NATURE AND SUMMARY OF THE ACTION - Stanford …securities.stanford.edu/filings-documents/1045/HPQ10_01/2010123_r...NATURE AND SUMMARY OF THE ACTION 25 1. ... 22 was a co-founder of

Case5:10-cv-03608-EJD Document60 Filed12/03/10 Page1 of 44

1 BARROWAY TOPAZ KESSLER BARRACK, RODOS & BACINEMELTZER & CHECK, LLP STEPHEN R. BASSER (121590)

2 ERIC L. ZAGAR (250519) SAMUEL M. WARD (216562)ROBIN WINCHESTER One America Plaza

3 LOUIS MOYA 600 West Broadway, Suite 900280 King of Prussia Road San Diego, CA 92101

4 Radnor, PA 19087 Telephone: (619) 230-0800Telephone: (610) 667-7706 Fax: (619) 230-1874

5 Fax: (267) 948-2512-and-

6 - and -A. ARNOLD GERSHON

7 RAMZI ABADOU (222567) REGINA CALCATERRAERIK D. PETERSON (257098) 1350 Broadway, Suite 1001

8 580 California Street, Suite 1750 New York, NY 10018San Francisco, CA 94104 Telephone: (212) 668-0782

9 Telephone: (415) 400-3000 Fax: (212) 688-0783Fax: (415) 400-3001

10

11 Co-Lead Counsel for Lead Plaintiffs

12 (Additional counsel listed on signature page)

13UNITED STATES DISTRICT COURT

14 NORTHERN DISTRICT OF CALIFORNIASAN JOSE DIVISION

15

16Case No. 10-cv-03608 JW

17 (Consolidated Action)

18IN RE HP DERIVATIVE LITIGATION

19 CONSOLIDATED VERIFIEDSHAREHOLDER DERIVATIVE

20 COMPLAINT

21

22 JURY TRIAL DEMANDED

23

24NATURE AND SUMMARY OF THE ACTION

251. Lead Plaintiffs Louis Levine, Teamsters Union Local 4142 Pension Trust, Key West

26Police & Fire Pension Fund and Louisiana Municipal Police Employees Retirement System ("Lead

27Plaintiffs") bring this shareholder derivative action on behalf of Hewlett-Packard Company ("HP"

28 CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT

CASE No.: 10-CV-036081W (CONSOLIDATED ACTION)


1 or the "Company") against the members of HP's Board of Directors (the "Board") and HP's former

2 Chief Executive Officer ("CEO") and Chairman of the Board Mark Hurd ("Hurd") to remedy,

3 among other things, waste of corporate assets and breaches of fiduciary duty by HP's Board, and

4 the unjust enrichment of Hurd, in connection with the Board's granting, and Hurd's receipt of, an

5 unreasonable and grossly excessive severance award upon his resignation from the Company in

6 exchange for which Hurd did not provide valuable (if any) consideration. Lead Plaintiffs allege,

7 based upon, among other things, actual knowledge as to each of their respective acts, and on

8 information and belief as to all other allegations after due diligence and investigation by their

9 counsel, as follows:INTRODUCTION

10

2. On August 6, 2010, Hurd announced his unexpected and immediate resignation11

from HP. In doing so, Hurd acknowledged that his resignation arose from his failure to maintain12

the "standards and principles of trust, respect and integrity that I have espoused at HP." HP also13

announced that the Board approved a separation agreement between Hurd and the Company (the14

"Separation Agreement") pursuant to which the Board obligated HP to grant Hurd payments and15

benefits with a total value of approximately $53 million.' These excessive payments were a waste16

of HP's assets as the Board's decision to grant Hurd tens of millions of dollars in payments and17

benefits was so disproportionate to the minimal value (if any) the Company received from Hurd's18

release of claims that no reasonable businessperson would approve such a transaction.19

Furthermore, HP did not have any contractual obligation to pay Hurd anything upon his departure20

because Hurd's employment agreement (the "Employment Agreement"), a copy of which is21

attached hereto as Exhibit A, had expired in March 2009, and therefore Hurd had no contractual22

right to any severance payments or benefits whatsoever nor did he have any potential claims23

against the Company pursuant thereto.24

3. In addition to the foregoing, the Board, including Hurd, as a further and separate25

breach of their fiduciary duties and in violation of Section 14(a) of the Securities Exchange Act of26

27 The $53 million total is based on, among other things, the cash "Separation Amount," as well as calculations of thevalues of Hurd's stock options and shares of restricted stock and performance units as of the date of the Company's

28 2010 Proxy Statement.

CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT -2-CASE NO.: 10-CV-03608 JW (CONSOLIDATED ACTION)


1 1934 ("Section 14(a)," or "§14(a)"), filed with the Securities and Exchange Commission ("SEC"),

2 and disseminated to HP shareholders, on January 27, 2010, a proxy statement (the "2010 Proxy

3 Statement") falsely representing that Hurd's Employment Agreement was still valid and in effect.

4 The 2010 Proxy Statement's representation that Hurd's Employment Agreement was still valid and

5 in effect was as a material misrepresentation in the solicitation of votes for the election of HP's

6 directors, including Hurd, as well as for approval of the Company's Amended and Restated 2004

7 Stock Incentive Plan (the "Stock Incentive Plan").

8 4. Following Hurd's resignation from HP, he took a senior management position at

9 HP's rival Oracle Corporation ("Oracle"), where he is now co-president and director. Immediately

10 after Oracle's announcement that it was hiring Hurd, HP sued Hurd, alleging violations of Hurd's

11 confidentiality agreement with HI': Hurd escaped liability in that action by agreeing to forfeit more

12 than 350,000 shares of restricted stock granted to him pursuant to the Hurd Separation Agreement.

13 Thus, Hurd was allowed to escape additional liability arising from his alleged violations of his

14 confidentiality agreement with HP by surrendering the restricted stock units that were not rightfully

15 his and were, in fact, the fruits of his unjust enrichment by the Board. In effect, HP funded a

16 settlement with itself as opposed to truly recovering any damages from Hurd.

17 5. As a result of the aforementioned misconduct, HP has sustained damages, including,

18 but not limited to, the wasteful payments made to Hurd pursuant to the Hurd Separation

19 Agreement.

20 JURISDICTION AND VENUE

21 6. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, in that this

22 complaint states a federal question as to the claims pursuant to Section 14(a) and pursuant to

23 §1332(a)(2), in that the Lead Plaintiffs and Defendants are citizens of different states and the

24 matter in controversy exceeds $75,000.00, exclusive of interests and costs. This Court has

25 supplemental jurisdiction over the state law claims asserted herein pursuant to 28 U.S.C. §1367(a).

26 This action is not a collusive one to confer jurisdiction on a court of the United States which it

27 would otherwise lack.

28CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT -3 -

CASE NO.: 10-CV-03608 JW (CONSOLIDATED ACTION)


1 7. Venue is proper in this district pursuant to 28 U.S.C. §1391 because a substantial

2 portion of the transactions and wrongs complained of herein, including the Defendants' primary

3 participation in the wrongful acts detailed herein, occurred in this district. Several Defendants

4 either reside in or maintain executive offices in this Northern District of California, and have

5 received substantial compensation in this county by engaging in numerous activities and

6 conducting business here, which had an effect in this district.

7 PARTIES

8 8. Plaintiff Louis Levine is a citizen of New Jersey. Mr. Levine is a shareholder of

9 HP, was a shareholder of HP at the time of the wrongdoing alleged herein, has been a shareholder

10 of HP continuously since that time, and will continue to be a shareholder of HP throughout the

11 pendency of this action.

i 9. Plaintiff Teamsters Union Local #142 Pension Trust ("Teamsters"), a citizen of

13 Indiana, is a shareholder of HP, was a shareholder of HP at the time of the wrongdoing alleged

14 herein, has been a shareholder of HP continuously since that time, and will continue to be a

15 shareholder of HP throughout the pendency of this action. Neither Teamsters nor any of its trustees

16 are citizens of a state in which any defendant is a citizen.

