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SCOTT +SCOTT LLP

ARTHUR SHINGLER (181719) 2 MARY K. BLASY (211262)



707 Broadway, Suite 1000

3 San Diego, CA 92101 Telephone: 619/233-4565

4 619/233-0508 (fax)

5 Counsel for Plaintiff

6 [Additional Counsel on Signature Page.]

7 8 9

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! 0 F:)

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SANTA CLARA

1 1· 0'" (j~- ." "7 t'l "1 5"' 6

Case No. t.. V '1 I I j i. .

10 BROCKTON CONTRlBUTORY RETIREMENT SYSTEM, Derivatively on 11 BehalfofHEWLEIT-PACKARD COMPANY,

) ) ) ) ) ) ) )

) MARC L. ANDREESSEN, LAWRENCE T. )

15 BABBIO, SARI M. BALDAUF, RAJIV L. )

GUPTA, JOHN H. HAMMERGREN, MARK )

16 V. HURD, JOEL Z. HYATT, JOHNR. )

JOYCE, CATHERINE A. LESJAK, ROBERT) 17 L. RYAN, LUCILLE S. SALHANY, and G. )

KENNEDY THOMPSON, )

) ) ) ) ) ) ) ) )

---------------------------)

12

13

Plaintiff,

vs.

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18

19

Defendants,

-and-

20 HEWLETT-PACKARD COMPANY, a Delaware corporation,

21

Nominal Defendant.

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SHAREHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTIES, GROSS MISMANAGEMENT, WASTE OF CORPORATE ASSETS, VIOLATIONS OF THE CALIFORNIA CORPORATIONS CODE, MISAPPROPRlA nON OF INFORMATION AND UNJUST ENRICHMENT

DEMAND FOR J1JR Y TRIAL

BY FAX

SHAREHOLDER DERIVATIVE COMPLAINT

2

1.

This is a shareholder derivative action brought on behalf of Hewlett-Packard Company

3

"Where was the board of directors? I understand board leaks. can undermine a company's planning and curtail the frankness of board discussions. But the cure, in this case, wasfar worse than the disease, and now poses afar greater threat to Hewlett-Packard. Where was board leadership and responsibility?"

4

-Representative John Dingell (D-MI), Ranking Member of the Oversight & Investigations Subcommittee of the House Energy and Commerce Committee, 9/28/06

5

"Where was the legal and ethical guardians of HP 's corporate interest when all of this was

6 happening and whose job was it to steer the ship clear ofthe icebergs? For example, was it not a red flag when discussions were occurring about using fraud and deception to obtain

7 third-party phone records from journalists? Was it not a redflag when discussions were

broached about even the possibility of placing janitors - orfake employees - in news

8 organizations such as the Wall Street Journal or CNET to engage in spying? Was it not a red

.flag when covert teams began photographing board members or tracking their wives to bingo

9 parlors 01' reporters to their children's schools?"

1 0 -Representative Diana DeGette (D-CO), Member of the

Oversight & investigations Subcommittee of the House Energy and Commerce Committee, 9/28/06

11

«What began as a proper and serious inquiry into leaks to the press ... became a rogue . investigation that violated [HP's] own principles and values. There is no excuse for this."

* * *

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"[H]ow did suchan abuse of privacy occur ... ? The end came to justify the means."

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-Mark Hurd, Chairman ofthe Board, President and CEO ofHP Testifying before the House Oversight and Investigations Subcommittee, 9/28/06

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16

"Before I make a decision, I consider how it would look ill a news st01Y. "

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-Hewlett-Packard Standards of Business Conduct, 8/06/10

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19

INTRODUCTION

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21

("HP" or the "Company") seeking to remedy breaches of fiduciary duty, waste of corporate assets and

22 other violations of state law by HP's former Executive Chairman of the Board, Chief Executive Officer ("CEO") and President, Mark V. Hurd ("Hurd"), HP's current interim CEO, Vice President and Chief

23

24 Financial Officer ("CFO") Catherine A. Lesjak ("Lesjak"), and HP's entire Board of Directors ("Board") arising out of claims of sexual harassment launched against Hurd in 6/10 by an outside

25

26 entertainment contractor hired by Hurd, the HP Board's in v estigati on of those charges, the HP Board's 27 discovery that Hurd repeatedly falsified expenses reports over a two-year period involving outings with 28 the entertainment contractor, and his misuse of Company assets, resulting in Hurd's termination on

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SHAREHOLDER DERIVATIVE COMPLAINT

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8 of Hurd's termination - slashing its stock ratings and erasing over $9 billion in market capitalization

BACKGROUND AND SUMMARY OF THE ACTION

1 8/06/10. The claims also address the HP Board's failure to comply with its own Corporate Governance

2 Guidelines and the HP Standards of Business Conduct, to disclose the existence of the investigation to

3 its shareholders, to police insider trading by HP executives, to implement a responsible executive

4 succession plan, to hold Hurd accountable for violating HP's Standards of Business Conduct and 5 attempt to gift Hurd tens of millions of dollars in severarice benefits he was not entitled to under his 6 employrnent contract with HP. As a result of Hurd' s, Lesjak's and the HP Board's shortcomings, HP 7 lost significant credibility and the market punishedHP (and its shareholders) upon the 8/6/10 revelation

9 when the Company's stock resumed trading on 8/9/10.

10 11

2.

HP is no stranger to scandal. Exactly three years and eleven months earlier - to the day

12 - before Hurd's termination, HP was suddenly thrust into a serious crisis on 9/6/06 amid revelations

13 that the, corporation, at the direction of its former Chairman and counsel, had spied on its own directors 14 and members of the financial press, utilizing improper and illegal investigatory techniques, including 15 "pretexting.?' As a result of these revelations, HP suffered substantial expense and damage. The 16 Company was threatened with several serious criminal and regulatory investigations which eventually

17 resulted in felony charges being filed against its former Chairman of the Board, Patricia Dunn, its 18 former Senior Legal Counsel, and three of the many outside investigators they employed, and which led 19 to charges being lodged against HP itself by the California AG for Unfair Business Practices. The 20 Company settled the CaliforniaAG action in 12/06 agreeing to pay a $14.5 million civil penalty and to

21 injunctive relief. In connection with HP's settlement with the CaliforniaAG, and a related shareholder

22 derivative action, HP adopted a series of corporate governance changes, including revisions to its

23 Standards of Business Conduct, that shareholders were assured would restore credibility to the oversight

24 of the HP Board of Directors.

25

26

"Pretexting" is defined by the California Attorney General ("AG") as falsely misrepresenting 27 another person to that person's phone or other utility provider "in order to obtain account access and/or information relating to legitimate customers without the customer's consent or knowledge."

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SHAREHOLDER DERTV ATIVE COMPLAINT

5

3. Those stop-gap measures went largely unimplemented, and to the extent they were

2 adopted at all, they failed grossly. The HP Board of Directors failed to hold its highest executive, Hurd,

3 to its Standards of Business Conduct. Instead, Hurd, serving contemporaneously as Chairman and

4 CEO, was permitted to run HP as his own private fiefdom - free from Board oversight.

4.

Hurd threw exclusive marketing events for potential customers billed as CEO executive

6 summit meetings, often lasting several days, purportedly designed to allow Hurd to woo top customers.

7 At HP's expense, Hurd obtained the services of a 50-year-old former reality television contestant, Jodie

8 Fisher ("Ms. Fisher"). Despite having no background in the high-tech industry, Ms. Fisher, who had

9 previously appeared in racy movies with titles such as "Sheer Passion" and "Intimate Obsession" and

10 recently a television dating show, was hired to help "organize" HP marketing events between.the fall of ] 1 2007 and the fall of2009 and to "greet" executives at those gatherings.

12

5.

But in the mind of Hurd at least, it appears that Ms. Fisher's primary responsibility was

13 to entertain Hurd, including frequently dining with him after these events. HP has stated that Hurd

14 approved paying Ms. Fisher anywhere from $1,000 to $10,000 per event. Eventually, in 11/09, Hurd 15 stopped HP's payments and compensation for Ms. Fisher's companionship and then in late 6/10 Ms. 16 Fisher claimed Hurd - and thus HP - had sexually harassed her.

17

6.

After the HP Board learned of the sexual harassment charges, it began a formal (and

18 "confidential") investigation. What the Board discovered was that Ms. Fisher's first meeting with Hurd

19 occurred in Los Angeles. For her second "interview," Ms. Fisher was flown to Denver, where Hurd 20 was staying, and the two dined together. After Hurd hired Ms. Fisher, she attended more than a dozen

21· events in anum ber of different locales, some overseas. After these events, she often spent the evening

22 dining with Hurd. However, as the HP Board's investigation revealed, the expenses submitted by Hurd 23 in some instances concealed that Ms. Fisher was his guest. Instead, they stated that he dined alone, or 24 in some cases with his bodyguard. On a couple of occasions, Ms. Fisher was reportedly paid fees and

25 travel expenses to attend an executive summit meeting where none was held, but at a location where

26 Hurd was staying for other purposes.

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7.

Yet, rather than going public with their findings, before disclosing anything to

28 shareholders, the HP Board hired the public relations consulting firm APCO to evaluate the damage

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SHAREHOLDER DERJV ATJVE COMPLAINT

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8.

On Thursday, 8/5/1 0, Hurd entered into a confidential settlement with Ms. Fisher. Still

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such a revelation could cause if made public. A debate subsequently erupted within the HP executive 2 and director ranks over whether HP needed to disclose the charges against Hurd publicly. APCO told 3 the HP Board that the Company would most likely endure a devastating public relations hit if Hurd 4 stayed on as CEO and Ms. Fisher's claims were publicized. For his part, Hurd insisted disclosure ofthe

5 sexual harassment claims to HP's shareholders was not necessary. Meanwhile, Hurd was reportedly in

6 the midst of a multi-month negotiation of a new employment contract that would have paid Hurd $100 7 million over the following three-year period.

9 there was no disclosure to HP' s public shareholders. The HP Board was deeply divided over whether it 10 should disclose Ms. Fisher's accusations. Once the Board affirmatively decided to do so - over Hurd's

] 1 staunch objections - the Board's relationship with Hurd became acrimonious and he resigned.

12

9.

Meanwhile, on 7/30/10, the current interim CEO -then CFO - Lesjak had sold 5,785

13 shares ofHP stock on the open market at over $46 per share. Previously, Hurd himselfhad sold over 14 $11 million worth ofHP stock in two trades made in 11/09 and 5110, following his termination of the 15 payments by HP to Ms. Fisher.

16

10.

After the close of trading on 8/6/10, HP was once again thrust into a serious crisis amid

17 revelations that Hurd had beenterminated effective immediately because Hurd had been padding his

18 expense reports over a two-year period in order to pay for his rendezvous with Ms. Fisher and for

19 hiding his relationship with Ms. Fisher from the Board. The HP Board, reported fiscal malfeasance as

20 the primary reason for Hurd's firing, citing inaccurate expense reports filed by Hurd, or on his behalf,

2] and instances where Ms. Fisher received compensation for no legitimate business purpose.

22

11.

In a public announcement on 8/6/10, HP Director Marc Andreessen stated "Mark's

23 conduct undermined the standards we expect of our employees, not to mention the standards to which

24 the CEO must be held, and the board decision was unanimous." Lesiak's Company-wide e-mail that

25 day stated: "Mark had failed to disclose a close personal relationship he had with the contractor that

26 constituted a conflict of interest, failed to maintain accurate expense reports, and misused company

27 assets." Hurd himself admitted, in a statement issued that same day that: "[a]s the investigation

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SHAREHOLDER DERIY ATIYE COMPLAINT

8 $40 million, including a cash severance payment of$12.2 million and the payment for stock and stock

12.

