The Case Against the HP/Compaq Merger

February 26, 2002

This presentation was prepared for and on behalf of the Trustees of the William R. Hewlett Revocable Trust as soliciting
material. The Trustees’ advisors have been retained as independent contractors to the Trustees and have no fiduciary, agency or
other relationship to the Trustees, the Trust or to any other party, all of which are hereby expressly disclaimed. Therefore, no
obligation or responsibility is assumed to any person with respect to this presentation. This presentation does not purport to be a
complete description of the views of or analyses performed by the Trustees or its advisors.

Except as otherwise noted herein, this presentation and the views expressed herein, as well as any estimates herein, are based
on publicly available information and on consultants’ and industry reports as well as on the views of certain consultants
retained in connection with the consideration of the proposed merger by the Trustees. This presentation and the views
expressed herein assume and rely upon the accuracy and completeness of all such publicly available information, reports and
views and no responsibility for independent verification of any of the foregoing has been taken. All views and estimates
expressed herein are based on economic and market conditions and other circumstances as they exist and can be evaluated as of
February 15, 2002 unless otherwise noted.

The views expressed in this presentation are judgments, which are subjective in nature and in certain cases forward-looking in
nature. This presentation also contains estimates made without the benefit of actual measurement. Forward-looking statements
and estimates by their nature involve risks, uncertainties and assumptions. Forward-looking statements and estimates are
inherently speculative in nature and are not guarantees of actual measurements or of future developments. Actual measurements
and future developments may and should be expected to differ materially from those expressed or implied by estimates and
forward-looking statements. We do not assume any obligation and do not intend to update these forward-looking statements.
The information contained in this presentation does not purport to be an appraisal of any business or business unit or to
necessarily reflect the prices at which any business or business unit or any securities actually may be bought or sold. In
addition, where quotations have been used herein, permission to use quotations was neither sought nor obtained.

This presentation and the views expressed herein do not constitute a recommendation by Friedman Fleischer & Lowe or The
Parthenon Group to any holder of shares of Hewlett-Packard or Compaq with respect to how such stockholder should vote with
respect to the proposed merger and should not be relied upon by any holder as such a recommendation.

2
The Case Against the HP/Compaq Merger

Section 1 Why the Proposed Merger is Unattractive

Section 2 HP Must Pursue a “Focus and Execute” Strategy

Section 3 The Burden of Proof Rests with the Proponents of Large Mergers

Section 4 Next Steps

3
 The Case Against the HP/Compaq Merger

The Proposed Merger is Unattractive to HP Stockholders

4.
4. Acquisition
Acquisition Will
Will Not
Not
1.
1. Financial
Financial Impact
Impact onon HP
HP 2.
2. Portfolio
Portfolio Shift
Shift is
is 3.
3. Integration
Integration Risk
Risk is
is Solve
Solve HP’s
HP’s Strategic
Strategic
Stockholders
Stockholders isis Unattractive
Unattractive Unattractive
Unattractive Substantial
Substantial Problems
Problems

4
 Financial
Financial
Market Reaction Evaluation
Evaluation

Indexed Stock Price Performance

The market has made its view of the transaction clear on two separate occasions: 1) when the
deal was announced, and 2) when the Hewlett Foundation and William R. Hewlett Revocable
Trust announced their opposition to the deal
8/31/01-2/15/02
140%

130%

9/3/01: HP/Compaq
120% Merger Announced.
HP share price drops
Indexed Value vs. 8/31/01

19% the day after

110% announcement. Comparable
Company 5%
100% Index1

90%
HP (12%)

80%
11/6/01: Walter Hewlett
Announces Opposition.
HP share price rises 17%
70%
on the day of the
announcement.
60%
8/31/01 9/14/01 9/28/01 10/12/01 10/26/01 11/9/01 11/23/01 12/7/01 12/21/01 1/4/02 1/18/02 2/1/02 2/15/02

Note: Stock data through 2/15/02 5

1 This index is comprised of companies used by Goldman Sachs in performing its “Selected Companies Analysis” in connection with rendering its fairness opinion to HP relating to HP’s proposed merger

with Compaq and includes Apple, Accenture, Computer Sciences, Dell, EDS, EMC, Gateway, IBM, KPMG Consulting, Network Appliance, Sun. Index is weighted by shares outstanding.
 Financial
Financial
HP’s Earnings Multiple has Contracted Post Announcement Evaluation
Evaluation

CY 2002E P/E

Announcement Today1 Percent Change

HP 20.3x 17.7x (12.8%)

Comparable
Company Index2 24.1x 26.7x 10.8%

CY 2002E P/E Based on Acquisition Price

Announcement Today1 Percent Change

Compaq 22.2x 47.7x 114.9%

1As of 2/15/02
2The index of comparable companies is comprised of the same companies used by Goldman Sachs in performing its “Selected Companies Analysis” in connection with rendering its fairness opinion to 6
HP on its proposed merger with Compaq, excluding EMC, Gateway, Sun Microsystems, and Network Appliance because their price-earnings ratios were not meaningful as of February 15, 2002.
Source: FactSet, First Call.
 Financial
Financial
Indexed CY2002 EPS Estimates Evaluation
Evaluation

Comparable Company Index1 HWP CPQ

110%
HWP
100 0.7%

90 CCI
Indexed First Call EPS Estimates

(9.9%)
80

70

60

50

40 CPQ
(59.1%)
30
Compaq lowers revenue and
20 EPS estimates for Q3
CY2001

10

0
8/31/01 9/14/01 9/28/01 10/12/01 10/26/01 11/9/01 11/23/01 12/7/01 12/21/01 1/4/02 1/18/02 2/1/02 2/15/02

1 The Goldman Sachs Comparable Index is comprised of companies used by Goldman Sachs in performing its “Selected Companies Analysis” in connection with rendering its fairness opinion to
HP relating to HP’s proposed merger with Compaq and includes Apple Computer, Accenture, Computer Sciences Corporation, Dell, Electronic Data Systems, EMC, Gateway, IBM, KPMG
7
Consulting, Network Appliance and Sun Microsystems, weighted by market capitalization.
Source: FactSet, First Call.
 HP Financial
Financial
Compaq
Relative Performance Evaluation
Evaluation

Revenue Growth Gross Margin

(CY1999-CY2001) (CY1998-CY2001)
30% 35%
23.6%
Year-on-Year Revenue Growth

20% 29.6% 29.6%

11.1% 30%
27.9%

Gross Margin
10%
10.0% 26.0% HP
8.9%
0% 25% 23.1% 22.7% 23.5%
(7.7%) HP 21.2%
-10%
20% Compaq
-20% (20.5%)
Compaq
-30% 15%
1999 2000 2001 1998 1999 2000 2001

R&D/Revenue SG&A/Revenue
(CY1998-CY2001) 20%
(CY1998-CY2001)
8%

6.0% 5.7% 6.0%

6% 5.5% HP SG&A/Revenue 18% 16.0% 16.5% 16.1%
Compaq
R&D/Revenue

4.3% 14.6%
4.3%
3.5% 3.9% Compaq 15% 15.9%
4% 14.9% 15.2%
HP 14.3%

2% 13%

0% 10%
1998 1999 2000 2001 1998 1999 2000 2001
8
Note: Historical data from FY 2001 10-Ks and quarterly earnings releases.
 HP Financial
Financial
Compaq
Relative Performance Evaluation
Evaluation

Operating Income Margin Net Income Margin

(CY1998-CY2001) (CY1998-CY2001)
10% 10%
8.6% 8.7%
7.9%
Operating Income Margin

8% 8% 7.3%

Net Income Margin

6.9%
6.6%
6% 6%

5.8% 3.8% HP
4% 4% 3.1%
2.8% HP
1.9% 2.2% 4.0%
2% 1.4% 2% 1.1% 0.8%
Compaq Compaq
0% 0%
1998 1999 2000 2001 1998 1999 2000 2001
Return on Assets Return on Equity
(CY1998-CY2001) (CY1998-CY2001)
15% 25% 22.5%
21.6%
11.8% 11.7% 19.7%
11.3% 20%
Return on Equity
Return on Assets