17 10. Plaintiff Key West Police & Fire Pension Fund ("Key West P&F"), a citizen of

18 Florida, is a public pension fund for the benefit of the active and retired police and firefighter

19 employees of the City of Key West, Florida. Key West P&F is a shareholder of HP, was a

20 shareholder of HP at the time of the wrongdoing alleged herein, has been a shareholder of HP

21 continuously since that time, and will continue to be a shareholder of HP throughout the pendency

22 of this action. Neither Key West P&F nor any of its trustees are citizens of a state in which any

23 defendant is a citizen.

24 11. Plaintiff Louisiana Municipal Police Employees' Retirement System

25 ("LAMPERS") is located in Louisiana. LAMPERS is a shareholder of HP, was a shareholder of

26 HP at the time of the wrongdoing alleged herein, has been a shareholder of HP continuously since

27

28CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT -4-

CASE NO.: I O-CV-03608 JW (CONSOLIDATED ACTION)


1 that time, and will continue to be a shareholder of HP throughout the pendency of this action.

2 Neither LAMPERS nor any of its trustees are citizens of a state in which any defendant is a citizen.

3 12. Nominal Defendant HP is a Delaware corporation with its principal executive

4 offices located at 3000 Hanover Street, Palo Alto, California. According to its public filings and

5 press releases, HP is a technology solutions provider to consumers, businesses and institutions

6 globally, whose offerings span IT infrastructure, global services, business and home computing,

7 and imaging and printing.

8 13. Defendant Hurd, a citizen of California, served as the Company's Chairman of the

9 Board, President, CEO, and as a Company director until his resignation on August 6, 2010. Hurd

10 began serving as a director and executive at the Company in April 2005, and became Chairman of

11 the Board in September 2006.

12 14. Defendant Marc L. Andreessen ("Andreessen"), a citizen of California, has served

13 as a director of the Company since September 2009. Andreessen serves as a member of the Board's

14 Search Committee and Public Policy Committee and as the Chair of the Board's Technology

15 Committee. Andreessen also currently serves on the board of eBay Inc., Facebook Inc., Skype

16 Global S. d. r. 1., Stanford Hospital and Room to Read, and is a co-founder and Chairman of the

17 Board of Directors of Ning, Inc. Andreessen was a co-founder and Chairman of the Board of

18 Directors of Opsware, Inc. ("Opsware"), a position he held at Opsware from September 1999 until

19 the company entered a merger agreement with HP in July 2007. Andreessen also served on the

20 board of directors of Blue Coat Systems Inc. from 1999 to September 2005; served as Chief

21 Technology Officer of America Online, Inc ("AOL") from March 1999 to September 1999; and

22 was a co-founder of Netscape Communications Corporation ("Netscape") and held positions as the

23 company's Chief Technology Officer and Executive Vice President of Products from April 1994 to

24 March 1999.

25 15. Defendant Lawrence T. Babbio, Jr. ("Babbio"), a citizen of New York, has served

26 as a director of the Company since 2002. Babbio serves as a member of the Board's Nominating

27 and Governance Committee, Finance and Investment Committee, Search Committee and as Chair




I of the HR and Compensation Committee. Previously, Babbio served as Vice Chairman and

2 President of Verizon Communications, Inc. ("Verizon") from 2000 to April 2007, and as President

3 and Chief Operating Officer of Verizon from December 1998 to July 2000. Babbio was also

4 President and Chief Executive Officer of Verizon's Network Group and Chairman of Verizon's

5 Global Wireless Group from August 1997 to December 1998, and Vice Chairman of Verizon from

6 January 1995 to August 1997.

7 16. Defendant Sari M. Baldauf ("Baldauf'), a citizen of Finland, has served as a director

8 of the Company since January 2009. Baldauf serves as a member of the Audit Committee,

9 Nominating and Governance Committee, and Technology Committee. Previously, Baldauf served

10 as Executive Vice President and General Manager of the Networks business group of Nokia

11 Corporation from July 1998 until February 2005. Baldauf also serves as a director at Fortum Oyjm

12 Daimler AG, F-Secure Corporation and CapMan Plc.

13 17. Defendant Rajiv L. Gupta ("Gupta"), a citizen of Pennsylvania, has served as a

14 director of the Company since January 2009. Gupta serves as a member of the Company's HR and

15 Compensation Committee, Public Policy Committee, and Technology Committee. Gupta also

16 serves on the board, and as Chairman of the HR and Compensation Committee, at Tyco

17 International Ltd., as well as serves on the board of The Vanguard Group, Inc. Previously, Gupta

18 served as Chairman and CEO of Rohm & Haas Company from October 1999 to April 2009.