According to HP insiders, following HP' s adoption of the more stringent governance

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progressed, I realized there were instances in which] did not live up to the standards and principles of

2. trust, respect and integrity that] have espoused at HP .... "

4 following its 2006 boardroom spying scandal, HP' s rank and file employees had been fired for far lesser 5 offenses. Typically, employees terminated for offenses under the code of conduct were not given any

6 severance.

7

13.

However, Hurd, negotiated a severance package with an estimated worth of upwards of

9 performance units that should have been forfeited under the terms of Hurd's employment agreement

10 then in effect. The HP Board could have dramatically limited Hurd's exit package by firing him for

. 11 cause. According to the Company's executive severance plan, "cause" simply involved "material 12 neglect" of an individual's duties or conduct "that [was] not in the best interest of, or [was] injurious to,

13 HP."

14

14.

Indeed, most CEOs fired for cause are allowed to keep accumulated contributions to a

15 401(k) plan and benefits provided to all former employees. But they typically lose restricted stock, 16· unvested options and supplemental pension plans ~ and most definitely, payments of severance that are 17 subject to the Board's discretion.

18

15.

Charles Elson, head of the Weinberg Center for Corporate Governance at the University

19 of Delaware , s business school, praised HP directors for firing Hurd rather than accepting his offer to

20 repay the disputed expense money. In allowing reimbursement for expense-account abuses, "who's to

21 say something like this wouldn't have happened again in a more serious way?" Mr. Elson asked. 22 "Once the trust is damaged, you can't go forward." Other governance experts have chastised the HP 23 Board for failing to act in accordance with their responsibilities and fire Hurd for cause. By falsifying

24 expense accounts, Hurd "committed a serious, career-ending error and there should be some financial

consequences," said Nell Minow, editor of Corporate Library, a governance-research firm in Portland,

26 Maine.

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16.

This shareholder derivative action commenced by a significant and long-term

28 institutional investor of HP seeks to remedy these breaches of fiduciary duties, waste of corporate

SHAREHOLDER DERlVA TIVE COMPLAINT

3

(a)

assets, unjust enrichment, and insider trading occasioned by the HP Board's dereliction of duty. As

2 alleged herein, the current HP Board knowingly engaged in at least the following gross misconduct:

wasting HP's corporate assets by gifting Hurd upwards of $40 mi1lion 111

5

4 severance benefits he was not entitled to under his employment agreement with HP;

rewarding Hurd for his reckless and dishonest conduct with an outside contractor

(b)

6 that demonstrated a lack of judgment by HP's CEO and exposed the Company to tens of millions of 7 dollars in potential civil liability and hundreds of millions of dollars in reputational harm;

8

(c).

failing to implement the spirit, much less the letter of, HP's 2007 settlement of

9 the California AG's investigation and related shareholder derivative litigation providing for enhanced

11

10 corporate governance at HP;

(d)

failing to implement responsible succession planning at HP before and after they

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12 learned of Hurd's transgressions;

(e)

failing to disclose to the investment community the sexual harassment claims

14 launched against Hurd, knowing that Hurd had sold stock following the termination of Ms. Fisher's 15 services and knowing that CFO Lesjak sold stock one month into the Board's investigation;

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(f)

failing to implement a meaningful insider trading policy;

(g)

exposing HP to civil liability for violations of the federal securities laws; and failing to seek legal remedies against Hurd, Lesjak and the other Board members,

(h)

19 and others for hypothecating Company assets and resources in violation oftheir fiduciary duties and

21

17.

20 then covering up such illegal conduct.

As a result of defendants' wrongful acts, HP was exposed to substantial liability for

22 defendants' misconduct, faces millions of dollars in potential civil judgments, as well as enormous 23 expenses of dealing with this crisis. HP has also suffered severe damage to its reputation, goodwill and 24 its ability to conduct future operations.

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SHAREHOLDER DERrV A TIVE COMPLAINT

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JURISDICTION AND VENUE

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2

] 8.

This Court has jurisdiction over the causes of action asserted herein pursuant to the

3 California Constitution Article VI, § 1 0, because this case is a cause not given by statute to other trial 4 courts. This action is not removable.i

5

19.

This Court has jurisdiction over each of the defendants named herein because they

6 conduct business in, reside in and/or are citizens of California. Certain defendants are citizens of

7 California, including HP, which has its principal place of business in this state and in this County, as are 8 at least defendants Hurd, Lesjak, Hammergren and Hyatt.

9

20.

Venue is proper in this Court because defendants' wrongful acts arose in and emanated

10 from this County. HP is headquartered in this County, Hurd and Lesjak were employed at HP in this

II County, and at least Andreessen resides in this County. The pertinent witnesses and documents are also

12 located in Santa Clara County.

13

21.

A true and correct copy of this Complaint has been delivered to the Company before

14 filing with the Court.

15

PARTIES

16 Plaintiff

17

22.

Plaintiff Brockton Contributory Retirement System ("Plaintiff'), based in Brockton

18 Massachusetts, has been an owner and holder ofHP common stock continuously since 12/06.

19 Nominal Party

20

23.

Nominal party HP is a corporation organized and existing under the laws ofthe State of

21 Delaware, with its principal executive offices located at 3000 Hanover Street, Palo Alto, California. 22 According to the Company's press releases, HP is a "technology solutions provider to consumers,

24

25 2 See generally 15 U.S.C. §78bb(f)(S)(C); Central Laborers' Pension Fund v. Chellgren, No. 02-

220,2004 WL 1348880 (E.D. Ky. Mar. 29, 2004); Fathergill v, Rouleau, No. 03-CV -0879,2003 \VL 26 22342718 (N.D. Tex. Oct. 14,2003); Young ex rel. Blockbuster, Inc. v. Antioco, No. 03-CV-0333, 2003 WL 23201342 (N.D. Tex. Aug. 6, 2003); Arlia ex rel. Massey Energy Co. v. Blankenship, 234 F. Supp. 27 2d 606 (S.D. W.Va. 2002); Coykendallv. Kaplan, No. C-02-02287, 2002 WL 31962137 (N.D. Cal.

Aug. 1, 2002).

SHAREHOLDER DERIVATIVE COMPLAINT

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his HP employment agreement provided for severance benefits in the event Hurd's employment was 28

businesses and institutions globally. The Company's offerings span JT infrastructure, global services,

2 business and home computing, and imaging and printing."

3 Defendants

4

24.

The defendants, referred to herein as the "Individual Defendants" are current and, in the

5 case of Hurd, former officers and/or directors ofHP and, at all times relevant hereto, held positions with

6 HP as indicated below in ~~25-40. The Individual Defendants described in ~~27-40 comprised the

7 Board as of the filing of the original complaint in this action and are referred to as the "Director

8 Defendants." The Individual Defendants described in ~~25-26 sold stock during the relevant period

9 while in possession of material non-public information and are referred to as the "Insider Selling

10 Defendants."

11

25.

Defendant Mark V. Hurd ("Hurd") served as Chairman of the Board, President, CEO,

12 and a director of HP until he was fired on 8/6/1 O. Hurd assumed his directorship and executive 13 positions at HP on 4/1/05 and assumed the Chairmanship on 9/22/06. Hurd is a citizen of California.

14

(a)

Historical Compensation: Hurd has been compensated handsomely during his

15 tenure atHl', having been paid over $146 million during FY 2005-2009 alone:

PENSIONI
OTHER
DEFERRED
STOCK OPTION CASH INCENTIVE COMPENSA nON
YEAR SALARY BONUS AWARDS AWARDS COMPENSATION ACCRUALS OTHER TOTAL
2009 $1,268,750 $1,180,340 $10,256,370 $2,520,906 $14,629,074 $1,895 $475,192 $30,332,527
2008 $1,450,000 $5,341,882 $12,943,621 $3,447,542 $18,590,000 $3,087 $596,410 $42,372,542
2007 $1,437,500 $1,386,000 $6,238,795 $3,724,919 $11,949,789 $2,386 $400,441 $25,139,830
2006 $1,400,000 $8,624,000 $4,725,000 $4,810,000. $3,956,355 $738 $516,132 $24,032,225
2005 $816,667 $5,131,333 $8,684,000 $1,150,000 $8,612,835 $24,394,835
$146,271,959 16 17

8 19 20 21

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Though Hurd received accoladesfor his early performance at the helm ofHP, the performance of his 23

and the rest ofHP's senior executives was being judged more harshly over the past 12-18 months. In 24

February 2009, Hurd's salary was cut by 20% - though the HP HR and Compensation Committee paid 25

6 Hurd a cash bonus equivalent to the 2/09 pay cut he took in 11109. 2

27

(b)

20] 0 Severance Packaze: In addition to Hurd's ongoing compensation package,

SHAREHOLDER DERlVATIVE COMPLAINT

terminated without cause under terms governed by the HP Severance Plan for Executive Officers (the

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2 8 "SPEO"). In the event (l) Hurd was terminated under conditions deemed "not for cause" under the SPEO, Hurd would receive a cash severance payment calculated as a multiple oftwo times the sum of

his base pay plus the average of his last three years' actual annual bonus payments, plus other stock and

performance unit benefits. However, if Hurd (2) voluntarily resigned, or (3) was fired "for cause," Hurd was not entitled to receive tens of millions of dollars worth of severance benefits under his

employment contract and the SPEO. According to the 2010 proxy statement HP shareholders received,

"not for cause" terminations under the SPEO were generally limited to terminations that were "not due

to a material neglect of responsibilities to HP ... or conduct that is not in the best interest of, or is

injurious to, HP." The difference in benefits payable if Hurd's termination was deemed "Voluntary or

'For Cause'" versus "Not for Cause" were explained in the 2010 proxy statement as follows:

AVAILABLE TO HURD IF FIRED "NOT FOR CAUSE"

AVAILABLE TO HURD IF FIRED "FOR CAUSE"

FINANCIAL BENEFIT

Cash Severance Benefits Under SPEO

Yes

No

2009 Pay-for-Performance ("PfR")' Plan Incentive

Yes

Yes

2010 PiR Plan Incentive

Yes

No

Ownership Interest in and Right to Exercise Vested Stock Options Following Termination

Yes

No

Ownership Interest in, Future Vesting and Right to Exercise Unvested Stock Options

Yes

No

Distribution of Vested Interests Deferred or Credited Under the HP Executive Deferred Compensation Plan ("EDCP")

Yes

Yes

Distribution of Vested Benefits Under HP 401(k) and p_ension plans

Yes

Yes

Indeed, HP's 2010 proxy to shareholders expressly stated Hurd would receive no severance, no stock

options, no restricted stock and no performance share ownership interests if he voluntarily resigned or

,

was fired for cause. The 2010 proxy stated Hurd would be entitled to $53 million in severance benefits

if terminated not for cause. Despite the fact that Hurd was either fired "for cause" based upon his own

admitted misconduct - or at a bare minimal, he "resigned," to forestall a "for cause" termination, Hurd

is reportedly receiving at least $12.2 million in severance payments from HP; stock and options he would have otherwise forfeited upon his termination, including the ability to exercise options to

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SHAREHOLDER DERIVATIVE COMPLAINT

1 purchase up to 775,000 shares ofHP's common stock untiI9/7!1 0; receipt of330,177 "performance"- 2 based stock units purportedly based on Hurd's 1/17/08 - 8/6110 "performance"; settlement of an 3 additional] 5,853 shares given to Hurd last year at a price equal to or lesser than the closing price of 4 HP's common stock on 8/6/10 - before the market learned of his transgressions ~ which was $46.30 on

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5 the NYSE. All told, the total value of Hurd's severance package is estimated at upwards of $40

6 million - which begs the question executive compensation expert Paul Hodgson aptly asked, as

7 reported by the Associated Press 011 819110, "If he really resigned, then why are they paying him

8 severance at all?"

9

(c)

Stock Sales: At Hurd's direction, HP ceased employing Ms. Fisher in 11/09. On

10 ] 1125/09, Hurd sold 100,000 shares ofHP stock on the open market for proceeds exceeding $5 million. 11 On 5/20/1 0, Hurd sold another 140,000 shares ofHP common stock on the open market for proceeds ] 2 exceeding $6.4 million.