10% 14.1%
15%
9.9%
9.9% HP
5.2% HP 10%
5% 3.7% 2.7% 6.0%
Compaq 5% 2.9%
2.0% 2.3%
Compaq
0% 0%
1998 1999 2000 2001 1998 1999 2000 2001
9
Note: Historical data from FY 2001 10-Ks and quarterly earnings releases.
 Financial
Financial
The Price for Compaq is Unprecedented Evaluation
Evaluation

HP Claim: “Most [tech mergers] were done in hot markets at hot prices… This is a deal
that was not done in a hot market and a hot price. We got wonderful value, we think.”1
Fact: HP stockholders are paying 47.7x earnings for Compaq, more than twice what other
hardware/systems acquirors have paid historically

50x 47.7x

40x
P/E Ratio

30x
25.4x

20.5x 17.7x
20x 17.8x 18.9x
Mean Forward
12.9x P/E multiple in
prior
10x transactions

0x
HP/Apollo AT &T /NCR Gateway/Advanced Compaq/T andem Compaq/DEC HP/Compaq 2
Logic Research
Apri1 1989 December 1990 June 1997 June 1997 January 1998 September 2001

1 Carly Fiorina speaking on CNBC Squawk Box 2/7/02 10

2 HP/Compaq multiple paid is based on Compaq FY02 EPS estimate from First Call and HP price as of February 15, 2002, based on deal ratio of 0.6325 HWP shares for each share of CPQ. Historical forward
P/E ratios are based on terms of the deal as per company filings at time of announcement and target First Call EPS estimates for the next fiscal year on the day prior to the announcement of the deal.
 Financial
Financial
Earnings Dilution is Unacceptable Evaluation
Evaluation

• Under the terms of the proposed merger, HP would issue shares to Compaq at a valuation
of 47.7x1 CY2002 earnings vs. HP’s multiple of 17.7x2

• Before synergies and revenue losses, this results in substantial earnings dilution:
CY 2002 CY 2003 CY 2004

HP First Call3 $1.15 $1.38 $1.53

EPS Dilution4 ($0.26) ($0.21) ($0.23)
Dilution 22.4% 15.6% 15.1%

• At HP’s current earnings multiple, this dilution equates to a negative per share impact of
$4.56. ($7.55 including the decline in HP’s earnings multiple since the announcement of
the merger from 20.3x to 17.7x)

• The massive dilution to HP stockholders is due to the dramatic downward revision in

Compaq’s projected earnings while the acquisition price has remained fixed.
Compaq’s “Revised” Earnings Outlook
FY2001 FY2002 FY2003
5
At Announcement $0.36 $0.66 $0.88
Actual/Current3 $0.15 $0.27 $0.49
Percent Change (58.3%) (59.1%) (44.3%)
1 Based on HP’s closing share price of $20.36 on February 15, 2002, and the announced exchange ratio of 0.6325 and Compaq’s First Call consensus EPS estimate of $0.27 for calendar year 2002.
2 Based on HP’s First Call consensus earnings estimate of $1.15 for calendar year 2002 and closing share price of $20.36 as of February 15, 2002.
3 Based on First Call estimates as of February 15, 2002 11
4 Based on pro forma combined EPS calculated based on standalone First Call estimates and excluding the impact of revenue losses and cost savings.
5 Based on First Call estimates as of August 31, 2001
 Financial
Financial
Issue of Fairness? Evaluation
Evaluation

Compaq Hewlett-Packard
Contribution Contribution
Goldman Sachs Goldman Sachs
1 2 1 2
Fairness Opinion 2/15/02 Fairness Opinion 2/15/02

CY2002 Revenue 45% 41% 56% 59%

CY2001 Net Income 32% 13% 68% 87%

CY2002 Net Income 34% 17% 67% 83%

Pro Forma Ownership 36% 36% 64% 64%

Goldman Sachs Goldman Sachs

1 4 1 4
Fairness Opinion 2/15/02 Valuation Fairness Opinion 2/15/02 Valuation

3
Offer Price/Share Price $14.68 $12.88 $23.21 $20.36

CY2002 P/E Ratio 22.6x 47.7x 20.4x 17.7x

CY2001 EPS $0.35 $0.15 $0.64 $0.89

CY2002 EPS $0.65 $0.27 $1.14 $1.15

1 As per Goldman Sachs Fairness Opinion dated August 31, 2001, from HP's S-4 as filed with the SEC on February 5, 2002.
2 As per First Call, as of February 25, 2002. Net Income is calculated by multiplying EPS estimate by current shares outstanding. 12
3 Offer Price based upon announced exchange ratio of 0.6325 shares of HP for each share of Compaq.
4 Based upon prices as of 2/15/02.
 Financial
Financial
Evaluation
We Believe Management’s Assumptions Are Unrealistic Evaluation

Magnitude of Lost Revenue Contribution Margin on Lost Revenue

12%
12% Contribution
Contribution Margin
Margin
4.9%
4.9% Revenue
Revenue Loss
Loss Assumption
Assumption Assumption
Assumption on
on Lost
Lost Sales
Sales
Is
Is Too
Too Low
Low is
is Too
Too Low
Low

HP’s
HP’s HP
HP assumes
assumes no
no After
After $2.5B
$2.5B inin
Precedent
Precedent contribution
contribution loss in higher
loss in higher cost reductions,
cost reductions,
Revenue
Revenue loss
loss HP
HP assumes
assumes nono
Analysts
Analysts predict
predict transactions
transactions margin
margin isis margin
margin services
services there
there will
will be
be
will not be
will not be fixed costs in
fixed costs in
much
much higher
higher have
have shown
shown inconsistent
inconsistent with
with and
and mid
mid and
and little
little room
room forfor
limited
limited to
to PCs
PCs Cost
Cost ofof Goods
Goods
revenue
revenue loss
loss greater revenue
greater revenue experience
experience of of high-end
high-end further
further
and
and Enterprise
Enterprise Sold
Sold (COGS)
(COGS)
deterioration
deterioration technology
technology enterprise
enterprise operating
operating costcost
companies
companies products
products reductions
reductions

10%-12% Revenue Loss 25% Contribution Margin on

More Likely Lost Revenue is More Likely

13
Note: For detail, see analysis presented on p. 21-26 of Walter Hewlett Filing “HP is Misleading Stockholders: Financial Analysis Illustrates that Compaq Merger Destroys Shareholder Value,” 1/23/02
 Financial
Financial
The NPV of the Proposed Merger is Negative Evaluation
Evaluation

In the realistic case, we believe the value of the deal is negative $4 to $5 per share excluding the impact of a change in
P/E multiple Per Share Present Value of the Proposed Merger1
$10 Omitted in HP Analysis Realistic Assumptions
Present Value Per Current HP Share

$8 $7.47

$6
($4.56)
$4
($0.43) $2.48
$2 ($1.14)
($2.01)
$0

($2)
($4.03)
($4)
($4.70)
($6) HP NPV of Value of Core Cost to Achieve Corrected Value Cost Savings Contribution Revenue Net Value
Net Cost Dilution Before Cost Savings4 using Management Adjustment5 Margin Loss Per Share
Savings Per Cost Savings3 Cost Savings NPV Adjustment 6 Adjustment 7
Share2 Assumption
“Successful
Integration” NA NA $2.5B 12% 4.9% $2.91

Realistic Case ($4.56) $1.9B $2.2B 25% 10% ($4.70)

Downside Case ($4.56) $2.9B $1.9B 35% 15% ($14.74)