19 18. Defendant John H. Hammergren ("Hammergren"), a citizen of California, has

20 served as a director of the Company since 2005. Hammergren serves as a member of the HR and

21 Compensation Committee and Search Committee. Additionally, Hammergren is Chairman of the

22 Finance and Investment Committee. Hammergren also serves as a member of the board of

23 directors of McKesson Corporation (since July 1999), as Chairman of the Board since July 2002,

24 and as President and CEO of McKesson Corporation since April 2001. Prior to becoming CEO of

25 McKesson Corporation, Hammergren was Co-President and Co-Chief Executive Officer of

26 McKesson Corporation from July 1999 until April 2001, and Executive Vice President, President

27 and CEO of the company's Supply Management Business from January 1999 to July 1999.


CASE NO.: l0-CV-03608 J W (CONSOLIDATED ACTION)


1 Hammergren was also Group President of McKesson Health System from 1997 to 1999 and Vice

2 President from 1996 to 1997.

3 19. Defendant Joel Z. Hyatt ("Hyatt"), a citizen of California, has served as a director of

4 the Company since 2007. Hyatt serves as a member of the HR and Compensation Committee,

5 Finance and Investment Committee, and Search Committee. Additionally Hyatt is the Chairman of

6 the Company's Public Policy Committee. Hyatt has served as Vice Chairman of Current Media,

7 Inc. since July 2009, and as CEO of Current Media, Inc. from September 2002 until July 2009.

8 Prior to his position with Current Media, Inc., Hyatt was the founder and CEO of Hyatt Legal

9 Plans, LLC.

10 20. Defendant John R. Joyce ("Joyce"), a citizen of Connecticut, has served as a

11 director of the Company since 2007. Joyce serves as a member of the Company's Audit Committee

12 and Technology Committee. Joyce served as Chief Financial Officer of International Business

13 Machines Corporation from 1999 to 2005.

14 21. Defendant Robert L. Ryan ("Ryan"), a citizen of Minnesota, has served as a director

15 of the Company since 2004. Ryan serves as Chair of the Audit Committee, and as a member of the

16 Public Policy and Technology Committees. Ryan has also served as a member of the board of

17 directors of Stanley Black & Decker, Inc. since March 2010, and as a member of the board of

18 UnitedHealth Group from 1996 to 2008. Previously, Ryan served as Senior Vice President and

19 Chief Financial Officer of Medtronic, Inc. from 1993 to April 2005. Ryan was Vice President,

20 Finance, and Chief Financial Officer of Union Texas Petroleum Corp. from 1984 to 1993,

21 Controller from 1983 to 1984, and Treasurer from 1982 to 1983. Ryan was Vice President at

22 Citibank, N.A. from 1975 to 1982. Since 2007, Ryan has also served as director of Citigroup, Inc.

23 and is a defendant in a similar shareholder derivative action brought against the directors of

24 Citigroup for, inter alia, wasting corporate assets by approving of an excessive severance package

25 for the company's outgoing chief executive officer.

26 22. Defendant Lucille S. Salhany ("Salhany"), a citizen of Massachusetts, has served as

27 a director of the Company since 2002. Salhany serves as Chair of the Nominating and Governance




1 Committee, and as a member of the Audit Committee and the HR and Compensation Committee.

2 Salhany co-founded Echo Bridge Entertainment LLC and has been its Partner and a director since

3 2003. Salhany served as CEO and President of J.H. Media Limited from September 1997 to

4 December 1999. She served as CEO and President of LifeFX Networks Inc., a subsidiary of

LifeF/X, Inc. from 1999 to March 2002. In 1995, Salhany served as the President and CEO of

