cure such breach through such sixty (60) day period
(it being understood that Compaq may not terminate this Agreement pursuant
to this paragraph (h) if it shall have materially breached this Agreement or
if such breach by HP is cured within such sixty (60) day period);
(i) by HP, upon a breach of any representation, warranty, covenant or
agreement on the part of Compaq set forth in this Agreement, or if any
representation or warranty of Compaq shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Compaq's representations and warranties or breach by Compaq is
curable by Compaq prior to the End Date through the exercise of reasonable
efforts, then HP may not terminate this Agreement under this Section 7.1(i)
prior to the End Date sixty (60) days following the receipt of written
notice from HP to Compaq of such breach, provided that Compaq continues to
exercise all reasonable efforts to cure such breach through such sixty (60)
day period (it being understood that HP may not terminate this Agreement
pursuant to this paragraph (i) if it shall have materially breached this
Agreement or if such breach by Compaq is cured within such sixty (60) day
period);
(j) by HP, if a Material Adverse Effect on Compaq shall have occurred
since the date hereof; and
(k) by Compaq, if a Material Adverse Effect on HP shall have occurred
since the date hereof.
For the purposes of this Agreement, a "Triggering Event," with respect to a
party hereto, shall be deemed to have occurred if: (i) its Board of Directors
or any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to the other party hereto its
recommendation in favor of, the adoption and approval of the Agreement or the
approval of the Merger, (ii) it shall have failed to include in the
Prospectus/Proxy Statement the recommendation of its Board of Directors in
favor of the adoption and approval of the Agreement and the approval of the
Merger, (iii) its Board of Directors fails to reaffirm (publicly, if so
requested) its recommendation in favor of the adoption and approval of the
Agreement and the approval of the Merger within ten (10) calendar days after
the other party hereto requests in writing that such recommendation be
reaffirmed, (iv) its Board of Directors or any committee thereof shall have
approved or recommended any Acquisition Proposal, or (v) a tender or exchange
offer relating to its securities shall have been commenced by a Person
unaffiliated with the other party hereto and it shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published, sent or given, a statement disclosing that the Board of Directors of
such party recommends rejection of such tender or exchange offer.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of a valid written notice of the terminating party to the other party
hereto. In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in Section 5.4(a), this Section 7.2, Section 7.3 and Article VIII,
each of which shall survive the termination of this Agreement and (ii) nothing
herein shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether
A-41
or not the Merger is consummated; provided, however, that HP and Compaq shall
share equally (i) all fees and expenses, other than attorneys' and accountants'
fees and expenses which fees shall be paid for by the party incurring such
expense, incurred in relation to the printing and filing (with the SEC) of the
Prospectus/Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto and (ii) the filing fee for
the Notification and Report Forms filed with the FTC and DOJ under the HSR Act,
the Form CO filed with the European Commission under the EC Merger Regulation
and premerger notification and reports forms under similar applicable laws of
other jurisdictions, in each case pursuant to Section 5.6(a).
(b) Payments.
(i) Payment by Compaq. In the event that this Agreement is terminated by
HP or Compaq, as applicable, pursuant to Sections 7.1(b), (e), or (f),
Compaq shall promptly, but in no event later than two (2) business days
after the date of such termination, pay HP a fee equal to six hundred
seventy five million dollars ($675,000,000.00) in immediately available
funds (the "Compaq Termination Fee"); provided, that in the case of
termination under Section 7.1(b) or 7.1(e): (A) such payment shall be made
only if following the date hereof and prior to the termination of this
Agreement, there has been public disclosure of an Acquisition Proposal with
respect to Compaq and (1) within twelve (12) months following the
termination of this Agreement an Acquisition (as defined in Section
7.3(b)(iv)) of Compaq is consummated or (2) within twelve (12) months
following the termination of this Agreement Compaq enters into an agreement
providing for an Acquisition of Compaq and an Acquisition of Compaq is
consummated within twenty-four (24) months of the termination of this
Agreement and (B) such payment shall be made promptly, but in no event later
than two (2) business days after the consummation of such Acquisition of
Compaq.