1
Based on assumptions similar to management’s outlined on page 30 of HP “Position on Compaq Merger,” 12/19/01. Present values, except for core dilution and cost to achieve savings, calculated as of February 19, 2002 based on a 20x forward price-earnings multiple applied to net earnings impact in calendar year 2004. Assumes 26% marginal
tax rate
2
Assumes net pre-tax cost savings in calendar year 2004 of $2.0 billion based on $2.5 billion in cost savings and $0.5 billion in lost profit on lost revenues. Lost profit calculation assumes $84.0 billion in revenue in calendar year 2004 before revenue losses, 4.9% revenue loss, 12% contribution margin.
3
Represents the value of the core dilution of the transaction before the realization of cost savings at HP’s current 2002 calendar year price-earnings multiple of 17.7x. Calendar 2002 pro forma earnings before cost savings calculated based on First Call consensus earnings estimates of $1.11 and $1.35 for HP for fiscal years 2002 and 2003,
respectively, and $0.27 for Compaq for its fiscal 2002. Under management’s present value methodology, the core dilution has a value of $3.56 per share based on calendar 2004 earnings estimates.
4
Realistic case based on $1.3 billion restructuring charge established in connection with Compaq’s acquisition of DEC in 1998, which also involved approximately 15,000 layoffs, and the $635 million in retention bonuses announced by management in the proposed HP/Compaq merger. In fiscal 2001, HP took a $384MM charge for a restructuring
it estimated would result in annual cost savings of approximately $500MM. Downside case based on 50% premium to realistic case (11.4% of transaction value). Compaq/DEC restructuring charge as a percentage of transaction value was 13.5%. Excludes the impact of new employment agreements with Ms. Fiorina and Mr. Capellas. Assumes

5
cash is paid out ratably over the first six months following closing
Realistic case based on BofA, “Hewlett-Packard: “Management Turns up the Heat,” 12/19/01 base case of 87.8% of management estimate realized in 2003 ($1.8 billion assumed vs. management estimates of $2.1 billion). Downside based on BofA downside case 75.6% of management estimate realized in 2003 ($1.6 billion assumed vs.
14
management estimates of $2.1 billion).
6
Realistic case based on historical experience of tech companies, revenue loss in services, and higher fixed cost assumptions post planned cost synergies. See analysis presented on p. 21-26 of Walter Hewlett Filing “HP is Misleading Stockholders…”. Downside case based on discount to Compaq/DEC transaction.
7
Realistic case assumption based on historical experience of tech companies, revenue loss in services. Downside case based on discount to McKinsey computer company example (see “Revenue Loss Benchmarks” on p. 11 of Walter Hewlett Filing as amended “Why HP is Worth More Than Compaq”).
 Portfolio
Portfolio
Unattractive Pro Forma Business Mix Post Merger Impact
Impact

Revenues – CY2001E

PC / Industry
Standard Servers PC / Industry
Standard Servers Enterprise
4% Enterprise Imaging &
10% (25%) Printing (25%)
(20%)
Imaging &
Printing (43%)
PC/Access
(20%) Services
PC/Access (20%)
Services (30%)
(17%)

Hewlett-Packard1 Combined2
Total = $45B Total = $78B

1 Based on actual results from FY 2001 and segment projections from Bernstein research dated 12/18/01. 15
2 Based on actual results for CY 2001 for Compaq, actual results for FY 2001for HP and segment projections for HP from Bernstein research dated 12/18/01 and segment projections for Compaq from Banc of America
research dated 1/17/02.
 Integration
Integration
Integration Risk is Higher Risk
Risk

Unprecedented
Unprecedented Technology
Technology Management
Management // All
All Comparable
Comparable
Transaction
Transaction Market
Market is
is Unique
Unique Culture
Culture Deals
Deals Failed
Failed

• Largest computing • Velocity, complexity, • Power struggle • Compaq/DEC

merger ever and competitiveness • M&A track record • Compaq/Tandem
contemplated demands focus • Skillset • AT&T/NCR
• Huge premium offered • Successful tech M&A • Credibility • Burroughs/Sperry
(48x for Compaq vs. strategy is small deals /
18x for HP in CY02 rapid integration • Bold strokes vs. details • HP/Apollo
EPS) • Product roadmap • Texas vs. Silicon
• Global scale and clarity is critical Valley culture
complexity • Consolidation through • Employee opposition
• Greater product competitive advantage,
overlap vs. not mergers
complement

“NO LARGE SCALE HIGH-TECH MERGER HAS EVER WORKED – EVER… The benefits
of scale and scope in mature industries, like oil or financial services, can sometimes
outweigh the time and energy squandered in the long integration process. But in high
technology, no company has ever attempted this trade-off and come out ahead. In fast-
moving industries, while the acquirer sorts out its product portfolio and redraws
organizational lines, unencumbered rivals seize their chance to race ahead.”
- Professor David Yoffie, Harvard Business School1

16
1 The Wall Street Journal, December 17, 2001, emphasis added.
 Strategic
Strategic
The Shifting Strategic Rationale Positioning
Positioning

Then
Then Now
Now

• Deal will transform the company and change • This is an industrial merger
the technology industry

• Pace of change is so fast we can’t afford to go • The industry is mature and consolidating
slowly

• Customer demands are changing fast • Customers and competitors are “on hold”

• Compaq brings complementary technology • The businesses overlap, we are not buying new
technology

• This is not defensive • Value comes from cost cutting

• This is not about cost cutting

• DEC integration actually worked • DEC integration is not relevant

• “This merger is fundamentally about leading
change and reinventing an industry.”1
• “…volumes have been written about the
combination, much of it focused on PC market
consolidation or creating scale to cut costs. But
these stories, frankly, miss the point”1
1 HP 425, 9/25/01, Ms. Fiorina’s speech to the European IDC Forum, p. 2
2 HP 425, 2/4/02, Ms. Fiorina’s speech at Goldman Sachs Technology Conference
• “This is a merger of like businesses coming together
– a merger of consolidation not diversification…this
industry is beginning to consolidate, and current
technology industry dynamics are much more akin to
the mature phases of other industries…like
pharmaceuticals, oil & gas, financial services,
telecom and aerospace.”2 17
 Strategic
Strategic
HP/Compaq is a Flawed Strategy Positioning
Positioning

• HP will forever be committed to low-end, commodity hardware manufacturing

− Profits accrue to technology “owners” (Microsoft/Intel), not assemblers and marketers

• Scale will not solve HP’s problems in PCs

− If scale alone mattered, why did Compaq lose its dominant market share to fledgling
Dell, and why is it consistently less profitable in PCs than HP?1

• “End-to-end” solutions are an excuse for lack of focus

− HP needs FOCUS – you can’t out-Dell, Dell and out-IBM, IBM simultaneously

− The majority of the market still buys “best of breed”2

• Strategic gaps remain

− High-end services

− Software

18
1 In CY2001, Compaq lost $587MM on PC revenue of $15.2B and HP was projected to lose $192MM on PC revenue of $9.1B, see Definitive Proxy filed with the SEC on 2/5/02.
2 Goldman Sachs, “Goldman Sachs IT Spending Survey: United States,” 2/4/02, pg. 17
 Strategic
Strategic
Worldwide PC Market Growth Positioning
Positioning

In the next four years, the PC market is not expected to return to revenue levels previously achieved in 1999
Decreasing average selling prices are continuing to put pressure on industry profits

CAGR
PC Revenues ($B) (94-01) (01-05) Annual Average Selling Price Change
8% 1%

$250 6% 5%
4%

$200 $191 2%
$175 $171
$162 $163 0%
$155 $157 $153 0%
$149 $145
Dollars ($B)

$150 -2%

Units (MM)
$121
-4%
$97 -5%
$100 -6% -6% -5%
-6%
-8%

$50 -10% -10% -10% -10%

-10%
-12%
-12%
$0 -14%
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

19
Source: IDC PC Tracker. Annual average selling price calculated by dividing total value by total units sold
 Strategic
Strategic
PC Industry Wintel Player Profitability Positioning
Positioning

Microsoft, Intel, and Dell together accounted for over 100% of the cumulative operating profits in the top 7 players of the
Wintel PC industry1 in the years 1998 to 2001.
The “pie” of profits available to all PC manufacturers has decreased significantly since its peak in 2000
Annual Operating Profit from PCs
$25
$0.9

$20 $1.8
$0.1 Other Major Wintel PC
($1.4) ($0.6) Manufacturers2
$1.7
(0.2)
$2.2 $1.6 Dell3
Dollars ($B)