6 United Paramount Network from September 1994 to September 1997. Over the past fifteen years,

7 Salhany has served on a number of boards, including: LifeF/X Inc.; Twentieth Television and Fox

8 Broadcasting Company; ION Media Networks, Inc. (Formerly known as Paxson Communications

9 Corp.); Fox Inc.; Avid Technology Inc.; American Media Operations Inc., and its subsidiary

10 American Media Inc.; Compaq Computer Corp.; and Boston Restaurant Associates Inc.

11 23. Defendant G. Kennedy Thompson ("Thompson"), a citizen of North Carolina, has

12 served as a director of the Company since 2006. Thompson serves as a member of the Audit

13 Committee, the Nominating and Governance Committee and the Finance and Investment

14 Committee. Previously, Thompson served as Chairman of Wachovia Corporation from February

15 2003 until June 2008, as CEO from 2000 to June 2008, and as President from 1999 to June 2008.

16 Thompson was also Vice Chairman of First Union Corporation from October 1998 through

17 December 1999.

18 24. Defendants Hurd, Andreessen, Babbio, Baldauf, Gupta, Hammergren, Hyatt, Joyce,

19 Ryan, Salhany and Thompson are collectively referred to hereinafter as the "Defendants."

20 BACKGROUND

21 Hurd's History of Excessive Compensation During His Tenure at HP

22 25. Defendant Hurd served as CEO of HP since April 2005 and as Chairman of the

23 Board since September 2006. Throughout his tenure, the Board compensated Hurd and other HP

24 executives extraordinarily handsomely.

25 26. A May 2, 2005 CNN-Money article discussed the beginning of Hurd's lavish pay at

26 HP upon his entrance to the Company:

27 Mark Hurd, former CEO of NCR, is HP's new savior, and he has the contract to

28 prove it. Among its most significant features:

CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT -8-

CASE NO.: 10-Cv-03608 1W (CONSOLIDATED ACTION)


1 • Base salary of $1.4 million. Fairly generous, since tax rules say only $1 millionof it may be taken as a tax deduction by HP; the other $400,000 will come

2 entirely out of profits. More notable is the protection clause HP's directorsmay increase Hurd's salary at any time but may not reduce it unless they

3 reduce all other senior executives' salaries by at least an equal percentage.

4 • Annual bonus target of $2.8 million to $8.4 million. That's extremely high.Graef Crystal, the pay expert who crunches these numbers better than anyone

5 else in America, says the median big-company CEO bonus is just 116% of basesalary.

6• Long-term incentive target of $4.2 million to $12.6 million. Also highly

7 generous.

8 • The don't-worry-be-happy clause. Not only are Hurd's incentive amountsunusually large, but he doesn't have to do anything to earn them. His contract

9 specifies that Hurd's first-year performance goals for his annual bonus and long-term incentive are, as of his first day at work, "deemed to have been achieved at

10 target." What a wonderful feeling: walking into your brand-new office knowingyour first-year performance goals are already in the bag. You might try asking

11 your boss for a similar assurance and see what happens.

12 • A huge stock option grant worth an estimated $4.2 million, another worth anestimated $2.7 million, plus restricted stock currently worth $8.6 million. Those

13 last two awards are to make up for NCR stock and options Hurd forfeited byleaving. Such makeup grants have long infuriated corporate-governance

14 activists--who reason that what an executive forfeits by leaving his old job is hisproblem--but they've become standard for savior CEOs.

15• The telling little extras that are the true hallmarks of a savior CEO's contract: a

16 $2 million signing bonus, a $2.75 million relocation allowance, and priceprotection up to $6.6 million on the NCR options Hurd did not forfeit, just in

17 case his departure from NCR caused the stock to tank, which in fact it did.

18 • My favorite feature of a savior CEO's contract: HP will pay Hurd's lawyer fornegotiating those expensive terms.

19And Hurd's severance deal? It's the same as Fiorina's, meaning he participates in a

20 special program for HP senior executives. The terms of the program don't seemespecially lavish, which is why Fiorina's massive exit package was a bit puzzling.