13

26.

Defendant Catherine Lesjak ("Lesjak") has served as the interim CEO of HP since

14 8/6/1 0, as Chief Financial Officer ("CFO") ofHP since 12/06 and as an Executive Vice President ofHP

15 since 12/06. Previously, she served as Senior Vice President from 2003 until December 2006 and as 16 Treasurer from 2003 until March 2007. Lesjak is a citizen ofCalifomia. During the relevant period, 17 Lesjak sold 5,785 shares ofHP stock on 7/30110 at $46 per share.

18 Director Defendants

19

27.

The HP Board has certain committees including the Audit, Nominating and Governance,

20 and HR and Compensation Committees, which were comprised as follows during FY 09:

21

22

23

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SHAREHOLDER DERJV A TIVE COMPLAINT

2

Nominating and HRand
Name of Director Audit Governance Compensation
M~~~"",<e-=<'.:~.."."~,~."""",.,.~,,,,,,,,~~,~_,~v_=~,~,,,~,~,,,,,,,~:,,,,,,,,",,,",,·_"""""'=.,<.""', .. ''',''''''''''';..,;:" ..... =''''.><-7~ ""'..,u_,,=_,.,..~~,,<~,-;<;""'; ..... E.<"'.w.'~;=~""=~_"" ,.,,~·_'"''-'':<=~,=_,-t''''''-=_,.'''=,.,;..~'''-'"''"_:=.~''',.,~I.,''.........:
Andreessen
Babbio Member Chair
Baldauf Member Member
Gupta Member
H amm ergren Member
Hyatt Member
Joyce Member
Ryan Chair
Salhany Member Chair Member
Thompson Member Member
28. The Audit Committee was charged with assisting the Board in fulfilling its
responsibilities for generally overseeing HP' s financial reporting processes, and Hl" s compliance with
legal and regulatory requirements and risk assessment and risk management. Among other things, the
Audit Committee reviews HP's disclosure controls and procedures, internal controls, oversees HP's
compliance programs with respect to legal and regulatory requirements and reviews the activities of
Investor Relations. In derogation of these duties, the Audit Committee failed to oversee HP's
compliance with legal and regulatory requirements or to perform adequate risk assessment and risk
managementfunction. Simplysuued; the Audit Committee failed to detect and remediate repeated
fraudulent expense account claims made by Hurd over a two-year period.
29. The Nominating and Governance Committee is charged with, inter alia, overseeing the
organization of the Board to discharge its duties and responsibilities. Other specific duties and
responsibilities ofthe Nominating and Governance Committee include: annually assessing the size and
composition of the Board, including developing and reviewing director qualifications for approval by
the Board; identifying and recruiting new directors consistent with the Board Composition Guidelines
and considering candidates proposed by stockholders; recommending assignments of directors to
5
committees; conducting a preliminary review of director independence and financial literacy and
6 expertise of Audit Committee members; overseeing director orientation and continuing education,
7
ensuring that the annual evaluation of the CEO is conducted by the Chairman of the Board in
8
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SHAREHOLDER DERIV ATIVE COMPLAINT 2

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27 by advanced software. In the wake of the tech-bubble burst in 2000-2001, Andreessen sold the hosting 28 part of Loud Cloud to Electronic Data Services ("EDS"), and relaunched the company as Opsware, the

conjunction with the HR and Compensation Committee with input from all Board members; and

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2 evaluating senior management in conjunction with the HR and Compensation Committee. In

3 derogation of these duties, the Nominating and Governance Committee failed to implement and

4 mandate compliance with the governance enhancements obtained in connection with the settlement

5 of the 2()06 California AG's criminal investigation of HP and its Board. The Nominating and

6 Governance Committee also/ailed to implement a responsible executive succession plan prior to and

7 during its investigation of Hurd in 2010, resulting in significant damage to HP's reputation and

8 standing ill the business community and distraction to its executives while the executive CEO search

9 process transpires.

10

30.

The HR and Compensation Committee is, inter alia, charged with discharging the

11 Board's responsibilities relating to the compensation ofHP' s executives and directors; overseeing HP' s

12 total rewards compensation structure; reviewing and providing guidance on HP's human resources

13 programs; and retaining and approving the terms of the retention of the committee's compensation 14 consultants and other compensation experts. The HR and Compensation Committee is also specifically

15 charged with reviewing senior management selectionand overseeing succession planning; approving

16 severance arrangements and other applicable agreements for executive officers; overseeing HP's equity 17 and incentive compensation plans; overseeing non-equity. based benefit plans and approving any 18 changes to such plans involving a material financial commitment by HP; monitoring workforce 19 management programs; establishing compensation policies and practices for service on the Board and

20 its committees including annually reviewing the appropriate level of director compensation and

·21 recommending to the Board any changes to that compensation; developing stock ownership guidelines

22 for directors and executive officers and monitoring compliance with such guidelines; and annuaI1y

23 evaluating its performance and its charter. As described herein, the HR and Compensation Committee

24 approved the payment of tens of millions of dollars in unearned severance payments to Hurd.

25

31.

Defendant Marc L. Andreessen ("Andreessen") has served as a director of HP since

26 9/17/09. Andreessen originally founded and launched LoudCloud, a website-hosting business powered

SHAREHOLDER DERIVATIVE COMPLAINT

28 The lawsuit also disclosed that Raveche received below-market loans from the school, at least some of

32.

Defendant Lawrence T. Babbio, Jr. ("Babbio") has served as a director ofHI' since 2002.

-13 -

name of its automation software. HP bought Opsware in 9/07 for $1.6 billion. Andreessen was still 2 serving as chair of Opsware. HP then acquired EDS in a $13.9 billion acquisition in 2008, reuniting the

3 two divisions of Loud Cloud. Andreessen is also co-founder and Chairman ofNing, Inc., an on1ine

4 platform founded in late 2004 for people to create their Own social networks, and a director of eBay Inc. 5 In 7/09 Andreessen and business partner Ben Horowitz launched a $300 million venture capital ("VC")

6 fund, Andreessen Horowitz YC, looking to invest in early stage start-ups. Andreessen owns no HP

7 common stock. Andreessen is a citizen of California. During the relevant period, Andreessen had 8 knowledge of and acquiesced to the Board misconduct alleged herein. As further detailed herein at 9 ~~51-55, by virtue of his participation in, and acquiescence to, the misconduct alleged herein, his long-

10 term relationships with Hurd, Lesj ak, and the other members ofthe HP Board, and Andreessen' s strong 11 financial and professional ties to, and financial dependence upon, the Silicon Valley VC start-up 12 community, Andreessen would be conflicted from independently investigating or prosecuting the claims

13 alleged herein.

14

15 Prev iously, Bab bio was a director of Compaq Computer Corporation ("Compaq") from 1995 until HP' s 16 acquisition of Compaq in 5/02. Babbio is a citizen of New York. During the relevant period, Babbio 17 had knowledge of and acquiesced to the misconduct alleged herein. Babbio also approved the 2008 18 governance settlement with the California AG arising out ofthe 2006 Board pretexting scandal. Since 19 2007, Babbio has been a senior adviser to Warburg Pincus, a private equity firm. Babbio also serves as 20 chairman of the Board of Trustees of Stevens Institute of Technology in Hoboken, New Jersey. On 21 September 17,2009, then-NJ Attorney General, Anne Milgram, announced charges against Babbio and 22 Stevens Institute of Technology president, Harold 1. Raveche. According to the state's 16-count

23 lawsuit, Stevens' leaders kept several trustees in the dark about the school's financial condition. The 24 Babbio/Raveche administration allegedly spent the school's money at greater rates than the board

25 approved, scavenging restricted assets, excessive loans and gifts to the school earmarked for other 26 purposes. The lawsuit alleged that Babbio and Raveche misrepresented the finances of the school and 27 caused the endowment to fall by $42 million dollars from $157 million in 2000 to $115 million in 2009.

SHAREHOLDER DERIV ATIVE COMPLAINT

- 14 -

25 private equity finn, since July 2009 and serves as a director of The Vanguard Group. During the 26 relevant period, Gupta had knowledge of, and acquiesced to, the Board misconduct alleged herein. As 27 further detailed herein at ~~51-55, by virtue of his participation in, and acquiescence to, the misconduct 28 alleged herein and Gupta's financial and professional ties to and financial dependence upon the Silicon

"" .J.J •

Defendant Sari M. Baldauf ("Baldauf') has served as a director of HP since 2006.

which were improperly forgiven. The complaint also raises questions about Raveche's $1.4+ million 2 salary, which was greater than that of the president of Massachusetts Institute of Technology, a much 3 larger, better-known school. Like the HP Board did here, Babbio and Raveche unsuccessfully sought to 4 keep the Attorney General's lawsuit a secret. The NJ Attorney General's action was settled on January 5 15,2010 and required the president to repay the illegal low interest loans to the school and the school's 6 by-laws were corrected to avoid future financial misconduct. As further detailed herein at ~~51-55, by 7 virtue of his participation in, and acquiescence to, the misconduct alleged herein, including Babbio's 8 participation in drafting and adopting the 2008 corporate governance changes and purportedly stringent 9 HP code of conduct, his long-term relationships with Hurd, Lesjak, and the other members of the HP

10 Board, Babbios strong financial and professional ties to and financial dependence upon the Silicon

11 Valley ve start-up community, and similarity of the Hurd situation to, and the distraction and arising 12 out of the resolution of the Stevens Institute litigation, Babbio would be conflicted and unable to 13 independently investigate or prosecute the claims alleged herein.

14

15 Baldauf is a citizen of the Netherlands. During the relevant period, Baldauf had knowledge of and 16 acquiesced to the Board misconduct alleged herein. Baldauf also approved the 2008 governance 17 settlement with the California AG arising out of the 2006 Board pretexting scandal. As further detailed 18 herein at ~~51-5 5, by virtue of her participation in, and acquiescence to, the misconduct alleged herein, 19 including Baldauf s participation in drafting and adopting the 2008 corporate governance changes and

20 purportedly stringent HP code of conduct, herlong-term relationships with Hurd, Lesjak, and the other 2] members of the HP Board, Baldauf would be unable to independently investigate or prosecute the 22 claims alleged herein.

23

34.

Defendant Rajiv L. Gupta ("Gupta") has served as a director ofHP since 1/14/09. Gupta

24 is a citizen of Pennsylvania. Gupta has served as a Senior Advisor to New Mountain Capital, LLC, a

SHAREHOLDER DERIVATIVE COMPLAINT

- 15 -

8 alleged herein, including Hammergreri's participation in drafting and adopting the 2008 corporate

Val1ey VC startup community, Gupta would be unable to independently investigate or prosecute the

2 claims alleged herein.

35.

Defendant John H. Hammergren ("Hammergren") has served as a director ofRP since

4 2005. Hammergren is a citizen of California. During the relevant period, Hammergren had knowledge

5 of, and acquiesced to, the Board misconduct alleged herein. Hammergren also approved the 2008

6 governance settlement with the California AG arising out of the 2006 Board pretexting scandal. As 7 further detailed herein at ~~51-55, by virtue of his participation in, and acquiescence to, the misconduct

9 governance changes and purportedly stringent HP code of conduct, his long-term relationships with

10 Hurd, Lesjak, and the other members of the HP Board, Hammergren would be unable to independently

11 investigate or prosecute the claims alleged herein.