$15 $8.4
$1.1
$8.0 $3.4 $4.7 Intel5

$10 $6.5

Microsoft4
$5 $10.6 $11.0 $10.8
$8.8
$7.2

$0
1998 1999 2000 2001 2002E
Percent of Total Operating Profit
Wintel: 94% 91% 87% 95% 94%
Dell: 7% 9% 8% 14% 10%
Other Manufacturers: (1%) 0% 4% (9%) (4%)

1 Includes Microsoft, Intel, HP, Compaq, Dell, IBM, and Gateway.

2 Compaq: Data includes all PCs, handhelds and workstations. Historical operating profit from Company filings and 1/28/02 Deutsche Bank research. 2002 projections for 1/28/02 Deutsche Bank research. HP: Data includes PCs for 1998-
2000 and PC plus handhelds for 2001-2002. Historical operating profit from 10/2/01 Morgan Stanley research; projected 2002 values are from 2/13/02 Banc of America Securities research. IBM: Historical operating profit from company
reports. 2002 projections from 11/1/01 Morgan Stanley research. Gateway: Operating profit from 4/7/00, 7/20/01, and 1/25/02 and Morgan Stanley research.
3 Dell: Operating profit margin for entire company from Dell website and 11/23/98, 10/18/99, 8/11/00, and 1/22/02 Morgan Stanley research. Total company operating profit margin applied to PC only revenue to find operating profit by year.
4 Microsoft: 1998-2001 operating margins for PC-related software and services based on company 10-K filings. Operating margins applied to reported revenue for Desktop applications and platforms. 20
5 Intel: 1998-2001 operating margins based on Intel Architecture Group operating margins from company filings and 1/15/02 press release. Margins applied to estimated desktop-specific revenue in 10/17/01 CIBC World Markets report. 2002

projection based on overall Intel revenue and operating profit growth from 1/16/02 Morgan Stanley research, applied to current estimated Intel revenue and operating profit in desktops.
 Strategic
Strategic
Disadvantaged Cost Structure Positioning
Positioning

Compaq’s increased direct distribution capabilities have not narrowed the significant cost structure disadvantage vs. Dell

Percent of Direct Worldwide PC Sales1 PC Operating Expenses2

100% 25%
91% 91% 92%
89% 92%
90% Compaq
21%
Dell 20%
80% 20% 20%
18%
Percent of Total Worldwide Sales

70%

60% 15% 15%

Percent of Revenue
Channel Channel

50% 11% 12%

11% 11%
40% 10% Dell 10%

30%
Compaq
20% 6 21% 5%
15%

10% 5% 6%
4%
0% 0%
1997 1998 1999 2000 2001 1997 1998 1999 2000 2001

21
1 IDC PC Tracker. 2001 data is latest available data (Q1-Q3 2001)
2 PC/PC server estimate from UBS Warburg research from report “Worldwide Demand Tracking February 2002: New PC Economics” Does not include services and enterprise businesses.
 Strategic
Strategic
Worldwide Server Market Share Positioning
Positioning

HP has a strong position in Unix and mid-range servers and is well positioned to increase its market
share with the Itanium chip

Server Market by Operating System1 Server Market by Price Range2 Total =

$4.3B $36.3B
$3.5B
$16.7B $9.0B $1.3B $1.6B $18.9B $9.6B $7.8B
100% Other 100%
Other Other

Other
Dell Other

Other
Other Other
80% Compaq
80% Compaq

Sun

IBM
IBM HP HP
Other Sun HP

Percent of Total
Percent of Total

60% 60% HP Compaq

HP
IBM
IBM
Dell
IBM Sun
HP IBM Dell HP
Dell
40% 40%
Dell

Dell
HP
IBM

IBM
Compaq
Compaq

20% 20%
Compaq

Sun IBM
Compaq
Compaq

0% 0%
Unix Windows OS/390 Other Entry Mid High
&
OS/400
Linux Netware
1 2001 calendar YTD through 3Q’01. Based on 1Q’01, 2Q’01, 3Q’01 Factory Revenues as reported by IDC in “Server Tracker” database. Other operating systems include IDC’s “Other” category and
OpenVMS (Compaq only)
22
2 Factory Revenue as reported in IDC Server Tracker database for 1st 3 quarters of 2001. Price range categories defined by IDC: “Entry” is less than $100k; “Mid-Range” is $100,000-$999,999; “High

End” is $1MM+
 Strategic
Strategic
2001 Storage Market Map Positioning
Positioning

Though Compaq has a large storage business, the majority of its volume is in low-end offerings, while it is a #3
player in the high growth, high margin SAN segment
Total =
$6.3B $1.8B $6.8B $2.9B $6.4B $24.2B
100%
Other
Other Other
Hitachi LTD
HDS Other Other
Dell
80% Sun Fujitsu
Fujitsu-Siemens
HP Dell HP NEC
NEC
NCR Sun
Compaq Sun IBM
Percent of Total

60% Network Compaq Dell

Appliance
IBM HP
IBM Sun
HDS
40%
Fujitsu IBM
EMC
20% EMC Compaq
EMC HP
Compaq
Hitachi LTD
0%
SAN NAS DAS External Internal1
JBOD
External Direct Attached
External
Source: IDC 2001E data based on report “Worldwide Disk Storage Systems Market Forecast and Analysis, 1999-2005”, December, 2001. Internal includes internal “JBOD”. SAN is “Storage Attached 23
Network,” NAS is “Network Attached Storage,” DAS is “direct attached storage.” Compaq is $20MM in NAS. External Direct Attached is direct attached storage excluding external JBOD and all
other internal direct attached storage
The Case Against the HP/Compaq Merger

Section 1 Why the Proposed Merger is Unattractive

Section 2 HP Must Pursue a “Focus and Execute” Strategy

Section 3 The Burden of Proof Rests with the Proponents of Large Mergers

Section 4 Next Steps

24
 “Focus and Execute” Strategy
• We’ve learned from fellow stockholders and Wall Street analysts that we share many of
Background
Background the same concerns regarding the proposed merger, and that we also share many of the
same priorities for HP’s direction
• HP’s strong positions in its core markets provide the basis for a wealth of attractive
alternatives to the proposed Compaq merger

• We believe that HP should pursue a “Focus and Execute” strategy

Strategic
Strategic
Priorities
Priorities − Make differential investment in Imaging & Printing to protect its position and
capitalize on emerging growth opportunities
− Seriously consider a spin-off of Imaging & Printing within 12 to 18 months
− Bolster mid-range and high-end enterprise positions by filling key services and
software gaps
− Focus on profitability, not scale, in PCs

Stockholder • We believe that due to the dilutive impact of issuing 1 billion shares at 18x earnings to
Stockholder
Value buy Compaq at 48x earnings and the resulting revenue loss, HP can achieve higher EPS
Value Impact
Impact
with significantly lower margin assumptions and avoid the massive integration risk
• Under a “Focus and Execute” strategy, we believe that HP stockholders could achieve
greater value with much less risk
− Potential for $14-$17 incremental value per share improvement relative to a more
realistic merger scenario
• Even under HP’s current standalone strategy, consensus analysts’ estimates for HP
suggest $9-$10 incremental value per share relative to a more realistic merger scenario
25
 Guiding Strategic Principles – “Focus and Execute”
Imaging
Imaging &
& Printing
Printing Enterprise
Enterprise Access
Access
Defend
Defend the
the Franchise
Franchise and
and Capitalize
Capitalize on
on Bolster
Bolster Mid-
Mid- and
and High-End
High-End Enterprise
Enterprise De-emphasize
De-emphasize // Restructure
Restructure the
the PC
PC
Emerging
Emerging Growth
Growth Opportunities
Opportunities Position
Position by
by Filling
Filling Key
Key Gaps
Gaps Business
Business for
for Profitability
Profitability