(ii) Payment by HP. In the event that this Agreement is terminated by HP
or Compaq, as applicable, pursuant to Sections 7.1(b), (d), or (g), HP shall
promptly, but in no event later than two (2) business days after the date of
such termination, pay Compaq a fee equal to six hundred seventy five million
dollars ($675,000,000.00) in immediately available funds (the "HP
Termination Fee"); provided, that in the case of termination under Section
7.1(b) or 7.1(d): (A) such payment shall be made only if following the date
hereof and prior to the termination of this Agreement, there has been public
disclosure of an Acquisition Proposal with respect to HP and (1) within
twelve (12) months following the termination of this Agreement an
Acquisition of HP is consummated or (2) within twelve (12) months following
the termination of this Agreement HP enters into an agreement providing for
an Acquisition of HP and an Acquisition of HP is consummated within
twenty-four (24) months following the termination of this Agreement; and (B)
such payment shall be made promptly, but in no event later than two (2)
business days after the consummation of such Acquisition of HP.
(iii) Interest and Costs; Other Remedies. Each of HP and Compaq
acknowledges that the agreements contained in this Section 7.3(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, the other party hereto would not enter into this
Agreement; accordingly, if HP or Compaq, as the case may be, fails to pay in
a timely manner the amounts due pursuant to this Section 7.3(b), and, in
order to obtain such payment, the other party hereto makes a claim that
results in a judgment against the party failing to pay for the amounts set
forth in this Section 7.3(b), the party so failing to pay shall pay to the
other party its reasonable costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amounts set forth in this Section 7.3(b) at the prime rate
of Citibank, N.A. in effect on the date such payment was required to be
made. Payment of the fees described in this Section 7.3(b) shall not be in
lieu of damages incurred in the event of breach of this Agreement.
(iv) Certain Definitions. For the purposes of this Section 7.3(b) only,
"Acquisition," with respect to a party hereto, shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement): (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the party pursuant to which the stockholders of the party immediately
preceding such transaction hold less than sixty percent (60%) of the
aggregate equity interests in the
A-42
surviving or resulting entity of such transaction or any direct or indirect
parent thereof, (ii) a sale or other disposition by the party of assets
representing in excess of forty percent (40%) of the aggregate fair market
value of the party's business immediately prior to such sale, or (iii) the
acquisition by any Person or group (including by way of a tender offer or an
exchange offer or issuance by the party or such Person or group), directly
or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of forty percent (40%) of the
voting power of the then outstanding shares of capital stock of the party.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of HP and Compaq, provided,
after any such approval, no amendment shall be made which by law or in
accordance with the rules of any relevant stock exchange requires further
approval by such stockholders without such further stockholder approval. This
Agreement may not be amended except by execution of an instrument in writing
signed on behalf of each of HP, Merger Sub and Compaq.
7.5 Extension; Waiver. At any time prior to the Effective Time either party
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed: (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of Compaq, HP and Merger Sub contained in this Agreement, or any
instrument delivered pursuant to this Agreement, shall terminate at the
Effective Time, and only the covenants that by their terms survive the
Effective Time and this Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (i) on the date of delivery if delivered
personally, (ii) on the date of confirmation of receipt (or, the first business
day following such receipt if the date is not a business day) of transmission
by telecopy or telefacsimile, or (iii) on the date of confirmation of receipt
(or, the first business day following such receipt if the date is not a
business day) if delivered by a nationally recognized courier service. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
(a) if to HP or Merger Sub, to:
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Attention: Chief Executive Officer
Telephone No.: (650) 857-1501
Telecopy No.: (650) 852-2977
A-43
with copies to:
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Attention: General Counsel
Telephone No.: (650) 857-1501
Telecopy No.: (650) 857-4837
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini
Martin W. Korman
Bradley L. Finkelstein
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Lancaster Building WestPark
7927 Jones Branch Drive #400
McLean, Virgnia 22102-3322
Attention: Robert D. Sanchez
Telephone No.: (703) 734-3100
Telecopy No.: (703) 734-3199
(b) if to Compaq, to:
Compaq Computer Corporation
20555 SH 249
Houston, Texas 77070
Attention: Chief Executive Officer
Telephone No.: (281) 514-8705
Telecopy No.: (281) 518-6807
with copies to:
Compaq Computer Corporation
20555 SH 249
Houston, Texas 77070
Attention: General Counsel
Telephone No.: (281) 518-4422
Telecopy No.: (281) 518-6807
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Roger S. Aaron
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
A-44
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 1100
Palo Alto, California 94301
Attention: Kenton J. King
Celeste E. Greene
Telephone No.: (650) 470-4500
Telecopy No.: (650) 470-4570
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
section of this Agreement unless otherwise indicated. For purposes of this
Agreement, the words "include," "includes" and "including," when used herein,
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the business
of all such entity and its Subsidiaries, taken as a whole. An exception or
disclosure made in Compaq Disclosure Letter with regard to a representation of
Compaq, or in the HP Disclosure Letter with regard to a representation of HP or
Merger Sub, shall be deemed made with respect to any other representation by
such party to which such exception or disclosure is clearly relevant.