12
13
14
15
I 16
17
18
19
20
21
22
23
24
25
26
27
28 36. Defendant Joel Z. Hyatt ("Hyatt") has served as a director oHIP since 2Q07. Hyatt is a

citizen of California. Hyatt is also the co-founder and vice chairman of the Current Media board of

directors. Co-founder, and Current Media chairman, Albert Gore serves as a senior adviser to Google, a

significant business partner of Current Media, and is a member of the Apple board of directors. According to Hyatt, Current Media relies upon several California financial backers, including two equity capital firms, one in San Francisco, Blum Capital, and one in Los Angeles, the Yucaipa Cos., and approximately 20 individual investors, including Bill Joy from Sun Microsystems, Rob Glaser from ReetNetworks, and Bob Pittman, a founder ofMTV. During the relevant period, Hyatt.had knowledge of, and acquiesced to, the Board misconduct alleged herein. As further detailed herein at ~~51-55, by virtue of his participation in, and acquiescence to, the misconduct alleged herein and Hyatt's financial

and professional ties to and financial dependence uponthe Silicon Valley VC startup community, Hyatt would be unable to independently investigate or prosecute the claims alleged herein.

37. Defendant John R. Joyce ("Joyce") has served as a director ofHP since 2007. Joyce is a

citizen of Connecticut. According to a 8/6/1 0 Wall Street Journal article, Joyce is being considered for the CEO position at HP. Joyce served as a managing director at private equity firm Silver Lake's Menlo Park headquarters from 7/05 until 7/1 O. Joyce also is a director of San Jose-based Avago

Technologies Limited and Redwood City-based Serena Software, Inc. During the relevant period,

SHAREHOLDER DERJV A TIVE COMPLAINT

6

Joyce had knowledge of, and acquiesced to, the Board misconduct alleged herein. As further detailed

2 herein at 1l~51-55, by virtue of his participation in, and acquiescence to, the misconduct alleged herein

3 and Joyce's financial and professional ties to and financial dependence upon the Silicon Valley VC 4 start-up community, ] oyce woul d be unable to independently investi gate or prosecute the claims alleged

5 herein.

38.

Defendant Robert L. Ryan ("Ryan") has served as a director ofHP since 2004. Ryan is

7 66 years old and a citizen of Minnesota. In addition to his directorship at HP, Ryan is a director of

8 General Mills, Inc., the Black & Decker Corporation and Citigroup Inc. Ryan and the rest of the Black

9 & Decker board were sued in 11/09 for breaching their fiduciary duties to shareholders in connection

10 with Black & Decker's acquisition of the Stanley Corporation. That litigation is still pending. Ryan is 11 also a defendant in several securities fraud class actions pending in the S.D.N.Y. on behalf of the

12 purchasers ofCitigroup's common stock and bonds. Those actions are still pending and motions to 13 dismiss were recently denied. During 2008, a securities fraud class action naming Ryan in his capacity

14 as a director of UnitedHealth settled, with UnitedHealthpaying over $900 million in damages to

15 shareholders arising out of the UnitedHealth boards' backdating of stock options. During the relevant

16 period, Ryan had knowledge of, acquiesced to and actively participated in, the Board misconduct 17 alleged herein. Ryan also approved the 2008 governance settlement with the California AG arising out

18 of the 2006 Board pretexting scandal. As further detailed herein at ~~51-55, by virtue of his

19 participation in, and acquiescence to, the misconduct alleged herein, including Ryan's participation in

20 drafting and adopting the 2008 corporate governance changes and purportedly stringent HP code of 2] conduct, his long-term relationships with Hurd, Lesjak, and the other members ofthe HP Board, Ryan's

22 advanced age and multiple directorships, and the distraction and arising out of the multiple Citigroup 23 securities fraud class actions and the Black & Decker shareholder litigation, Ryan would be unable to

24 independently investigate or prosecute the claims alleged herein.

25

39:

Defendant Lucil1e S. Salhany ("Salhany") has served as a director of HP since 2002.

26 Previously Salhany served as a director of Compaq from 1997 until HP's acquisition of Compaq in 27 5/02. Salhany is a citizen of Massachusetts. During the relevant period, Salhany had knowledge of, 28 and acquiesced to, the Board misconduct alleged herein. Salhany also approved the 2008 governance

- 16 -

SHAREHOLDER DERIV ATIVE COMPLAINT

7

SHAREHOLDER DERIV ATIVE COMPLAINT

settlement with the California AG arising out of the 2006 Board pretexting scandal. As further detailed 2 herein at~~51-55, by virtue of her participation in, and acquiescence to, the misconduct alleged herein,

3 including Salhany's participation in drafting and adopting the 2008 corporate governance changes and

4 purportedly stringent HP code of conduct, her long-term relationships with Hurd, Lesjak, and the other 5 members of the HP Board, Salhany would be unable to independently investigate or prosecute the

6 claims alleged herein.

40.

Defendant G. Kennedy Thompson ("Thompson") has served as a director ofHP since

8 2006. Thompson is a citizen of North Carolina. Thompson previously served as chairman, president, 9 and CEO ofWachovia Corporation from 2000 through 2008. Thompson, then head of the nation's 10 fourth-largest bank - and a 32-year company veteran, was pushed out of Wacha via on 6/2/08 following

11 months of shareholder criticism and deteriorating financial performance amid turmoil in the V.S. 12 housing market. According to a 6/3/08 Wall Street Journal account, the "surprise ouster was the 13 culmination of a four-day drama inside the bank's Charlotte, N.C., headquarters" when Wachovia's

14 chairman "informed Mr. Thompson that he'd lost the confidence of the board and should retire. By

15 Sunday afternoon, when the board met, he was out." According to the Wall Street Journal's sources, 16 Thompson was slow to acknowledge how seriously the bank's credit profile was deteriorating following ] 7 his $25+ billion acquisition ofGolderi West at the height of the real estate financial bubble. Data on the 18 performance of Golden West's adjustable-rate-mortgage portfolio -which Wachovia did not disclose 19 separately after the acquisition - was far worse than internal projections had indicated. Like Hurd did 20 here, Thompson remained too optimistic about the company's prospects, and according to the Wall

21 Street Journal 's source, "[wJhat [Thompson had] been telling the board hasn't been realistic." Golden

22 West's mortgage-related problems led to Wachovia suffering write-downs and losses that far exceeded

23 the price paid in the acquisition, ending up in the fire-sale of Wachovia to Wells Fargo in ] 2/08.

24 Moreover, in the weeks leading up to Thompson's dismissal, Wachovia's image had been tamished by 25 revelations of a federal criminal investigation into alleged laundering of drug money between V.S.

26 banks and Mexican and Colombian money-transfer companies. Separately, Wachovia paid $144

27 million to settle another case involving an alleged telemarketing scam conducted by firms that

28 fraudulently obtained bank-account data from elderly Wachovia customers. Like Hurd, Thompson was

- 17 -

27 chairs receive a retainer for such service, in the amount of $15,000 for the Chair of the Audit

DEFENDANTS' FIDUCIARY DUTIES

- 18 -

suddenly fired from Wachovia with no succession plan in place. Thompson did not receive any 2 incentive pay from Wachovia for the 2008 fiscal year, but according to a filing with the Securities and 3 Exchange Commission, like Hurd, Thompson received a severance of$1.45 million and accelerated

4 vesting of$7 .25 million in restricted stock. During the relevant period, Thompson had knowledge of, 5 and acquiesced to, the Board misconduct alleged herein. Thompson also approved the 2008 governance 6 settlement with the California AG arising out of the 2006 Board pretexting scandal. As further detailed

7 herein at ~~51-55, by virtue of his participation in, and acquiescence to, the misconduct alleged herein, 8 including Thompson's participation in drafting and adopting the 2008 corporate governance changes 9 and purportedly stringent HP code of conduct, his long-term relationships with Hurd, Lesjak, and the

10 other members of the HP Board, and the similarities between Thompson's own receipt of millions of

11 dollars in financial benefits following his firing from Wachovia, Thompson would not be unable to 12 independently investigate or prosecute the claims alleged herein.

13

14

41.

Purportedly, in exchange for their loyalty and fidelity, the directors who were also

15 officers of the Company received generous salary and incentive packages to insure their allegiance to 16 HP. For instance, Hurd received over $146 million in executive compensation during his five-year 17 tenure at the head of HP. Likewise, during FY 09, Lesjak received over $7.5 million in executive 18 compensation, having also received over $5.5 million in FY 08 and over $3.7 million during FY 07.

19

42.

HP directors who were not officers of the Company also received generous incentive

20 packages designed to ensure their loyalty and fidelity to HP and its shareholders. Each Non-Executive 21 director receives an .annual cash retainer of $1 00,000. Each non-employee director also is entitled to 22 receive an annual equity retainer. Prior to March 2009, the amount of the annual equity retainer was

23 $175,000 to be paid at the election of the director either entirely in restricted stock or half in restricted 24 stock and halfin stock options. Effective in March 2009, the amount of the annual equity retainer was

25 reduced to $150,000, and non-employee directors began receiving restricted stock units rather than

26 restricted stock. In addition to the annual retainer, Non-Executive directors who serve as committee

28 Committee and $10,000 for the chair of other Board committees. The lead independent director

SHAREHOLDER DERIV A TJVE COMPLAINT

10 11 12 13 14 15

Name

Fees Earned or Paid in Cash (S)

Option Awards ($)

All Other Compensatien ($)

7 director also is eligible to contribute up to $100,000 worth of HP products each year to a school or 8 qualified charity by paying 25% of the list price ofthose products, with HP contributing the remaining 9 Cost. HP's Non-Executive directors received the following remuneration during FY 09.

········J;250.··

receives an additional retainer of$75,000 per year. Non-Executive directors also receive $2,000 for 2 each Board meeting attended in excess of six per year, and $2,000 for each committee meeting attended

3 in excess of six per year for each committee on which the Non-Executive director serves. Non-

4 Executive directors are reimbursed for their expenses in connection with attending Board meetings

5 (including expenses related to spouses when they are invited to attend Board events), and Non- 6 Executive directors may use the company aircraft for travel to and from HP events. Each non-employee

16 Thompson

34,000

200,330

67,434

301,764

17

43.

By reason oftheir positions as officers, directors and/or fiduciaries ofHP and because of

18 their ability to control the business and corporate affairs of HP, the Individual Defendants who were 19 officers, employees or directors ofHP owed HP and its shareholders fiduciary obligations of fidelity, 20 trust, loyalty and due care, and were and are required to use their utmost ability to control and manage 21 HP in a fair, just, honest and equitable manner, and were and are required to act in furtherance of the

22 best interests ofHP and its shareholders so as to benefit all shareholders equally and not in violation of

23 law 0]' in furtherance of their personal interest or benefit

24

44.

Each director and officer ofthe Company owed to HP the fiduciary duty to exercise due

25 care and diligence in the administration of the affairs of the Company and in the use and preservation of 26 its property and assets, and the highest obligations of good faith and fair dealing. In addition, as

27 officers and/or directors of a publicly held company, the Individual Defendants had a duty to promptly

28 disseminate accurate and truthful information with respect to the Board's investigation of the sexual

- 19 -

SHAREHOLDER DERIVATIVE COMPLAINT

5

harassment and dishonest payment allegations against Hurd and defendants also had an obligation notto

2 entrench themselves as officers and/or directors of the Company, to allow open and honest Board

3 elections and to not advance their own personal, financial or economic interests over and at the expense

4 of the Company's public shareholders.

45.

The Individual Defendants who were officers or directors of HP, because of their

6 positions of control and authority as directors or officers of HP, were able to and did, directly and 7 indirectly, control the wrongful acts complained of be rein, as well as the contents of the various public

8 statements issued by the Company. Because of their advisory, executive, managerial, and directorial

9 positions with HP, each of the Individual Defendants who were officers or directors ofHP had access to 10 all non-pu blic information about the operations and future business prospects of'Hl', including, without 11 limitation, the detrimental effect disclosure of the investigation of Hurd - and the Board's findings-

12 would have on HP.

13

46.

At an times material hereto, each of the Individual Defendants was the agent of each of

14 the other Individual Defendants and ofHP, and was at all times acting within the course and scope of

15 said agency.

16

47.