• Protect and enhance competitive
positions in core inkjet and laser
printer hardware and supplies
markets
• Focus R&D to capitalize on
opportunities in:
− Digital cameras/image
handling
− Digital commercial printing
− Enterprise printing and
imaging
− Multi-function printers
− Color copying
− Mobility and wireless
printing
• Profit from expected market
growth through leadership position
and innovation
• Eliminate subsidization of other
businesses
• Seriously consider spin-off within
12 to 18 months
• Aggressively grow high-end consulting and • Focus on profitability, not market
outsourcing services organically and through share, in PCs
targeted add-on acquisitions • Focus the business on more profitable
• Focus marketing and R&D on higher margin high- segments, including consumer PCs
end and mid-range segments • Explore strategic alliances
− Leverage strong Unix franchise • Explore new access devices where HP
− Leverage strong Itanium position brand, technology, and distribution
− Take market share from Compaq and Sun in enables attractive margins
Unix
• Strengthen software offerings to drive higher
margin enterprise sales
− Pursue targeted strategic alliances and
acquisitions
− Rationalize existing software platforms for
profitability
• Focus on profitability, not market share, in NT
servers
− Maintain position sufficient to offer end-to-
end solutions
− Explore strategic alliances
• Compete in Unix, Linux, and NT with value-added
services, systems 26
 Summary 2003 Financial Impact
Under a “Focus and Execute” strategy, HP has the potential to significantly improve profitability
HP Today HP Tomorrow2
(FY 2001) (FY 2003)
(Potential under “Focus and Execute” strategy)
Revenue ($45.2B) Revenue ($48.6B)
3.7% Annual Revenue Growth
4.2% Margin Improvement
Services
Services
(17%)
•Reduce losses in PCs, industry (19%)
Imaging & standard servers and software
Printing (43%) Imaging &
PC/Access Printing (46%) PC/Access
(21%) •Aggressive services growth (16%)

Enterprise •Continued cost reductions Enterprise

(19%) (19%)
•2003 market improvement

$5.0 EBIT $1.9B1 $5.0 EBIT $4.1B

8.4% Margin3
$4.0 $4.0 Enterprise $0.3B
PC/Access $0.1B
Enterprise $0.4B

$3.0 Services $0.9B

Billion Dollars
$3.0 4.2% Margin
Billion Dollars

Services $0.4B
$2.0 $2.0 Imaging &
Imaging & Printing
$1.0 Printing $1.0 $2.7B
$2.1B
$0.0 $0.0
Enterprise ($0.1B)
PC/Access ($0.1B)
-$1.0 -$1.0
1 Based on HP 10/31/01 10-K and Bernstein research dated 12/18/01. Excludes $0.4B in restructuring and acquisition-related charges. Total EBIT includes $0.4Bn in other losses and eliminations.
2 Based on revenue growth and margin assumptions detailed on pages 31 and 32. 27
3 Historical FY 1998 to FY 2000 average operating income margin was 8.8%. HP reported an overall operating income margin of 6.3% in the first quarter of fiscal 2002. HP’s standalone First Call estimate of $1.35, as of February 15, 2002, for fiscal 2003 implies an operating income
margin of 6.9% based on a 22% effective tax rate and zero net interest expense and other income. Banc of America Securities projects an operating income margin of 7.4% in fiscal 2003 under management’s current strategy and incorporates estimated impact of pre-closing negative
revenue synergies.
 Potential Stockholder Value Impact
• We believe that the “Focus and Execute” strategy results in $14 to $17 greater value per share than a more realistic merger scenario
• We believe HP’s current standalone strategy results in $9 to $10 greater value per share than a more realistic merger scenario
• We believe a “Focus and Execute” strategy results in $8 to $10 greater value per share than management’s forecast merger scenario
HP Scenarios HP/Compaq Merger Scenarios
Projected “Focus and Execute”2 First Call3 More Realistic Case4 Management Case5
Current6 Pre-Deal7 Current6 Pre-Deal7 Downside8 Current6 Downside8 Current6
Forward P/E Multiple 18.3x 22.1x 18.3x 22.1x 15.0x 18.3x 15.0x 18.3x
$40 $40
$36.02

$35 $35
Potential Share Price (FY 2003)1

$29.83
$29.83
$30 $30
$26.35 $24.76
$24.76 First Call
$25 $25
$21.60 Implied Price9
$19.42
$20 $20
$15.88

$15 $15

$10 $10

$5 $5

$0 $0
FY2003E EPS $1.63 $1.35 $1.06 $1.44
1 Estimated potential share price in fiscal 2003. Prior presentations of the value impact of the proposed merger excluded the impact of potential multiple compression. This analysis excludes the impact of the costs to achieve potential cost savings.
2 Based on assumptions detailed on pages 31 and 32
3 Based on First Call consensus estimate as of February 15, 2002 based on company’s existing strategy.
4 Based on consensus earnings estimates for HP and Compaq of $1.35 and $0.45, respectively, for HP’s fiscal 2003, $1.8 billion in pre-tax cost savings, 10% revenue loss, 25% contribution margin, and 26% effective tax rate.
5 Management assumption based on 425 filing of 12/19/01.
6 Based on current First Call consensus estimate of $1.11 for fiscal 2002 and closing share price of $20.36, as of February 15, 2002.
7 Based on HP First Call fiscal 2002 EPS estimate of $1.05 and HP’s closing share price of $23.21 on August 31, 2001. The weighted average price-earnings multiple of an index of comparable companies increased from 21.6x to 26.4x from August 31, 2001 to February 15, 2002. The index of
comparable companies is comprised of the same companies used by Goldman Sachs in performing its “Selected Companies Analysis” in connection with rendering its fairness opinion to HP on its proposed merger with Compaq, excluding EMC, Gateway, Sun Microsystems, and Network
Appliance because their price-earnings ratios were not meaningful as of February 15, 2002. 28
8 Based on lowest end of price-earnings multiple range used in December 19, 2001, HP Position on Compaq Merger presentation, page 29.
9 Based on HP’s current fiscal 2002 price-earnings multiple of 18.3x applied to HP’s current First Call consensus earnings estimate of $1.35 for fiscal 2003.
 Potential Multiple Compression
We believe that merged HP/Compaq would trade at a discount to HP given the new entity’s lower returns on
equity, lower revenue growth, higher beta, lower credit rating1, and less predictable earninings2
3
Historical Price-Earnings Multiple Projected Return on Equity
20.0 20% 18.1%
16.5%
17.9x
17.5 15%

Percent
16.1x
P/E

10% 8.7%
15.0

5%
12.5
0%
10.0 HP 4
HP/Compaq 4 More Realistic
HP Compaq HP/Compaq 5
6 7
Historical Beta (Equity Risk) Projected Revenue Growth
1.50 1.46 6%
4.7%
5%
1.25 1.18