(b) For purposes of this Agreement, the term "Knowledge" means, with respect
to a party hereto, with respect to any matter in question, that any of the
Chief Executive Officer, Chief Financial Officer or General Counsel of such
party, has actual knowledge of such matter, after inquiry of their respective
direct reports.
(c) For purposes of this Agreement, the term "Material Adverse Effect," when
used in connection with an entity, means any change, event, violation,
inaccuracy, circumstance or effect (any such item, an "Effect"), individually
or when taken together with all other Effects that have occurred prior to the
date of determination of the occurrence of the Material Adverse Effect, that is
or is reasonably likely to (i) be materially adverse to the business, assets
(including intangible assets), capitalization, financial condition or results
of operations of such entity taken as a whole with its Subsidiaries (or, if
such entity is Compaq, Compaq taken as a whole with its Subsidiaries or HP
taken as a whole with its Subsidiaries) or (ii) materially impede the authority
of such entity, or, in any case, HP, to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof and
applicable Legal Requirements; provided, however, that, for purposes of clause
(i) above, in no event shall any of the following, alone or in combination, be
deemed to constitute, nor shall any of the following be taken into account in
determining whether there has been or will be, a Material Adverse Effect on any
entity: (A) any Effect resulting from compliance with the terms and conditions
of this Agreement, (B) any Effect resulting from the announcement or pendency
of the Merger (provided that the exception in this clause (B) shall not apply
to the use of the term "Material Adverse Effect" in Sections 6.2(a) and 6.3(a)
with respect to the representations and warranties contained in Section 2.3,
Section 2.7(b), Section 2.14, Section 3.3 and Section 3.13), (C) any change in
such entity's stock price or trading volume, in and of itself, (D) any failure
by such entity to meet published revenue or earnings projections, in and of
itself, (E) any Effect that results from changes affecting any of the
industries in which such entity operates generally or the United States economy
generally (which changes in each case do not disproportionately affect such
entity in any material respect), (F) any Effect that results from changes
affecting general worldwide economic or capital market conditions (which
changes in each case do not disproportionately affect such entity in any
material respect), or (G) stockholder class action litigation arising from
allegations of a breach of fiduciary duty relating to this Agreement.
(d) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
A-45
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third-Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Compaq Disclosure Letter
and the HP Disclosure Letter (i) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement and (ii) are not
intended to confer upon any other Person any rights or remedies hereunder,
except as specifically provided, following the Effective Time, in Section 5.11.
Without limiting the foregoing, it is expressly understood and agreed that the
provisions of Sections 5.9(d), 5.9(e), 5.12(b) and 5.12(c) are statements of
intent and no Continuing Employee or other Person (including any party hereto)
shall have any rights or remedies, including rights of enforcement, with
respect thereto and no Continuing Employee or other Person is or is intended to
be a third-party beneficiary thereof.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the greatest extent
possible, the economic, business and other purposes of such void or
unenforceable provision.
8.7 Other Remedies; Specific Performance.
(a) Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached.