. To discharge their duties, the officers and directors of HP were required to exercise

17 reasonable and prudent supervision over the management, policies, practices and controls of the 18 governance, financial and operational affairs ofHP. By virtue of such duties, the officers and directors

19 ofHP were required, among other things, to:

20

(a)

manage, conduct, supervise and direct the business and internal affairs ofHP in

21 accordance with the laws of the States of Delaware and California, federal law, state and federal rules

22 and regulations and the charter and bylaws ofHP;

23

(b)

neither violate nor knowingly permit any officer, director or employee ofHP to

24 violate applicable laws, rules and regulations;

25

(c)

remain informed as to the status ofHP's operations, and upon receipt of notice or

26 information of imprudent or unsound practices, to make a reasonable inquiry in connection therewith,

27 and to take steps to correct such conditions or practices and make such disclosures as are necessary to

28 comply with applicable law;

- 20-

SHAREHOLDER DERIV ATIVE COMPLAINT

- 21 -

27 28

(e)

maintain and implement an adequate and functioning system of internal legal,

(d) establish and maintain systematic and accurate records and reports of the

2 business and internal affairs ofHP and procedures for the reporting ofthe business and internal affairs

3 to the Board and to periodically investigate, or cause independent investigation to be made of, said

4 reports and records;

5

6 financial and management controls, such that HP' s information disseminated to the public would be 7 accurate and the actions of its directors would be in accordance with all applicable law;

8

(f)

exercise reasonable control and supervision over the public statements to the

9 securities markets, investors and public shareholders ofHP by the officers and employees ofHP;

10

(g)

supervise the Board's conduct of the Board and examine and evaluate any reports

11 of examinations or investigations concerning the affairs ofHP and to make full and accurate disclosure 12 of all material facts concerning, inter alia, each ofthe subjects and duties set forth above; and

13

(h)

preserve the assets ofHP to the detriment of their fellow executives and directors

14 of HP, including in 'the termination of any HP executive or director and the acquiescence to any

15 severance payments.

16 CONSPIRACY, AIDING AND ABETTING,

AND CONCERTED ACTION

17 18 19 20 21 22

48. In committing the wrongful acts alleged herein, the defendants have pursued, or joined in

the pursuit of, a common course of conduct, and acted in concert with and conspired with one another, in furtherance of their common plan or design. In addition to the wrongful conduct herein alleged as giving rise to primary liability, the Individual Defendants further aided and abetted and/or assisted each

other in breach oftheir respective duties as herein alleged.

23

49. The name of each person and/or entity who is responsible for, participated in, conspired

to bring about, or substantially and knowingly aided and abetted the self-dealing and illegal actions complained of herein, is set forth in the caption ofthis Complaint. HP's Board operated as a collective

24

25

26

entity through periodic meetings held either in person or telephonically where the Board discussed matters affecting its business and reached collective and consensual decisions as to what action to take.

SHAREHOLDER DERIY ATIVE COMPLAINT

50. Each of the Individual Defendants herein aided and abetted and rendered substantial

2 assistance in the wrongs complained of herein. In taking such actions, as particularized herein, to

3 substantially assist the commission ofthe wrongdoing complained of, each Individual Defendant acted

4 with knowledge of the primary wrongdoing, substantially assisted the accomplishment of that 5 wrongdoing, and was aware of his or her overall contribution to, and furtherance of, the wrongdoing.

6 The Individual Defendants' acts of aiding and abetting include, inter alia, the acts each of them are

7 alleged to have committed in furtherance ofthe conspiracy, common enterprise and common course of

8 conduct complained of herein.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

9 10

51.

Plaintiff brings this action derivatively in the right and for the benefit ofHP to redress

11 injuries suffered and to be suffered by HP as a direct result ofthe breaches of fiduciary duty, violations 12 of law, abuse of control, gross mismanagement and waste of corporate assets, as well as the aiding and

13 abetting thereof, by the Individual Defendants.

14

52.

Plaintiff will adequately and fairly represent the interests ofHP and its shareholders in

15 enforcing and prosecuting its rights.

16

53.

Plaintiff is the owner ofHP stock and was an owner ofHP stock during times relevant to

17 the Individual Defendants' illegal and wrongful course of conduct alleged herein.

18

54.

As of when the illegal and wrongful course of conduct occurred and through the present

19 date, the HP Board consisted of defendants Andreessen, Babbio, Baldauf, Gupta, Hammergren, Hyatt,

20 Joyce, Ryan, Salhany and Thompson. As a result of the facts set forth throughout this Complaint, 21 including those alleged herein at~~27-40 additionally pursuantto laws ofHP's state of incorporation, 22 as we1l as California Corporations Code §800(b)(2), demand on the HP Board to institute this action

23 against the officers ofHP and members of the HP Board was not necessary because such a demand 24 would have been a futile and useless act, particularly for the following reasons:

25

(a)

Directors of HP, as more fully detailed herein, knowingly participated in,

26 approved and permitted the wrongs al1eged herein to have occurred and participated in efforts to

27 conceal or disguise those wrongs from HP's stockholders and were therefore not disinterested patties;

28

- 22-

SHAREHOLDER DERTV A TIVE COMPLAINT

- 23 -

28 decision as to whether to commence the demanded actions against themselves or other directors and

(b) Each Director Defendant approved the 8/6/1 0 severance arrangements with Hurd,

2 including deeming his termination to be a "not for cause" firing;

(c)

Defendants Babbio, Baldauf, Harnmergren, Ryan and Salhany participated in

4 settling the California AG's 2006 investigation of HP's boardroom spying scandal, and related 5 shareholder derivative litigation, by adopting the Company's corporate code - yet flouted that code of

6 conduct at HP;

7

(d)

Defendants Andreessen, Babbio, Gupta, Hyatt, and Joyce have strong

8 professional and financial ties to the Silicon Valley VC community and by virtue of their continued 9 dependence on these ties, these defendants cannot comply with their fiduciary duties to independently 10 investigate or vigorously prosecute any such action;

11

(e)

In addition to the professional connections of the HP Board alleged herein at

12 ~~27-40, defendants Gupta, Hammergren and Hyatt were, during at least a portion of fiscal 2009,

13 executive officers, and Joyce was, during fiscal 2009, a managing director, of companies with whom

14 HP does business; defendants Andreessen, Babbio, Baldauf, Gupta, Hammergren, Joyce, Ryan, Salhany 15 and Thompson, or one of their immediate family members, is or was during the previous three fiscal 16 years a non-employee director, trustee or advisory board member of another company that did business 17 with HP at some time during those years, either as a supplier or purchaser of goods or services; and 18 defendants Hyatt, Ryan and Salhany, or one of their immediate family members, has served as a non- 19 employee director, trustee or advisory board member for one or more charitable institutions to which 20 HP has made charitable contributions during the previous three fiscal years.

21

(f)

In order to bring this suit, all of the directors of HP would be forced to sue

22 themselves and significantly expose themselves to personal liability in lawsuits by others, which they 23 would not do, thereby excusing demand;

24

(g)

The acts complained ofinc1ude the knowing approval of violations of state and

25 federal law and breaches ofthe fiduciary duties owed by HP' s officers and directors and these acts were

26 incapable of ratification;

27

(h)

The directors of HP could not be relied upon to reach a truly independent

SHAREHOLDER DERIVATIVE COMPLAINT

28

0)

Any suit by the directors of HP to remedy these wrongs would likely expose

- 24 -

1 officers responsible for the misconduct alleged in this Complaint, in that, inter alia, the Board was 2 dominated or greatly influenced by Hurd and Lesjak (and others) who were personally and directly

3 involved in the misconduct alleged and who each approved the actions complained of, and to whose

4 directives and views the Board had consistently acceded and would continue to accede. This

5 domination of the Board by these defendants has impaired the Board's ability to validly exercise its

6 business judgment and render it incapable of reaching an independent decision as to whether to accept

7 plaintiffs demands. Moreover, to the extent that any individual director was not dominated by the 8 remainder of the Board members, each individual director had significant professional and financial ties 9 to the Silicon Valley VC community, and therefore, acquiesced to and was a co-conspirator in,

10 defendants' misconduct;

11

12 Hurd and each of the Individual Defendants and HP to great potential legal liability by potentially 13 "blowing" the settlement with Ms. Fisher who was threatening to bring suit, which could have resulted

14 in more extensive prosecution of one or more of the Individual Defendants, thus, they were hopelessly 15 conflicted in making any supposedly independent determination whether to sue themselves;

16

HP was, and continues to be, exposed to significant losses due to the wrongdoing

17 complained of herein, yet the Individual Defendants had not filed any lawsuits against themselves or 18 others who were responsible for that wrongful conduct to attempt to recover for HP any part of the 19 damages HP suffered and would suffer thereby;

20

(k)

If the directors were to have commenced this action against themselves, they

21 would have exposed their O\Vn knowing misconduct and complicity, which admissions would have

22 impaired their defenses in any civil actions brought against them and greatly increased the probability

23 oftheir personal liability therein, for which insurance coverage would be unavailable to the Individual

24 Defendants;

25

(l)

Each director was, directly or indirectly, the recipient of remuneration paid by the

26 Company, the continuation of which was dependent upon their continued cooperation with the other

27 members of the Board, and their participation and acquiescence in the wrongdoing set forth herein;

SHAREHOLDER DERIVATIVE COMPLAINT

4

(m) Because of their association as directors of the Company and their positions as

2 present or former employees, the directors were so dominated and controlled so as not to be capable of 3 exercising independent objective judgment; and

(n)

The members of the HP Board acted knowingly and in derogation of their

5 obligations of good faith and loyalty and/or were grossly negligent and demonstrated their lack of

6 independence in this matter in agreeing to conceal- rather than disclose - the Hurd Jnvestigation, and 7 the dishonest payments to Ms. Fisher, knowing such information would be deemed material by HP

8 investors - and knowing Hurd and Lesjak were continuing to sell HP stock at prices inflated by the

9 market's ignorance of the true state of affairs at HP.

10

55.

For the foregoing reasons (including those alleged herein at ~~27-40), there is a

11 reasonable doubt that: (i) the directors are disinterested and independent; or (ii) their conduct, which is 12 at issue here, was otherwise the product of valid business judgment.

13

FACTUAL ALLEGATIONS

]4 Hurd's Beginnings at HP

15

56.

In 2/05, HP CEO Carly Fiorina stepped down amid upheaval about the Company's

16 performance following her contested decision to buy Compaq Computer. In 3/05, Hurd was named as

17 HP's new CEO.

18

57.

in 9/06, HP Chairwoman Patricia Dunn was forced from the HP Board over a disastrous

19 investigation into boardroom leaks to the media that included spying on reporters' and directors' phone 20 records. HP was suddenly thrust into a serious crisis on 9/6/06 amid revelations that the Company, at

2] the direction of its former Chairman and counsel, had spied on its own directors and members of the

22 financial press, utilizing improper and illegal investigatory techniques, including "pretexting." As a 23 result of these revelations, HP suffered substantial expense and damage. The Company was threatened

24 with several serious criminal and regulatory investigations which eventually resulted in felony charges

25 being filed against its former Chairman of the Board, Patricia Dunn, its former Senior Legal Counsel,

26 and three of the many outside investigators they employed, and which led to charges being lodged 27 against HP itself by the California AG for Unfair Business Practices. The Company settled the 28 California AG action in 12/06 agreeing to pay a $14.5 million civil penalty and to injunctive relief. In

- 2S -

SHAREHOLDER DERIY ATIVE COMPLAINT

- 26-

7 defendant Ryan), create a new Board position of "Independent Director for Compliance and Ethical 8 Requirements Related to Investigations" (apparently cancelled by FY 10), create a new senior 9 management position of "Chief Ethics and Compliance Officer" (current status unknown), reconstitute

connection with HP's settlement with the California AG, and a related shareholder derivative action, HP

2 adopted a series of corporate governance changes, including a code of conduct, that shareholders were 3 assured would restore credibility to the oversight of the HP Board of Directors.