Percent
4%
Beta

1.00 3%
2.3%
2%
0.75
1%
0.50 0%
HP Compaq HP Compaq
1 On 9/5/01, Moody’s downgraded HP from Aa3 to A2, and placed Compaq under review for possible upgrade from Baa2. S&P placed ratings watch on HP with negative implications and on Compaq with positive implications on 9/4/01.
2 Compaq missed its 2000 and 2001 earnings forecasts at the beginning of each year by 11.0% and 87.3% whereas HP missed by 1.1% and 63.5% for the same periods.
3 Based on average next twelve months price earnings multiple from StockVal data from 10/25/91 to 8/31/01.
4 Based on management projections contained in 425 filing dated 12/19/01.
5 Based on realistic case pro forma EPS (see page 31 and 32 for detailed assumptions) excluding pro forma amortization of intangibles.
29
6 Based on monthly Barra predicted beta from 12/92 to 9/01.
7 Based on First Call revenue estimates for each company’s fiscal 2003 as of 2/15/02.
 “Focus and Execute” Strategy Has a Solid Basis
Credible
Credible Sources
Sources Used
Used
• Revenue and Margin Growth
assumptions are based on:
− Management projected growth
estimates for individual
businesses
− IDC market estimates that are
widely used in the industry
− Historical margins from actual • “(Our suggested course of action for HP should the deal
HP results
− Equity research (Bank of
America, Bernstein)
Consistent
Consistent with
with
Wall
Wall Street
Street Analysts
Analysts Agree
Agree Management
Management Strategy
Strategy Prior
Prior
to
to Merger
Merger Announcement
Announcement
• “Hewlett believes HP should adopt a “focus and execute” • “We are committed to aggressively
strategy…we tend to agree w/ Hewlett’s points and growing our consulting capabilities,
continue to oppose the proposed transaction.” organically and possibly by
− Prudential Financial, 2/19/02 acquisition…”
• “HP could certainly create stockholder value through − HP 8-K, 11/13/00
improved execution or corporate restructuring.” • On the PwC acquisition, “…we
− Merrill Lynch, 1/28/02 believe the strategic logic underlying
acquisition is compelling.”
fall through would be to)…focus on what it does really − HP 8-K, 11/13/00
well (printing and imaging) and scale back or exit from • Board contemplated a 3-way spin-off
those businesses where it has less of a competitive of Agilent and Imaging & Printing
advantage and where its involvement may actually detract and the company business but put
from its printer business.” decision on hold, primarily due to the
− Bear Stearns, 12/14/01 complexity of a 3-way spin-off, not
• “…better-than-executed results together with continued due to lack of strategic merit
execution issues at Compaq buttress the idea that HP is
fine on its own…We feel that HP should explore this
(Printing and Imaging) value carve-out rather than
increase its exposure to the value-destructing segment for
the company.”
− A.G. Edwards, 11/16/01
• “Both sides of the proxy fight "have valid arguments and
credible assumptions. One is a broader vision of a global
IT powerhouse to compete with IBM, and the other a
vision of a more focused competitor in specific segments
where you already have a compelling advantage,"
30
− Joel Wagonfeld, Banc of America Securities, SF
Chronicle 2/20/02
 Revenue Growth Assumptions
Relative to HP management and expected market growth, we assume modest incremental Imaging & Printing
and Services growth and slower growth in other segments
Imaging & Printing Enterprise
10.0% 10.0%
10% 8.9% 10%
8.0%
Annual Growth (%)

Annual Growth (%)

8% 8% 6.8% 7.3%
6.0% 5.5%
6% 6%
4% 4%
2% 2%
0% 0%
Mgmt Long- Mgmt Combined IDC Market Our Assump- Mgmt Long- Mgmt Combined IDC Market Our Assump-
Term Market Company Segment Growth Est. tion for HP Term Market Company Segment Growth Est. tion for HP
Growth Est.1 Growth Est. 2001-20033 Seg. Growth Growth Est.1 Growth Est. 2001-20035 Seg. Growth
2001-20032 2001-20034 2001-20032 2001-20036

15.0% Services PC/Access

15% 8% 5.0%
Annual Growth (%)

Annual Growth (%)

12% 4%
8.7%
9% 7.2% 0%
5.8%
6% -4% (2.0%) (1.8%)

3% -8%
0% -12% (10.2%)
Mgmt Long- Mgmt Combined IDC Market Our Assump- Mgmt Long- Mgmt Combined IDC Market Our Assump-
Term Market Company Segment Growth Est. tion for HP Term Market Company Segment Growth Est. tion for HP
Growth Est.1 Growth Est. 2001-20037 Seg. Growth Growth Est.1 Growth Est. 2001-20039 Seg. Growth
1
2001-20032 2001-20038 2001-20032 2001-200310
Management projected long-term growth estimates for the combined company from HP 425 Filing 10/25/01.
2 Management combined company segment growth estimates before revenue losses calculated based on segment operating incomes, segment operating margins and segment revenue losses from HP 425 Filing 12/19/01.
3 Based on weighted average projected growth rates from IDC for the following segments: inkjet hardware (1.8%), monolaser hardware (4.3%), color laser hardware (14.7%), inkjet supplies (11.9%), laser supplies (15.5%), digital cameras (12.5%) and scanners (7.5%). Also includes
growth of Multi-Function printers from Lyra research (2.7%). Growth rates weighted by 2001 market sizes of inkjet hardware ($10.1B), monolaser hardware ($9.9B), color laser hardware ($7.0B), inkjet supplies ($13.6B), laser supplies ($14.3B), digital cameras ($6.8B), scanners
($4.5B), and MFPs ($7.7B).
4 Imaging & Printing grown at a premium to management estimated growth rate due to strategic focus on that business.
5 Market growth rate based on average of IDC growth rates for Unix servers (8.4%), NT servers (16.9%), and storage (1.7%), weighted by 2001 segment revenues estimated by Bernstein research dated 12/01, for Unix servers ($3.3B), PC Servers ($1.7B) and storage ($2.6B).
6 Based on 0.5x market growth in NT servers and 1.25x market growth in Unix servers from segment focus. Storage grown at IDC projected rate of 1.7% from 2001 to 2003.
7 Market growth rates based on average for IDC growth rates for outsourcing (12.3%), consulting (11.9%), systems integration (14.2%), and support (6.1%), weighted by segment revenue in outsourcing ($0.5B), consulting ($0.6B), systems integration ($0.8B), and support ($3.9B).
8 Based on average of (i) 1.75x IDC sub-segment growth rates for outsourcing (12.3%), consulting (11.9%), and systems integration (14.2%) (equivalent to addition of 3,600 consultants at $250K per consultant per year) and (ii) Bernstein estimates for HP 2000 to 2001 growth rate in 31
support (6.1%), weighted by segment revenue in outsourcing ($0.5B), consulting ($0.6B), systems integration ($0.8B), and support ($3.9B). Financing ($1.9B) projected with flat growth to 2003.
9 Market growth based on IDC 2001 PC Tracker.
10 Based on HP growth at IDC 2001 PC Tracker segment growth rates for consumer and notebook segments, and assuming a 50% contraction of business desktops based on focus strategy.
 Margin Assumptions
Under a “Focus and Execute” strategy, HP’s overall margins have the potential to increase from 4.2% in fiscal 2001 to 8.4% in fiscal 2003
Imaging & Printing Enterprise
Management 8
16% 14.6% FY 2003 Estimate
10%
12.6% 1 9.2%
12.0% Management

Operating Margin
Operating Margin

12% 10.8% FY 2003 Estimate 5.0%

11% 5% 3.9%

8%
0%
(1.4%)
4%
-5%

0% (8.0%)
-10%
1998-2000 FY 2001 3 Q1 FY 2002 4 Our Assump-
1998-2000 FY 20013 Q1 FY 2002 6 Our Assump-
Average2 tion for HP
Average 2 tion for HP
Seg. Margin
Seg. Margin
FY 2003 5
FY 2003 7
Services Management 8 PC/Access Management 8
15% FY 2003 Estimate 4% 3.4% FY 2003 Estimate
13.7%
12% 3% 3.0%
Operating Margin

Operating Margin
10.3% 10.3%
2%
9% Services $0.8B 1.0%
1%
6% 4.7% 0.0%
3.8% 0%
3% -1%
0% -2% (1.5%)
1998-2000 FY 2001 3 Q1 FY 2002 4,9 Our Assump- 1998-2000 FY 2001 3 Q1 FY 2002 4 Our Assump-
Average 2 tion for HP Average 2 tion for HP
Seg. Margin Seg. Margin
1 Estimated operating margin target pro forma for the proposed merger. Based on HP 425 Filing dated 10/25/01.
FY 2003 10 FY 2003 11
2 Based on HP 10-K filings, excluding non-recurring and extraordinary items.
3 Based on Bernstein research dated 12/18/01.
4 From HP earnings release dated 2/13/02.
5 Based on midpoint of HP 2001 margin and Banc of America Securities 2003 estimate of 13.4% from 2/4/01.
6 From HP earnings release dated 2/13/02. Management noted that UNIX was profitable. Therefore, losses likely stemming from NT servers, software and storage.
7 Based on Bernstein research 12/18/01 estimates of 12.5% Unix operating margin for 2001. Also based on operating NT servers and storage at breakeven and reducing estimated losses in software business by 50%.
8 Estimated operating margin target pro forma for the proposed merger. Based on HP 425 Filing dated 12/19/01. 32
9 Includes financing business as reported by HP 2/13/02.
10Based on continued strong performance of services business as reflected in Q1 FY2002 reported numbers. Finance projected at break-even. Management anticipates steady state profitability in Finance of 8% to 10%.
11Based on average of 12/18/01 Bernstein research 2000 and 2001 estimated Access segment operating margins, weighted by segment revenue breakdown, and accounting for 50% reduction in commercial PCs per footnote 10 in prior slide.
The Case Against the HP/Compaq Merger