(b) Specific Performance. It is accordingly agreed that the parties shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
A-46
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Any purported assignment in violation of this Section
8.10 shall be void. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF HP, MERGER SUB AND COMPAQ HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF HP, MERGER SUB OR COMPAQ IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
A-47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
HEWLETT-PACKARD COMPANY
By: /S/ CARLETON S. FIORINA
__________________________________
Carleton S. Fiorina
Chairman and Chief Executive
Officer
HELOISE MERGER CORPORATION
By: /S/ ROBERT P. WAYMAN
__________________________________
Robert P. Wayman
President
COMPAQ COMPUTER CORPORATION
By: /S/ MICHAEL D. CAPELLAS
__________________________________
Michael D. Capellas
Chairman and Chief Executive
Officer
****AGREEMENT AND PLAN OF REORGANIZATION****
A-48
ANNEX B
PERSONAL AND CONFIDENTIAL
September 3, 2001
Board of Directors
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Hewlett-Packard Company ("Hewlett-Packard") of the exchange ratio (the
"Exchange Ratio") of 0.6325 shares of Common Stock, par value $0.01 per share
(the "Hewlett-Packard Shares"), of Hewlett-Packard to be exchanged by
Hewlett-Packard for each share of Common Stock, par value $0.01 per share (the
"Compaq Shares"), of Compaq Computer Corporation ("Compaq") pursuant to the
Agreement and Plan of Reorganization; dated as of September 3, 2001 (the
"Agreement"), by and among Hewlett-Packard, Heloise Merger Corporation, a
wholly owned subsidiary of Hewlett-Packard, and Compaq.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Hewlett-Packard having provided investment banking services to
Hewlett-Packard from time to time, including having acted as co-manager on the
initial public offering of shares of Common Stock, par value $0.01 per share
(the "Agilent Shares"), of Agilent Technologies Inc. ("Agilent"), an affiliate
of Hewlett-Packard, in November 1999; having acted as manager of public
offerings of debt securities of Hewlett-Packard in June 2000 (aggregate
principal amount $1.5 billion), in July 2001 (aggregate principal amount $750
million) and in August 2001 (aggregate principal amount $50 million); and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided certain investment banking services to Compaq from time to time.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Hewlett-Packard or Compaq for its own account and for the accounts of
customers. As of August 31, 2001, Goldman Sachs accumulated a net long position
of 451,315 Hewlett-Packard Shares, a net long position of 160,896 Compaq Shares
and a net long position of convertible bonds of Compaq with an aggregate
principal amount of $42,400,000.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
Hewlett-Packard for the five fiscal
B-1
Board of Directors
Hewlett-Packard Company
September 3, 2001
Page Two
years ended October 31, 2000 and Annual Reports to Stockholders on Form 10-K of
Compaq for the five years ended December 31, 2000; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Hewlett-Packard and Compaq;
certain other communications from Hewlett-Packard and Compaq to their
respective stockholders; and certain internal financial analyses and forecasts
for Hewlett-Packard and Compaq prepared by their respective managements,
including certain cost savings and operating synergies projected by the
management of Hewlett-Packard to result from the transaction contemplated by
the Agreement (the "Synergies"). We also have held discussions with members of
the senior management of Hewlett-Packard and Compaq regarding their assessment
of the strategic rationale for, and the potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Hewlett-Packard Shares and the Compaq Shares, compared certain financial and
stock market information for Hewlett-Packard and for Compaq with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the computer hardware industry specifically and in other industries generally
and performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by the managements of Hewlett-Packard and Compaq, including
the Synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Hewlett-Packard and Compaq, and
that such Synergies will be realized in the amounts and time periods
contemplated thereby. In addition, we have not made an independent evaluation
or appraisal of the assets and liabilities of Hewlett-Packard or Compaq or any
of their subsidiaries and we have not been furnished with any such evaluation
or appraisal. We also have assumed that all material governmental, regulatory
or other consents and approvals necessary for the consummation of the
transaction contemplated by the Agreement will be obtained without any
meaningful adverse effect on Hewlett-Packard or Compaq or on the contemplated
benefits of the transaction contemplated by the Agreement. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of Hewlett-Packard in connection with its
consideration of the transaction contemplated by the Agreement and such opinion
does not constitute a recommendation as to how any holder of Hewlett-Packard
Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio is fair from a financial point of view to Hewlett-Packard.