4

58.

Specifically, on 12/08/07, Santa Clara County Superior Court Judge Judith Castillo

5 preliminarily approved a settlement of the HP shareholder derivative litigation which provided that HP 6 would implement majority voting, create a new lead independent director position (currently filled by

10 the HP Board's Ethics and Compliance Committee (apparently disbanded by FY 10), form a new

11 "Compliance Counsel" (current status unknown), creation of a requirement that all but three HP Board 12 members be "independent" and improve HP's Board independence standards, require that the Chair of

13 HP's Audit Committee review Forms 8-K before filing, and enhancements to HP's Standards of 14 Business Conduct requiring that "HP ... enhance[] its Standards of Business Conduct in order to clarify 15 restrictions on unauthorized disclosures of confidential Company information and to make clear that 16 directors will not suffer adverse action for raising ethical concerns."

17

59.

Meanwhile, Patricia Dunn stepped down as HP's Chairwoman and Hurd assumed the

18 Chairmanship in addition to his role as CEO.

19 lIP's Corporate Governance Guidelines

20

60.

According to HP's current Corporate Governance Guidelines (posted on its website

21 effective 8/10), the Company's Standards of Business Conduct provide that:

23

The Board expects all directors, as well as officers and employees, to display the highest standard of ethics, consistent with HP' s longstanding values and standards. HP has and will continue to maintain a code of conduct, known as the "Standards of Business Conduct" that is applicable to directors, officers and employees. Directors are expected to comply with the letter and the spirit of the Standards of Business Conduct, to focus on areas of ethical risk, to report unethical conduct and to help foster a culture of honesty and accountability. Directors are encouraged to bring questions about particular circumstances to the attention of the lead independent director, CEO, Chairman of the Nominating and Governance Committee, or Chairman of the Audit Committee, who may consult with HP attorneys or independent counsel, as appropriate: The Board also expects directors, officers and employees to acknowledge their adherence to the

22

24 25 26 27 28

SHAREHOLDER DERrY ATJVE COMPLAINT

6 process intended to guide employees facing judgment calls and ethical questions called "The Headline 7 Test," which is described as "a simple but powerful tool designed to make sure we appropriately 8 consider the soundness and impact of our business decisions." According to the "The Headline Test, it 9 is suggested that "[b ]efore [employees] make ... decision[ s ], [they] consider how it would look in a news

10 story." The Headline Test goes on to state that after the "impact" the contemplated "conduct or actions 11 became public or were reviewed by colleagues [the employee] respect[s]," "If you are uncomfortable

1 2

4 5

Standards of Business Conduct on an annual basis. The Audit Committee periodically reviews compliance with the Standards of Business Conduct. Directors are expected to report any possible conflict of interest between the director and HP or any violation of the Standards of Business Conduct to the lead independent director, CEO or Chairman of the Nominating and Governance Committee, who will review the matter and take appropriate action.

61.

Specifically, the Company's Standards of Business Conduct describes a decision-making

13

12 with the answer, don't do it!"

62.

Purporting to summarize BP's core business values, HP's Standards of Business

14 Conduct provide that:

15 • "We gain trust by treating others with integrity, respect, and fairness."

16 • "We treat all people-s-inside and outside the company-with fairness, dignity, and respect."

17 • "We are open, honest, and ethical in all of our dealings."

18 • "We put our customers first."

19 20

21

22

23

24

25

26

27

28

63.

As to Succession Planning, the Corporate Governance Guidelines provide that:

The Board plans for succession of the CEO and reviews senior management selection and succession planning that is undertaken by the HR and Compensation Committee. As part of this process, the independent directors annually review the HR and Compensation Committee's recommendation of candidates for senior management positions to see that qualified candidates are available for all positions and that development plans are being utilized to strengthen the skins and qualifications of the candidates.

The Board maintains an emergency succession plan to address the unforeseen loss of the CEO through death, disability or another succession-related emergency. The emergency succession plan names an individual or individuals to act in an emergency situation and prescribes their powers. The emergency succession plan is reviewed by the Board at least annually and revised appropriately.

- 27 -

SHAREHOLDER DERlVATIVE COMPLAINT

- 28-

8

Hurd's Relationship with Ms. Fisher

2

·64.

Ms. Fisher was hired by the office of the CEO in the fall of 2007 and she continued

. 3 providing services to Hurd until the fall of2009. Ms. Fisher attended HP events in Asia, Europe and 4 the United States, and often dined alone with Hurd after the events. Her fees reportedly ranged from 5 ~1 ,000 to $5,000 for events in the United States and up to $10,000 for overseas ventures. Even though 6 Ms. Fisher was present, Hurd concealed his personal associations with Ms. Fisher, reporting to HP that 7 he dined alone or with a different person on his expense reports.

65.

Meanwhile, on 9/15/08, HP announced it was taking a $1.7 billion charge to earnings in

9 order to cut approximately 7.5% of its work force - or 24,600 employees - as part of its integration of

10 recently-acquired EDS. HP said the restructuring program would take place over three years, and 11 almost half the job cuts would take place in the United States.

12

66.

On 1121109, HP disclosed in a regulatory filing that Hurd received approximately $42.5

13 million in pay during 08.

14

67.

On 2/19/09, HP announced it was cutting its executive and employee pay across the

15 board in an effort to reduce costs after announcing a 13% drop in lQ 09 profits. Hurd would take a 16 20% pay cut, while other executives would take a 10% to 15% pay cut, and most rank and file 17 employees would take a 5% pay cut. Nonetheless, in 11/09, the HP Board approved "make-up" cash 18 bonuses for executives forced to take pay cuts in 2/09.

19

68.

In 11/09, Hurd terminated Ms. Fisher's purported consulting relationship with HP, and

20 caused HP to stop making payments to her.

21

69.

Following receipt of a letter from Ms. Fisher in late 6110, alleging Hurd had sexually

22 harassed Ms. Fisher, Hurd notified the HP Board of Ms. Fisher's claims.

j" _.'!

70.

After the HP Board learned of the sexual harassment charges, it began a formal

24 investigation. What the Board discovered was that Ms. Fisher first met with Hurd in Los Angeles. For

25 her second "interview," Ms. Fisher was flown to Denver, where Hurd was staying, and the two dined

26 together. After Hurd hired Ms. Fisher, she attended more than a dozen events in a number of different 27 locales, some overseas. After these events, she often dined with Hurd. However, as the HP Board's

28 investigation revealed, the expenses submitted by Hurd in some instances did not reflect Ms. Fisher

SHAREHOLDER DERIVATIVE COMPLAINT

9

being there. Instead, they stated that he dined alone, or in some cases with his bodyguard. On certain

- 29 -

2 occasions, Ms. Fisher was paid fees and travel expenses to attend an executive summit meeting where

3 none was held, but at a location where Hurd was staying far other purposes.

4

71.

Yet, rather than going public with their findings, before disclosing anything to

5 shareholders, the HP Board hired the public relations consulting firm, APeO, to evaluate the damage 6 such a revelation could cause if made public. A debate subsequently erupted over whether Hurd needed 7 to disclose the charges against him publicly. APCO told the HP Board that the Company would most 8 likely endure a devastating public relations hit if Hurd stayed on as CEO.

72.

Specifically, at a presentation to the directors afHP, a public relations specialist from

10 APeO cited recent sexual imbroglios like the one that diminished Tiger Woods. The specialist 11 cautioned that only 20% oftop executives survive these types of allegations and then they usually end 12 up leaving because of the weight of negative publicity. He also warned that Gloria Allred, the celebrity

13 lawyer representing Hurd's accuser, would thrust HP and Hurd into a media nightmare.

14

73.

The Board split 6-4 early on concerning their duty to disclose the sexual harassment

15 claims launched against Hurd.

16

74.

On Thursday, 8/5/1 0, Hurd entered into a confidential settlement with Ms. Fisher. Still

17 there was no disclosure to HP's public shareholders. 18 The HP Board's Decision to Terminate Hurd

19

75.

The question of whether to publicly disclose the sexual harassment charges and the

20 wrongdoing related to the improper payments to Ms. Fisher stood as the main point of contention in the

21 period leading up to Hurd's termination on 8/6110. The Board urged Hurd to resign, but he balked and

22 offered to instead compensate the Company for the disputed funds paid to Ms. Fisher, said to range

23 from $1,000 to $20,000.

24

76.

Once the HP Board decided unanimously to disclose the accusations launched against

25 Hurd, the Board's relationship with Hurd turned acrimonious. APCO reminded the Board members that

26 HP would face a public relations firestorm if the accusations of sexual harassment were made public.

27 Hurd himself complained that he failed to understand why the Board needed to disclose the

28 investigation after their inquiry found the claim baseless. However, while the HP Board's investigation

SHAREHOLDER DERIVATIVE COMPLAINT

- 30 -

28 to HP and its shareholders.

77.

After the fact, the HP Board would explain that Hurd's eventual termination was the

failed to turn up evidence of sexual misconduct by Hurd, and both he ahd Ms. Fisher denied having a 2 sexual relationship, the Board knew Ms. Fisher had settled her claims confidentially with Hurd for an

3 undisclosed sum on 8/5/10.

4

5 result of a break in trust caused by his falsifying expense reports to conceal the relationship.

6

78.

Indeed, one ofthe key principles of effective corporate governance is that there must be

7 a zero tolerance policy for any financial or ethical malfeasance, particularly for senior-most executive

8 officers. While the estimated $20,000 of expenses Hurd misstated may not have been material to HP' s

9 reported financial results, Hurd's actions demonstrated contempt for shareholders and a propensity to

10 disregard rules and policies that HP's lower-level employees were expected to adhere to. It is highly

11 unusual for a CEO of a major company to personally interview a relatively low-level marketing 12 consultant. Obviously, others in the Company must have been aware of Hurd's unusual interest in the 13 contractor and accountants somewhere in the organization were exposed to the expenses. Even if the 14 action was below the radar for most observers within the Company, at least some employees would

15 have been aware of the pattern and taken cues regarding the implications for overall standards of 16 behavi or at HP.

17

79.

Another justification for a zero tolerance policy is that someone who cheats in small

18 matters and covers up his wrong-doing through the submission of false expense reports, is more likely 19 to engage in wider-spread fraud as well. There is no reason to believe that any broader financial

20 irregularities affected BP's financial reporting, but simply the appearance of this risk is unacceptable 21 and the Board had little choice but to fire Hurd.

22

80.

On 8/6/1 0, Hurd's position as CEO of HP was terminated. The termination was

23 disclosed after the close of trading that evening. The Company stated that Hurd had falsified his

24 expense reports and that because it was enforcing the same code of ethics it would apply to any

25 employee, Hurd "resigned." Regardless of whether this was a firing "for cause" or a "resignation,"

26 Hurd was not entitled to severance benefits under his employment agreement with HP, and the Board's 27 authorization ofthese payments was an abuse of their discretion and a violation of their duty ofloyalty

SHAREHOLDER DERry A TIVE COMPLAINT

- 31 -

28

81. Indeed, citing anonymous sources, at least one news source has stated the HP board

2 spent the substantial majority of its time investigating the sexual harassment claims and almost no time

3 deliberating Hurd's severance package.

4

The HP Board Wasted Tens of Millions of Dollars Worth ofHP Assets Through Their 5 Authorization of Unwarranted Severance Benefits to Hurd

6

82.