Section 1 Why the Proposed Merger is Unattractive

Section 2 HP Must Pursue a “Focus and Execute” Strategy

Section 3 The Burden of Proof Rests with the Proponents of Large Mergers

Section 4 Next Steps

33
Key Observations From Precedent Transactions

• Integration is extremely challenging in the computing industry

− Management internally focused on integration while customers’ technology

requirements continue to change at rapid pace

− Highly competitive tech sales force resist embracing the competition

− Cultural pride / “Not Invented Here”

• Revenue loss is always greater than anticipated

− Customers migrate to competitors because of product consolidation and product

roadmap uncertainty

− Disruption caused by integration issues, and sales force realignment and

consolidation impairs company’s ability to respond to customer concerns

• Business model, not scale, determines success in commodity computing

• “End-to-end solutions” is an over-worked strategic rationale used in each

transaction

− Repackaging competitors products, which were already available on the market,

does not cause customers to change their buying decisions

− Customers buy best-of-breed

34
 Why Precedent Computer Mergers are Most Relevant
• Past computer mergers are more relevant than large general industrial transactions because
different industries have fundamental differences, such as:

− Growth rates
− Operating margins
− Product cycles
− Customer buy-in to product roadmap
− Competitive dynamics
− Capital intensity
− Customer and supplier power

• Success in high technology hinges on rapid product cycles

• Tech platform consolidations create far greater customer disruption and customer migration
issues than do general industrial mergers, for example, which may result in a change in oil
supplier or who sends the phone bill

• In the fiercely competitive and rapidly changing computing industry, companies cannot afford to
get out of step with customers by shifting focus to merger integration issues and cost saving
synergy targets

35
 Integration
Integration
Compaq/DEC Value Destruction Risk
Risk

Since the date of the Digital acquisition, Compaq stockholders have lost 82% of their value relative to
stockholders of comparable companies…and 2002 forecasted earnings are well below earnings before the
acquisition

Loss in Value1 Compaq EPS Disappointments2

$3.00

$2.43
$2.50
$2.16
$70
$2.00
$60 $1.69 $1.77

Dollars
Share Value ($)

$50 $30.53
$1.50 $1.35
105% ($48.58)
$40 Down
(82%) $0.97
82%
$30 $29.00 $1.00

$0.47
$20 $0.49
$0.47
$10.95
$0.50
$0.32 $0.27
$10 $0.15

$0 $0.00
Share Price as of Increase in Value of Loss in Value Relative Share Price as of 1997 1998 1999 2000 2001 2002E 2003E
January 26, 1998 Index of Comparable to Index February 15, 2002
Companies
Forecast before DEC Forecast after DEC Actual

1 Adjusted for share splits and stock dividends.

2 1998 and 1999 Standalone estimates from First Call, as of January 20, 1998(Forecast before DEC). 1998, 1999 and 2000 Combined estimates from First Call, as of August 1, 1998 (Forecast after DEC). 2002
and 2003 estimates from First Call, as of February 15, 2002. All actuals from First Call. 36
3 The Comparable Company Index is comprised of companies used by Goldman in performing its “Selected Companies Analysis” in connection with rendering its fairness opinion to HP relating to HP’s proposed
merger with Compaq and includes AAPL, ACN, CSC, DELL, EDS, EMC, GTW, IBM, KCIN, NTAP, SUNW, weighted by shares outstanding.
 Big Deals that Destroyed Shareholder Value

($Billions, unless otherwise noted)

Announce Acquiror Equity Target Equity % Target/ Loss in Acquiror Equity Value
Value Value Acquiror 1 2
Date Acquiror Target Amount Percentage
4/7/98 Conseco Inc Green Tree Financial $9.2 $5.9 64.3% ($6.5) (71.1%)
6/24/98 AT&T Corp Tele-Communications Inc 97.4 52.5 53.9% (46.2) (47.5%)
12/14/98 Mattel Inc The Learning Co Inc 8.6 2.9 33.4% (1.6) (18.6%)
5/7/98 Daimler Benz AG Chrysler Corp 98.6 31.2 31.6% (51.4) (52.1%)
6/7/99 AlliedSignal Inc Honeywell Inc 49.5 14.6 29.5% (21.9) (44.1%)
4/22/99 AT&T Corp MediaOne Group Inc 180.5 43.5 24.1% (133.8) (74.1%)
9/15/99 Motorola Inc General Instrument Corp 52.6 11.0 20.9% (31.1) (59.1%)
11/17/98 Rite Aid Corp PCS Health Systems Inc 11.3 1.4 12.3% (9.9) (87.8%)
9/6/00 Citigroup Inc Associates First Capital 246.8 26.4 10.7% (56.3) (22.8%)

9/3/01 Hewlett-Packard Compaq $45.0 $25.5 56.6% ? ?

1 Based on acquiror share price decline from announcement to three years following announcement and acquiror shares outstanding at announcement. 37
2 Based on acquiror share price decline from announcement to three years following announcement.
 Independent Sources
KPMG Consulting Survey
KPMG
KPMG11 • More than a third of the biggest international takeovers agreed at the height of the bull market are
now being unwound and 32% of the chief executives or finance directors responsible for planning
the original deals have now been replaced
• Two-thirds of the companies bought between 1996 and 1998 still needed to be properly integrated

Bernstein Strategy Group Merger Study

Bernstein
Bernstein22 • Research of 7000+ M&A transactions between 1992 and 1999 reveals that acquirors underperform
by 5% per annum in the three after the transaction, and 11% in the first two years
− Deals that were initially not well received by the market underperformed the market over 1, 2
and 3 year periods more dramatically
− Technology transactions generally fared worse
− Stock deals are more destructive to returns than cash deals
− The larger the deal, the greater the odds of failure

Learning from High-Tech Deals

McKinsey
McKinsey33
• “The bias against big deals is well-founded. Smaller transactions lend themselves to simpler,
more disciplined structuring and integration, thereby minimizing the negotiations and infighting
that, in larger deals, can defeat the logic of the original plan.”

• “On average, gold-standard companies pay less than 1 percent of their market capitalization for
an acquisition and that most of their acquisition programs included a few larger transactions, but
deals in which the purchase price of the target was 50 percent or more of the acquirer’s market
capitalization were rare”
1 Financial Times, 2/22/02. KPMG looked at the 500 largest deals between 96-98.
2 Bernstein research dated October 1999 38
3 The McKinsey Quarterly, 2002 Number 1, “Learning from High-Tech Deals.” ). In early 2001, HP retained McKinsey & Co. to assist in HP’s evaluation of strategic alternatives and potential acquisition
candidates including Compaq
 Independent Sources (continued)

Why Mergers Fail

McKinsey
McKinsey11
• Study of 160 acquisitions between 1995 and 1996 showed that overall acquirors’ organic growth in
revenue lagged industry peers by 4 percentage points concluding that “ultimately, it’s the revenue
that determines the outcome of a merger, not costs; whatever the merger’s objectives, revenue
actually hits the bottom line harder”

− Revenue shortfall is cumulative and compounding: 1% shortfall in revenue growth requires

cost savings 25% higher that anticipated

− 40% of mergers fail to capture the identified cost synergies

− Of 160 acquirors, only 12 achieved organic growth rates significantly ahead of their peers

Merger Integration: Delivering on the Promise

Booz
Booz Allen
Allen22
• Study of 78 transactions from 1997 to 1998 found that 53% failed to meet their objectives, and that
“the more strategic the rationale for the merger, the greater the likelihood of failure”