Very truly yours,
--------------------------------------
B-2
ANNEX C
[LETTERHEAD OF SALOMON SMITH BARNEY]
September 3, 2001
The Board of Directors
Compaq Computer Corporation
20555 State Highway 249
Houston, TX 77070
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of the common stock of Compaq
Computer Corporation (the "Company"), par value $0.01 per share ("Company
Common Stock"), of the Exchange Ratio (as defined below) in connection with the
Merger (as defined below) contemplated by the Agreement and Plan of Merger (the
"Agreement") to be entered into by and among the Company, Hewlett Packard
Corporation ("Parent") and Heloise Merger Corporation, a wholly-owned
subsidiary of Parent ("Merger Sub").
As more fully described in the Agreement, Merger Sub will merge with and
into the Company (the "Merger") and each outstanding share of Company Common
Stock (other than certain shares specified in the Agreement) will be converted
into the right to receive 0.6325 (the "Exchange Ratio") of a share of the
common stock of Parent, par value $0.01 per share ("Parent Common Stock").
In connection with rendering our opinion, we have, among other things,
reviewed a September 3, 2001 draft of the Agreement in the form provided to us
and held discussions with certain senior officers and other representatives and
advisors of the Company and Parent concerning the businesses, operations and
prospects of the Company and Parent. We examined certain publicly available
business and financial information relating to the Company and Parent and the
industries in which they operate, as well as certain financial forecasts and
information relating to certain strategic implications and operational benefits
anticipated to result from the Merger, and other information and data regarding
the Company and Parent which were provided to or otherwise discussed with us by
the management of the Company and Parent. We reviewed the financial terms of
the Merger, as set forth in the draft of the Agreement provided to us, in
relation to, among other things, current and historical market prices and
trading volumes of Company Common Stock and Parent Common Stock; the historical
and projected earnings and other operating data of the Company and Parent; and
the historical and projected capitalization and financial condition of the
Company and Parent. We considered, to the extent publicly available, the
financial terms of certain similar transactions recently effected or proposed
which we considered relevant in evaluating the Merger and analyzed certain
financial, stock market, economic and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of the Company and Parent. In addition to the
foregoing, we conducted such other analyses and examinations and considered
such other information and financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon, without assuming any responsibility for independent
verification, the accuracy and completeness of all of the financial and other
information and data publicly available or furnished to, discussed with or
otherwise reviewed by or for us. With respect to financial forecasts and
information relating to certain strategic implications and operational benefits
anticipated to result from the Merger provided to us or otherwise reviewed by
or discussed with us regarding the Company and Parent, we have been advised by
the management of the Company and Parent that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company and Parent,
as the case may be. We express no view with respect to such forecasts and other
information or the assumptions on which they are based. We have
C-1
Board of Directors
Compaq Computer Corporation
September 3, 2001
Page 2
assumed that the Merger will be treated as a tax-free reorganization for United
States federal income tax purposes. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company or Parent, nor have we made any physical inspection
of the properties or assets of the Company or Parent.
For purposes of rendering our opinion, we have assumed that the
representations and warranties of each party contained in the Agreement are
true and correct in all material respects and that each party will perform all
of the covenants and agreements required to be performed by it under the
Agreement. You have advised us, and we have assumed, that the final terms of
the Agreement will not vary materially from those set forth in the draft
provided to us. We have further assumed that the Merger will be consummated in
accordance with the terms of the Agreement without waiver of any of the
conditions precedent to the Merger contained in the Agreement. We have also
assumed that all material governmental, regulatory or other consents and
approvals will be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which either the Company or Parent
is a party, as contemplated by the Agreement, no restrictions will be imposed
or amendments, modifications or waivers made that would have any material
adverse effect on our analysis.
Our opinion, as set forth herein, relates to the relative values of the
Parent and the Company and does not imply any conclusion as to the likely
trading range for Company Common Stock or Parent Common Stock following the
announcement or consummation of the Merger, which range may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. We were not requested to consider, and our
opinion does not address, the relative merits of the Merger as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transaction in which the Company might engage. Our opinion
necessarily is based upon information available to us and financial, stock
market, economic and other conditions and circumstances disclosed to us as they
exist and can be evaluated as of the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof.