The terms ofthe severance package the HP Board agreed to pay Hurd in connection with

7 the 8/611 0 Separation and Release Agreement they executed on behalf of HP (the "Separation 8 Agreement") was entirely inappropriate for a situation where a CEO either voluntarily quits of is

9 terminated for financial misconduct, as is the case here. Under the terms of the Separation Agreement,

10 Hurd is receiving upwards of $40 million in severance benefits, making a mockery of the supposed

11 outrage the Board expressed regarding his falsified HP expenditures to conceal his relationship with 12 Ms.Fisher. Specifically, in addition to the $12.2 million severance payment, Hurd's exit package is 13 comprised of the following elements:

14

(a)

options to purchase 775,000 shares oHIP common stock until 9/7/1 0 - though

15 the options were non-exercisable on 8/6110 and would have expired, but for the Board's entry into the

16 Separation Agreement with Hurd on 8/6/10;

17

(b)

receipt of330, 177 restricted stock units based on Hurd's "performance" between

18 1117/08 and his termination date - restricted stock units Hurd would otherwise have been forced to

19 forfeit under the tenns of his employment contract with HP; and

20

(c)

on 12/1 ]110,15,853 additional shares granted to Hurd in 09 will be settled at a

21 price equal to or less than the closing price ofHP shares on 8/611 0, before news of his termination and

22 the circumstances surrounding his termination were disclosed to the market.

83.

The Separation Agreement diminishes the credibility ofHP and the Board and breeds

24 cynicism and resentment among Company employees, shareholders, and the general public. Where, as

25 here, Hurd's employment was ended as a result of personal and fiscal misconduct, the payment to him

26 ofvast "incentive" payments cannot be justified under the business judgment rule and clearly rnisaligns

27 shareholder and management interests.

SHAREHOLDER DERIVATIVE COMPLAINT

84. Altbough HP reported that Hurd was being terminated as a result of misconduct, the

2 Board failed to treat his termination as one "for cause," which would have curtailed his eligibility for

3 severance benefits. As explained by Mike Holston, HP's General Counsel, during a conference call

4 held with the investment community on 8/6110 following the Board's announcement, Hurd's

5 termination was most definitely:

6 .... the result of his professional and personal behavior that compromised his ability to lead the Company.

7 8 9

10 11 12

13

14 15 16 17 18 19

20

21

22

Several weeks ago, a former contractor for HP alleged that Mark and, as a result, HP had sexually harassed her while she worked on certain HP marketing activities. As soon as the Board of Directors was made aware of the claim, it immediately directed that an investigation be conducted. The matter was investigated by outside counsel in conjunction with HP's General Counsel's office and was overseen by the Board of Directors.

The findings of the investigation were as follows. Mark had a close personal relationship with an HP contractor who was hired by the office of the CEO and Mark never disclosed that relationship to the Board of Directors. The investigation revealed numerous instances where the contractor received compensation and/or expense reimbursement where there was not a legitimate business purpose. And the investigation found numerous instances where inaccurate expense reports were submitted by Mark or on his behalf that intended to 01' had the effect of concealing Mark's personal relationship with the contractor.

Based on these facts, the Board concluded Mark's conduct demonstrated a profound lack of judgment. As Mark stated himself in the press release, quote, I realized that there were instances in which I did not live up to the standards and principles of trust, respect, and integrity that I have espoused at HP, close quote.

Based on all of this, the Board concluded, and Mark agreed, it would be impossible/or him to bean effective leader moving forward and that he had to step down.

[Emphasis added.]

85.

Later during the call, Holston reiterated that "[i]twas the systematic pattern of improper

23 expenses and inaccurate reports, as well as the disregard for the values 0/ HP oftrust, respect, and

24 integrity that Mark himself admitted he didn't live up to" that drove the Board's decision. 25 Continuing, Holston stated, "the fact that drove the decision for the Company had to do with integrity,

26 had to do with credibility, had to do with honesty .... "

27 28

[Emphasis added.]

- 32 -

SHAREHOLDER DERIVATIVE COMPLAINT

5 6

[Emphasis added.]

87. Asked specifically by a RBC Capital Markets analyst whether Andreessen "expect] ed]

SHAREHOLDER DERTV A TIVE COMPLAINT

86. According to defendant Andreessen on that same call, "[w]e on the Board gathered and

2 analyzed all of the facts and evaluated Mark's judgment. Sadly, Mark's conduct undermined the

3 standards we expect of our employees, not to mention the standards to which the CEO must be held,

4 and the Board decision was unanimous."

7 the Chairman, the CEO position to be filled by one person or is it an option to split that up in two 8 different roles?," Andreessen did not affirmatively state the role would be split. Instead, Andreessen 9 only stated that the Board would "examine that question over the course of the search and ... provide an

1 ° update, again, when [the Board had] news."

11

88.

Following the disclosure of Hurd ' s sudden departure - without a formal succession plan

12 in place - HP' s shares fall nearly 10% in after-hours trading to $41.85 as investors reacted to the news 13 released after the close of markets. HP continued its downward slide when trading recommenced on 14 Monday, 8/9/10, reaching a 52'-week low and erasing $9 billion in market capitalization. Analysts said 15 the uncertainty makes the Company worth less in the near term. For instance, according to 16 Susquehanna analyst Jeffrey Fidacaro, who cut HP's price target to $50 from $58, Hurd's resignation 17 "substantially increases the company's operational risk and will create a period of uncertainty; 18 therefore, we believe it is appropriate to reflect this risk in a lower valuation multiple afforded the 19 company." Even after a successor is found, more turnover could occur,ifthe losing internal candidates 20 are upset enough to leave, analysts say.

21 Hurd's and Lesjak's Insider Sales

22

89.

Meanwhile, Hurd and Lesjak took advantage of their knowledge of the concealed truth to

23

sel1 material amounts of their HP stock at inflated prices. Specifically, Hurd sold over $11 million of

24

HP stock in two transactions in 11109 and 511 0, knowing Ms. Fisher's financial arrangements with HP

25

26

had been terminated and knowing that Hurd had hid his relationship with Ms. Fisher, and that based on

the circumstances leading to her dismissal, his concealment would likely be disclosed. Lesiak sold HP 27

28 stock on 7/30/10, a month into the HP Board's investigation into Ms. Fisher's sexual harassment

- 34-

8 Substantial Harm to HP

claims. These defendants both knew that the market's perception of HP would be significantly

2

damaged when (not if) the market became aware of the true state of affairs at HP.

90.

Yet the HP Board steadfastly refuses to take any meaningful action to recover the il1-

4

gotten stock sales gains from these defendants (or any HP executives or employees). Moreover, the

5

Board has refused to meaningfully investigate and/or establish procedures to avoid future insider 6

7 trading at HP and the risk offuture civil, criminal and/or regulatory liability continues unabated.

9

91.

By engaging in the misconduct detailed above, in violation of their fiduciary duties, the

10 Individual Defendants breached their fiduciary duties to HP, committed gross mismanagement, abused 11 their control ofHP and have engaged in a gross dereliction of their duties as well as corporate waste and 12 attempted entrenchment by, inter alia, knowingly, willfully, and/or intentionally:

13

(a)

causing HP to forfeit tens of millions of do llars in severance payments and other

14 stock compensation to Hurd that was not earned by Hurd, defeated the purposes outlining HP's equity 15 and incentive compensation schemes and potentially damaged HP's ability to recover other damage 16 claims from Hurd;

17

(b)

failing to supervise adequately and concealing from the public the true facts

18 concerning the actions of defendants in connection with the Hurd investigation;

19

(c)

failing to adequately supervise the operations ofHP in a manner consistent with

20 preventing deceptive practices such as Hurd's abuse of Company funds complained of herein;

21

(d)

failing to supervise adequately the officers and employees of HP, and those

22 working for HP, and failing to ensure that they act with honesty and integrity in order to preserve HP's

23 financial resources and enhance HP's reputation in the. business community;

24

(e)

exposing HP to potential liability of millions of dollars, as well as lost goodwill

25 as a result of their failure to - again - supervise adequately HP's operations and employees and to

26 prevent their self-dealing and their attempt to conceal the damage to HP;

27

28

SHAREHOLDER DERJV A TIVE COMPLAINT

- 35 -

28 defendants' violation of applicable law;

(g)

causing the Company to be liable for the defense and indemnification of those

(f) failing to institute legal action against Hurd for causing HP to allegedly sexually

2 harass contractor Ms. Fisher, in violation of applicable law and thereby exposing HP to liability and

3 other financial injury resulting therefrom;

4

5 directors and officers responsible for exposing HP to liability in the above-mentioned legal violations

6 and other actions; and

7

(h)

engaging in a deceit upon the investment community by failing to disclose

8 adverse information about, inter alia, the facts that: (i) HP's CEO was accused of sexual harassment; 9 (ii) HP's CEO submitted false expense reports in connection with his relationship with Ms. Fisher; and 10 (iii) HP's outgoing and incoming interim CEOs both sold stock at prices the Board knew, or in the

11 exercise of its judgment, should have known, was inflated by their concealment of the true state of

12 affairs at HP.

13

92.

The Individual Defendants, as a result of the substantial financial benefits they received

14 and continue to receive as a result of theirpositions at HP, engaged in and/or aided and abetted and/or

15 acquiesced in the wrongful actions complained of herein and resolved all conflicts of interest in favor of

16 themselves in order to protect and preserve their positions with fIP and the financial benefits that flow 17 therefrom.

18

93.

As a result of the Individual Defendants' wrongful and illegal actions, including their

19 abuse of control and participation in the misconduct and concealment and the failure to maintain a 20 system of internal controls adequate to ensure that public statements issued by HP during the relevant 21 period were correct and complete in all material respects, HP has suffered considerable damage to, and

22 drastic diminution in value, of its assets, goodwill and reputation in the financial community.

23

94.

Without judicial intervention, HP will expend significant sums of money as a result of

24 the illegal and improper actions described above. Such expenditures would include, but not be limited

25 to:

27

(a) (b)

the $40+ million in severance benefits HP has already agreed to pay Hurd; costs incurred as a result of settlements, fines, penalties and judgments related to

26

SHAREHOLDER DERIVATIVE COMPLAINT

- 36-

27 28

(c) costs incurred to carry out internal investigations, including legal fees paid to

2 outside counsel; and

3

Cd)

costs and legal fees for defending HP, its officers and its directors against

4 prosecution for the misconduct alleged herein.

5 6 7 8 9

10 11 12

COUNT I

Derivative Claim Against AU Defendants for Breach of Fiduciary Duty

95. . Plaintiff incorporates by reference and reallegeseach and every allegation set forth

above, as though fully set forth herein.

96. The Individual Defendants knowingly, willfully andlor intentionally breached their

duties of loyalty and good faith by knowingly rewarding Hurd through the wrongful payment of

millions of dollars ofHP assets when Hurd either resigned or was terminated "for case" as a result of his personal and financial misconduct, and by concealing material facts from HP shareholders.

13

97. As officers andlor directors of a publicly held company, the Individual Defendants had a

duty to act in the best interest of the Company's shareholders and to refrain from either knowingly or"

14 15 16

recklessly engaging in wrongful conduct themselves, or financially rewarding others for falsifying

company records and other misconduct. In addition, at all times, the Individual Defendants had a duty 17

to promptly disseminate accurate and truthful information with respect to HP' s operations, and affairs.

18 19 20 21 22 23

The Individual Defendants instead concealed their wrongdoing and, as a result thereof, disseminated false and misleading statements and reports about HP.

98. The Individual Defendants, in their roles as executives and directors ofHP, participated

in the acts of mismanagement all eged herein, and knowingly, willfully, and! or intentionally disregarded

adverse facts known to them, and did nothing to reveal them. They thereby breached their fiduciary duties of care, loyalty, accountability and disclosure to HP and its shareholders.

99. The Individual Defendants each owed a fiduciary duty to HP to monitor BP's disclosure

24

25

procedures and to ensure that they were performed in a competent and professional manner. These

26

defendants failed to fulfill these fiduciary duties and permitted HP to violate the law through issuance of

SHAREHOLDER DERIVATIVE COMPLAINT

- 37 -

9 102. The conduct outlined herein was not due to an honest error of judgment, but rather was

various material misstatements and omissions to cover up the true state of affairs at HP long enough to

2 arrange for Hurd's multi-million dollar severance package, in violation of their fiduciary duties.