Journal
Journal of
of • Acquirors in stock-financed mergers had five-year-post-acquisition abnormal returns of negative
Finance
Finance33 25%

1 The McKinsey Quarterly, 2001 Number 4, “Why Mergers Fail.” In early 2001, HP retained McKinsey & Co. to assist in HP’s evaluation of strategic alternatives and potential acquisition candidates, including
Compaq. 39
2 Booz-Allen & Hamilton. Merger Integration Delivering on the Promise 2001
3 Tim Loughran and Anand Vijh, “Do Long-Term Shareholders Benefit from Corporate Acquisitions”, The Journal of Finance, December 1997
 Independent Sources (continued)

University
University ofof • Study concluded that the harsher the stock market reaction in the days following an announcement,
Chicago
Chicago 11 the less likely a deal was to succeed

• “No large scale high-tech merger has ever worked – ever… Today, H-P and Compaq want to
David
David Yoffie,
Yoffie,
Harvard make the same mistake. Melding two large and fiercely competitive organizations is a formidable
Harvard
Business challenge in any industry. The benefits of scale and scope in mature industries, like oil or
Business
School financial services, can sometimes outweigh the time and energy squandered in the long integration
School
Professor process. But in high technology, no company has ever attempted this trade-off and come out
Professor22
ahead. In fast-moving industries, while the acquirer sorts out its product portfolio and redraws
organizational lines, unencumbered rivals seize their chance to race ahead.

Red
Red Herring
Herring • “In any case, mergers of large computer companies nearly always fail – as did Compaq’s own
March
March 2002
2002 merger with Digital Equipment.”
Issue
Issue
• “HP’s mergers should aim to acquire technology, not ‘scale’.”

40
1 Study by Steve Kaplan of University of Chicago as cited in Wall Street Journal, 9/10/01
2 Quoted in The Wall Street Journal, 12/17/01
HP Mistakenly Claims that it has All the Elements of a Successful Merger

Rationale
Rationale11 Reality
Reality

• Achieves market leadership • Acquiring market share does not translate to leadership,
i.e., demonstrated better business model, technology
innovation or success at winning business from
competitors

• Expands current business (does not enter new • Admission of no new significant technology/capabilities
business) added to HP’s portfolio.1 Significant overlap creates cost
synergies which are offset by revenue losses from
rationalized products and services

• Stock only (providing strong balance sheet) • Large stock transactions statistically more risky
• Upon announcement of the proposed merger, Moodys
downgraded HP’s debt rating and put it on negative
watch; S&P has also put HP on negative outlook3

• Big, with significant cost savings • Big transactions statistically more risky
• Bigger, but in an unattractive business, commodity
computing. Hardware has diminishing economies of
scale and HP and Compaq already have significant
scale. HP is doubling its exposure to a volatile
business with declining margins, betting on cost
savings in 2004 to achieve profitability

• Smooth and effective integration • Integration planning is not integration. The impact is
felt after closing
• HP has outlined a plan for gradual integration over
the next 18-24 months. Remember, this is a lifetime
in technology and will be highly disruptive to 41
1 HP 425 Filing, “Setting the Record Straight,” 1/24/02 business
1 S&P placed ratings watch on HP with negative implications and on Compaq with positive implications on 9/4/01.
The Case Against the HP/Compaq Merger

Section 1 Why the Proposed Merger is Unattractive

Section 2 HP Must Pursue a “Focus and Execute” Strategy

Section 3 The Burden of Proof Rests with the Proponents of Large Mergers

Section 4 Next Steps

42
Next Steps if Merger Voted Down

• The board is constrained by the merger agreement

• The board will listen to stockholders

• Operating management is stable

• Appoint Lead Director/Chairman

• Appoint interim CEO

• Appoint CEO search committee

• Nominate additional Directors

43
The Board and Senior Executives are Committed to HP

“It is not all or nothing” said Richard Hackborn. If HP stockholders vote against the
Compaq merger “we will do everything possible to explore the next best possible
alternative.”
Hackborn also stated, “‘Nobody is talking about leaving on the board, nor is anyone
talking about asking anyone to leave… That has got to be taken out of the equation” for
investors.
- Reuters, 2/13/02

“If the deal doesn’t pass a shareholder vote, Wayman said he’ll stay on at Hewlett-
Packard and “make the best out of the businesses we have.” He said he thinks that’s true
for other managers as well.”
“‘I have no intention of voluntarily resigning,’ he said.”
- Bloomberg, 1/22/02

44
 HP Management
HP has a deep bench with an average tenure of 17 years

Name Position Years with HP Age

Webb McKinney President, Business Customer Organization 33 years 56

Robert Wayman Executive VP, Finance & Administration and CFO 33 years 56

Susan Bowick VP, Corporate Human Resources 25 years 53

Vyomesh Joshi President, Imaging and Printing Systems 22 years 47

Pradeep Jotwani President, Consumer Business Organization 20 years 47

Ann Livermore President, HP Services 20 years 43

Debra Dunn VP, Strategy & Corporate Operations 19 years 45

Duane Zitzner President, Computing Systems 13 years 54

Carly Fiorina Chairman, CEO, President 2½ years 47

Richard DeMillo VP, CTO 1½ years 55

Iain Morris President, Embedded and Personal Systems Organization 1 year 45

45
Sources: HP 10-K filed 1/29/02, Hoover’s Online, HP Website
 Interim CEOs Can Provide Stability
Procter & Gamble
Incumbent CEO Durk Jager resigned
after a failed attempt to acquire
Warner-Lambert and two consecutive
Circumstances missed quarterly forecasts. John
Pepper, former Chairman and CEO
returned to Chairman position, Alan
Lafley was named CEO, President
and Director. (June 2000)
Other
Management None
Attrition
Up 30% annualized
Stock Price June 7, 2000 - Present
Source: Company Press releases, press articles and SEC filings.
Honeywell
Incumbent CEO Bonsignore resigned
on the same day that the European
Commission rejected the
GE/Honeywell deal. Former CEO
Lawrence Bossidy came out of
retirement to replace him. (July 2001)
None
Up 4% annualized
July 2, 2001 - Present
Apple
CEO Gil Amelio resigns as CEO after
several years of losses. Steve Jobs is
appointed Interim CEO. In January
2000, Jobs accepts the permanent CEO
position. (June 1999)
None
Up 31% annualized
July 8, 1997 - Present
46
 Examples of CEO Transitions

Compound Annual Stock

Company New CEO Appointment Date Performance Since CEO Change1

Apple Fred Anderson/Steve Jobs2 7/9/97 31%

Hyperion Steven Imbler 5/3/99 15%

IBM Lou Gerstner 3/26/93 23%

Mattel Robert Eckert 2/3/003 23%

McKesson John Hammergren 2/27/014 15%

Palm Eric Benhamou 11/7/015 335%

Safeway Steve Burd 5/1/93 12%

1 Compound annual stock stock growth from date of CEO departure until 2/15/02
2 Interim committee appointed to appoint CEO. In the interim period, Fred Anderson, executive VP and CFO, acted as CEO. Steve Jobs ended up as CEO.
3 Date of Jill Barad departure; Eckert assumed CEO position on 5/17/00 47
4 Departure of co-CEO David Mahoney
5 Resignation of Carl Yankowski. Eric Benhamou chosen as interim CEO
 Additional Information

On February 5, 2002, Walter B. Hewlett, Edwin E. van Bronkhorst and the William R. Hewlett Revocable Trust
(collectively, the “Filing Persons”) filed a definitive proxy statement with the Securities and Exchange
Commission relating to their opposition to the proposed merger involving Hewlett-Packard Company and
Compaq Computer Corporation. The Filing Persons urge stockholders to read their definitive proxy statement
because it contains important information. You may obtain a free copy of the Filing Persons’ definitive proxy
statement and other soliciting materials on the Securities and Exchange Commission’s website at www.sec.gov,
at the Filing Persons’ website at www.votenohpcompaq.com, or by contacting MacKenzie Partners at 1-800-
322-2885 or 1-212-929-5500, or by sending an email to proxy@mackenziepartners.com.

48