As you are aware, Salomon Smith Barney Inc. is acting as financial advisor
to the Company in connection with the Merger and will receive a fee for our
services, a portion of which will be received in connection with the execution
of the Agreement and a significant portion of which is payable only upon the
consummation of the Merger. We have in the past and currently are providing
investment banking services to the Company unrelated to the Merger, for which
we have received and may receive compensation. We have in the past provided
investment banking services to Parent unrelated to the Merger, for which we
have received compensation. In the ordinary course of business, we and our
affiliates may actively trade or hold the debt or equity securities of the
Company and Parent and/or their respective affiliates for our own account or
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities. Salomon Smith Barney Inc. and its
affiliates (including Citigroup Inc. and its affiliates) may maintain other
relationships with the Company, Parent and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
Merger, and our opinion is not intended to be and does not constitute a
recommendation of the Merger to the Company or its stockholders, nor does it
constitute a recommendation to any stockholder as to how such stockholder
should vote on any matter relating to the Merger. Our opinion and any
additional materials provided in connection with the opinion may not be
published or otherwise used or referred to, nor shall any public reference be
made to Salomon Smith Barney Inc. without our prior written consent.
C-2
Board of Directors
Compaq Computer Corporation
September 3, 2001
Page 3
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to the holders of Company Common Stock.
Very truly yours,
SALOMON SMITH BARNEY INC.
By __________________________________
C-3
5980-8703 ENUC
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 145 of the General Corporation Law of the State of Delaware
authorizes a court to award or a corporation's board of directors to grant
indemnification to directors and officers in terms that are sufficiently broad
to permit indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act of 1933. HP's certificate of incorporation contains a provision eliminating
the personal liability of its directors to the company or its shareowners for
breach of fiduciary duty as a director to the fullest extent permitted by
applicable law. HP's bylaws provide for the mandatory indemnification of our
directors and officers to the maximum extent permitted by Delaware law. HP's
bylaws also provide (i) that we may expand the scope of indemnification by
individual contracts with our directors and officers, and (ii) that we shall
not be required to indemnify any director or officer unless the indemnification
is required by law, if the proceeding in which indemnification is sought was
brought by a director or officer, it was authorized in advance by our board of
directors, the indemnification is provided by us, in our sole discretion
pursuant to powers vested in us under the Delaware law, or the indemnification
is required by individual contract. In addition, our bylaws give us the power
to indemnify our employees and agents to the maximum extent permitted by
Delaware law.
Item 21. Exhibits and Financial Statement Schedules
Exhibit
Number Exhibit Description
------ -------------------
2.1 Agreement and Plan of Reorganization, dated as of September 4, 2001, by and among the registrant,
Heloise Merger Corporation and Compaq Computer Corporation, filed herewith.(1)
5.1 Form of legal opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, filed
herewith.(2)
8.1 Tax opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, to be filed by
amendment.
8.2 Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP, to be filed by amendment.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibits 5.1
and 8.1), to be filed by amendment.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.2), to be filed by
amendment.
23.3 Consent of Ernst & Young LLP, Independent Auditors, filed herewith.
23.4 Consent of Ernst & Young LLP, Independent Auditors, filed herewith.
23.5 Consent of PricewaterhouseCoopers LLP, Independent Accountants, filed herewith.
23.6 Consent of PricewaterhouseCoopers LLP, Independent Accountants, filed herewith.
24.1 Power of Attorney (included on page II-4 of this registration statement).
99.1 Form of Proxy for the registrant, to be filed by amendment.
99.2 Form of Proxy for Compaq Computer Corporation, to be filed by amendment.
99.3 Opinion of Goldman, Sachs & Co., financial advisor to the registrant, filed herewith.(3)
99.4 Opinion of Salomon Smith Barney, Inc., financial advisor to Compaq Computer Corporation, filed
herewith.(4)
II-1
Exhibit
Number Exhibit Description
------ -------------------
99.5 Consent of Goldman, Sachs & Co., financial advisor to the registrant, filed herewith.
99.6 Consent of Salomon Smith Barney, Inc., financial advisor to Compaq Computer Corporation, filed
herewith.
99.7 Consent of Michael D. Capellas to be named as a director of the registrant upon completion of the
merger, to be filed by amendment.
99.8 Form of admission ticket and driving directions to special meeting of HP shareowners, to be filed by
amendment.