3 100. The Individual Defendants each further owed a fiduciary duty to HP and to HP's

4 stockholders to seek redress from those whose conduct has and will cause the Company to expend its 5 assets and whose conduct has otherwise precipitated the potentially illegal activities alleged herein. The 6 Individual Defendants have not done so.

7 101. All defendants breached andlor aided and abetted these breaches of fiduciary duties

8 owed to HPand its shareholders.

] 0 due to the defendants' bad faith and was done knowingly, willfully and/or intentionally, and resulted in 11 losses to HPand its shareholders.

12

COUNT II

14 15 16 17 18 19 20

Derivative Claim Against All Defendants for Gross Mismanagement

] 03. Plaintiff incorporates by reference and realleges each and every allegation set forth above, as though fully set forth herein.

104. As detailed more fully herein, the Individual Defendants who were officers, directors and/or employees ofHP each had a duty to HP and its shareholders to prudently supervise, manage and

13

control HP's operations.

105. The Individual Defendants by their actions, either directly or through aiding and abetting, abandoned and abdicated their responsibilities and duties with regard to prudently managing

21

the assets of HP in a manner consistent with the operations of a publicly held corporation.

22

.l 06. By subjecting HP to the unreasonable risk of liability by engaging in the potentially

23

24

illegal and clearly improper actions described herein, and by concealing these actions and their effects on HP, the Individual Defendants knowingly and/or recklessly breached their duties of due care and

25 26

diligence in the management and administration ofHP's affairs and in the use and preservation ofHP's

assets ..

27 28

SHAREHOLDER DERIVA TJVE COMPLAINT

- 38 -

above, as though fully set forth herein. 28

COUNTID

107. The Individual Defendants caused the Company to engage in these potentially illegal and 2 improper actions and were aware that these actions had the purpose and effect of misleading 3 shareholders, and subj ectingthe Company millions of dollars in potential legal liability associated with 4 such illegai actions. During the course ofthe discharge of their duties, these defendants knew or should

5 have known of the unreasonable risks and losses associated with such illegal behavior, yet these 6 defendants caused HP to engage in this scheme which these defendants knew had an unreasonable risk

7 of material loss to HP, thus breaching their duties to both HP and its shareholders. As a result, the

8 Individual Defendants grossly mismanaged or aided and abetted the gross mismanagement of HP and 9 its assets by causing it to engage in the illegal behavior complained of herein, which the defendants

10 knew would likely lead to material and substantial losses.

11 108. As a proximate result thereof, HP has been damaged and will continue to suffer 12 damages, and has sustained and will continue to sustain irreparable injury for which it has no adequate

13 remedy at law.

14 15 16 17 18 19 20 21

Derivative Claim Against All Defendants for Waste of Corporate Assets

109. Plaintiff incorporates by reference and realleges each and every allegation set forth

above, as though fully set forth herein.

110. As a result of the foregoing conduct, defendants have caused HP to waste valuable assets, including the payment of upwards of$40 millio!1 in unearned severance benefits to Hurd, and

have subjected the Company to potential material liability for violations of federal and state law,

22

possibly reaching tens of millions of dollars in damages as well as significant legal defense fees. 111. By reason of the foregoing, HP has been damaged and has sustained, and will continue

23

to sustain, irreparable injury for which it has no adequate remedy at law.

24

COUNTIY

25

26

Against the Insider Selling Defendants Hurd and Lesjak for Unjust Enrichment

'112. Plaintiff incorporates by reference and realleges each and every allegation set forth

27

SHAREHOLDER DERlY ATIVE COMPLAINT

- 39 -

8 this Court disgorging all illicitly obtained insider trading proceeds and/or severance benefits obtained

113. By their wrongful acts and omissions, the Selling Defendants, Hurd and Lesiak, were

2 unjustly enriched at the expense of and to the detriment ofHP by selling HP stock while in possession

3

of material non-public information hypothecated from HP in violation of their fiduciary duties to HP

4

and its shareholders, as detailed herein at ~~88-89. Additionally, Hurd received improper severance

5

benefits as detailed herein at ~25(b). 6

7

114.' Plaintiff seeks restitution from these defendants, and each of them, and seeks an order of

9 by these defendants, and each of them, from their wrongful conduct, fiduciary breaches, and unjust 10 enrichment as provided for by state law.

11 12 13 14 15

115. Plaintiff, as a shareholder and representative ofHP, seeks restitution and disgorgement

of profits for the Company as hereinafter set forth.

COUNT V

Against the Insider Selling Defendants for Violation of California Corporations Code §§25402/25502

16 116. Plaintiff incorporates by reference and realleges each and every allegation set forth

17

above, as though fully set forth herein.

18 19

117. At the time that the Insider Selling Defendants sold their HP common stock as set forth

herein at ~'88-89, by reason of their high executive and/or directorial positions with HP, the Insider 20

21

Selling Defendants had access to highly material information regarding the Company, including the

22 information set forth herein regarding the true adverse facts concerning the sexual harassment claims

23 alleged by Ms. Fisher, the Board's investigation into those claims, and the effect disclosure would have 24 on the market's opinion ofHP, and thus on its stock price.

25

1] 8. At the time of such sales, that information was not generally available to the public or

26

the securities markets. Had such information been generally available, it would have significantly

27

reduced the market price of HP shares at that time. 28

SHAREHOLDER DERIVATIVE COMPLAINT

- 40-

1 119. The Insider Selling Defendants, and each of them, had actual knowledge of the material,

. 120. Pursuant to California Corporations Code §25502.5, the Insider Selling Defendants, and

2 adverse non-public information detailed herein at ~~88-89 and thus sold their HP common stock in

"

:J

California in violation of California Corporations Code §25402.

4 5

each of them, are liable to HP for damages in an amount up to three times the difference between the 6

7 price at which HP common stock was sold by the defendants, and each of them, and the market value

8 which that HP common stock would have had at the time of the sale if the information known to the

9 defendants, and each of them, had been publicly disseminated prior to that time and a reasonable time

10 had elapsed for the market to absorb the information. 11

COUNT VI

12

13

Against the Insider Selling Defendants for Breach of Fiduciary Duties for Insider Selling and Misappropriation of Information

14 121. Plaintiff incorporates by reference and realleges each and every allegation set forth

15 above, as though fully set forth herein.

16

122. At the time of the stock sales set forth herein, the Insider Selling Defendants knew of

17

Ms. Fisher's sexual harassment claims, the Board's investigation ofthose claims, and sold HP common

18

stock knowing the investment community would respond adversely once the truth was revealed.

19 20 21

123. The information described above was proprietary non-public information concerning the

Company's reputation and standing in the business community and potential exposure to potential civil

22 liability. It was a proprietary asset belonging to the Company, which the Insider Selling Defendants

23 used for their own benefit when they sold HP common stock.

24

124. At the time of their stock sales, the Insider Selling Defendants knew of the ongoing

25

investigation into Ms. Fisher's sexual harassment claims against Hurd (and potentially HP) and that HP

26

and its reputation and standing in the business community would be severely damaged in its wake. The

27

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SHAREHOLDER DERIVATIVE COMPLAINT

28

Insider Selling Defendants' sales ofHP common stock while in possession and control of this material

- 41 -

2 adverse non-public information was a breach of their fiduciary duties ofloyalty and good faith.

125. Since the use of the Company's proprietary information for their own gain constitutes a

4

breach ofthe Insider Selling Defendants' fiduciary duties, the Company is entitled to the imposition of

5

a constructive trust on any profits the Insider Selling Defendants obtained thereby. 6

7 8 9

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf ofHP, demands judgment as follows:

A.

Declaring that the Individual Defendants, and each of them, have committed breaches of

10 their fiduciary duties to HP, abused their control, grossly mismanaged HP, and committed the 11 potentially illegal and clearly improper actions complained of herein;

12

B.

Requiring the Individual Defendants to pay HP the amounts by which the Company has

13 been damaged by reason of the conduct complained of herein and to indemnify HP for any claims 14 brought against HP by any of its officers, directors, employees, or by any third party;

15

c.

Entering equitable and/or injunctive relief as permitted by law, including disgorging,

16 attaching, impounding, imposing a constructive trust on or otherwise restricting the value of the

17 proceeds of defendants' trading activities, Hurd's severance compensation, or their other assets so as to

18 assure that Plaintiff on behalf ofHP has an effective remedy; 19

D.

Determining and awarding HP treb le damages pursuant to California Corporations Code

20

§25502.5(a) for the Insider Selling Defendants' violations of California Corporations Code §25402;

21

E.

Directing HP to take all necessary actions to reform and improve its corporate

22

governance and internal control procedures to comply with the Sarbanes-Oxley Act of2002 ("Sarbanes-

23

Oxley"), including, but not limited to, putting forward for a shareholder vote resolutions for

24

amendments to the Company's Articles of Incorporation and Bylaws (collectively, "Articles") and

25

taking such other action as may be necessary to place before shareholders for a vote the following

26

Corporate Governance Policies:

27

SHAREHOLDER DERIVATIVE COMPLAINT

3

SHAREHOLDER DERlVATIVE COMPLAINT

2 the Board be an independent and non-executive director ofHP;

(i) an amendment to the Company's Articles requiring that the Chairman of

(ii)

an amendment to the Company's Articles limiting the number of

4 5 6

executive directors on the HP Board;

(iii) an amendment to the Company's Articles requiring increased board

7 member independence standards, morestringent than those required by the NYSE rules;

8

(iv). an amendment to the Company's Articles requiring that all Board

9 committees be comprised of independent directors;

10 11 12 13 14

(v)

a proposal to strengthen the HP Board's supervision of operations and

develop and implement procedures for greater shareholder input into the policies and guidelines of the

Board;

(vi)

a provision to permit the shareholders ofHP to nominate at least three

15 candidates for election to the HP Board;

16

(vii) appropriately test and then strengthen the internal audit and control

17 functions;

18 19

(viii) reform executive compensation;

20

(ix) require that each director attend a director's college suitable to ensure

they understand their fiduciary obligations and that HP's privacy policies be augmented and enforced; 21

and 22

(x)

permit shareholders to question all executive directors ofHP atthe annual

23

24 shareholder meeting and establish a more transparent process for receiving and evaluating shareholder

25 proposals. 26

27

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1

SHAREHOLDER DERIVATIVE COMPLAINT

3 indemnified by the corporation or any insurance;

F.

Ordering that the defendants persona1ly bear their own legal fees in defending any and

2 all claims arising out ofthese matters, whether asserted by stockholders or the government, and not be

4

G. H.

Awarding punitive damages;

Awarding Plaintiff the costs and disbursements of this action, including reasonable

5

6 attorneys' and experts' fees;

7

1.

Granting extraordinary equitable and/or injunctive relief as permitted by law, equity, and

8 state statutory provision sued hereunder, including enjoining defendants, their agents, counsel,

9 employees and all persons acting in concert with them from further entrenching themselves and

10 usurping control of the Company; and

11 12

13

14 15 16 17 18 19 20 21

22

23

24

25

26

27

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- 43 -

2

Counsel/or Plaint~ff

J.

Granting such other and further relief as this COUlt may deem just and propel'.

JURY DEMAND

3 Plaintiff demands a trial by jury.

4 DATED; August 10,2010 5

6 7 8 9

10 11 12 13 14 15 16 17 18 19

and

DAVID R. SCOTT 156 South Main Street Colchester, CT 06415 Tel: 860-537~3818 Fax: 860-537-4432

and

BETH A. KAS\VAN DONALD A. BROGGI

500 Fifth Avenue, 40th Floor New York, NY 10110

Tel: 212-223~6444

Fax: 212-223-6334

20

21

22

23

24

25

26

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SHAREHOLDER DERlV A TlVE COMPLAINT