--------
(1) Included as Annex A to the joint proxy statement/prospectus forming a part
of this registration statement.
(2) The executed legal opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation will be filed by amendment.
(3) Included as Annex B to the joint proxy statement/prospectus forming a part
of this registration statement.
(4) Included as Annex C to the joint proxy statement/prospectus forming a part
of this registration statement.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference into this registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(2) insofar as indemnification for liabilities under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If
a claim of indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in a successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(3) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of any such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed after the
effective date of the registration statement through the date of responding
to such request; and
(4) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Palo Alto, state of
California, on November 15, 2001.
HEWLETT-PACKARD COMPANY
By: /S/ ANN O. BASKINS
---------------------------
Name: Ann O. Baskins
Title: Vice President, General Counsel
and Secretary
II-3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Ann O. Baskins and Charles N. Charnas
and each of them, his or her true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and to file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ CARLETON S. FIORINA Chairman of the Board, President November 15, 2001
--------------------------- and Chief Executive Officer
Carleton S. Fiorina (Principal Executive Officer)
/s/ ROBERT P. WAYMAN Executive Vice President, Finance November 15, 2001
--------------------------- and Administration, Chief
Robert P. Wayman Financial Officer and Director
(Principal Financial Officer)
/s/ JON E. FLAXMAN Vice President and Controller November 15, 2001
--------------------------- (Principal Accounting Officer)
Jon E. Flaxman
/s/ PHILIP M. CONDIT Director November 15, 2001
---------------------------
Philip M. Condit
/s/ PATRICIA C. DUNN Director November 15, 2001
---------------------------
Patricia C. Dunn
/s/ SAM GINN Director November 15, 2001
---------------------------
Sam Ginn
/s/ RICHARD A. HACKBORN Director November 15, 2001
---------------------------
Richard A. Hackborn
--------------------------- Director
Walter B. Hewlett
/s/ GEORGE A. KEYWORTH II Director November 15, 2001
---------------------------
George A. Keyworth II
/s/ ROBERT E. KNOWLING, JR. Director November 15, 2001
---------------------------
Robert E. Knowling, Jr.
II-4
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------ -------------------
2.1 Agreement and Plan of Reorganization, dated as of September 4, 2001, by and among the registrant,
Heloise Merger Corporation and Compaq Computer Corporation, filed herewith.(1)
5.1 Form of legal opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, filed
herewith.(2)
8.1 Tax opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, to be filed by
amendment.
8.2 Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP, to be filed by amendment.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibits 5.1
and 8.1), to be filed by amendment.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.2), to be filed by
amendment.
23.3 Consent of Ernst & Young LLP, Independent Auditors, filed herewith.
23.4 Consent of Ernst & Young LLP, Independent Auditors, filed herewith.
23.5 Consent of PricewaterhouseCoopers LLP, Independent Accountants, filed herewith.
23.6 Consent of PricewaterhouseCoopers LLP, Independent Accountants, filed herewith.
24.1 Power of Attorney (included on page II-4 of this registration statement).
99.1 Form of Proxy for the registrant, to be filed by amendment.
99.2 Form of Proxy for Compaq Computer Corporation, to be filed by amendment.
99.3 Opinion of Goldman, Sachs & Co., financial advisor to the registrant, filed herewith.(3)
99.4 Opinion of Salomon Smith Barney, Inc., financial advisor to Compaq Computer Corporation, filed
herewith.(4)
99.5 Consent of Goldman, Sachs & Co., financial advisor to the registrant, filed herewith.
99.6 Consent of Salomon Smith Barney, Inc., financial advisor to Compaq Computer Corporation, filed
herewith.
99.7 Consent of Michael D. Capellas to be named as a director of the registrant upon completion of the
merger, to be filed by amendment.
99.8 Form of admission ticket and driving directions to special meeting of HP shareowners, to be filed by
amendment.
--------
(1) Included as Annex A to the joint proxy statement/prospectus forming a part
of this registration statement.
(2) The executed legal opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation will be filed by amendment.
(3) Included as Annex B to the joint proxy statement/prospectus forming a part
of this registration statement.
(4) Included as Annex C to the joint proxy statement/prospectus forming a part
of this registration statement.