21 Now a new explanation sheds further light on the nature of HP's board. A little-noticed analysis of Fiorina's severance in the New York Law Journal, plus a

22 separate analysis by Graef Crystal, suggests that HP's directors simply ignored theseverance program and awarded her far more than was called for.

23(Emphasis added).

24

25 27. Hurd's compensation for the years 2005-2009 demonstrates HP's history of granting

26 excessive executive compensation:

27




1 Cash Pension/Stock Options

2 Year Salary Bonus Incentive Deferred Other TotalAwards Awards

Compensation Comp3

2009 $1,268,750 $1,180,340 $10,256,370 $2,520,906 $14,629,074 $1,895 $475,192 $30,332,527

4 2008 $1,450,000 $5,341,882 $12,943,621 $3,447,542 $18,590,000 $3,087 $596,410 $42,372,542

5 2007 $1,437,500 $1,386,000 $6,238,795 $3,724,919 $11,949,789 $2,386 $400,441 $25,139,830

6 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 $24,394,8357

TOTAL $146,271,959

8

928. In 2008 Hurd received total compensation of over $42 million, including a $24

10million cash bonus — the largest bonus paid to any CEO in America that year. HP has no less than

11four incentive compensation plans for executives, but the performance metrics for all of them

12substantially overlap and have little relation to individual performance, resulting in "quadruple-

13dipping" by executives who have done little or nothing to earn their incentive compensation.

1429. Moreover, the performance periods are decidedly short-term (three years or less),

15and the payouts are largely in cash, giving the executives no long-term stake in the Company or its

16performance.

1730. In 2008, HP shareholders paid: $7,472 for travel expenses for Mark Hurd's family

18to accompany him on business meetings; $256,000 for Mark Hurd's personal security detail that

19year; and $136,000 for Mark Hurd's personal use of the HP private plane fleet (and HP "grosses

20up" this taxable benefit, so that Hurd did not have to pay any taxes for that private aircraft use).

21Further, each executive was able to use $18,000 worth of financial advice that year at shareholders'

22expense.

2331. Financial records of the Company also reveal that in 2008, Hurd had been "grossed

24up" $79,814 for taxes he had to pay as a benefit on meals with his family that were paid for by the

25Company. Estimates show that it is likely Hurd would have had total restaurant bills of more than

26$243,000 paid for by HP shareholders.

2732. HP's HR and Compensation Committee, comprised of defendants Babbio, Gupta,

28Hammergren, Hyatt, and Salhany, is responsible for determining executive compensation for HP

CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT - 10-

CASE NO.: 10 -CV-03608 JW (CONSOLIDATED ACTION)

Case5:10-cv-03608-EJD Document60 Filed12/03/10 Page1 1 of 44

I executives. The HR and Compensation Committee Charter charges the committee members with

2 the responsibility for, among other things, the following:

3 • Conduct Executive Performance Review and Set Executive Compensation."The Committee will review and approve corporate goals and objectives

4 relevant to the compensation of the CEO of HP, evaluate the performance of theCEO in light of those goals and objectives, and recommend to the independent

5 directors of the Board the CEO's annual compensation level, including salary,and short-term and long-term incentive awards, based on this evaluation and

6 such other factors as the Committee deems appropriate..."

7 • Approve Severance Arrangements and Other Applicable Agreements. "TheCommittee will review and approve severance arrangements for the CEO and

8 other Section 16 Officers, including change-in-control provisions, plans oragreements, and, to the extent that any such agreements are entered into,

9 employment agreements for the CEO and other Section 16 Officers."

10 • External Reporting of Compensation Matters. "The Committee will preparethe report required by the proxy rules of the SEC to be included in HP's annual

11 proxy statement, and will take such other action as may be required by suchrules."

12• Adoption and Oversight of Equity and Incentive Compensation Plans. "The

13 Committee may approve adoption of such equity plans as it deems appropriate,and shall approve adoption of incentive compensation plans covering Section 16

14 officers, in each case in the discretion of the Committee, except that in the caseof any plan or matter required to be submitted for approval to stockholders, the

15 Committee shall recommend such plan or matter to the full Board forsubmission to stockholders. The Committee will oversee the administration of

16 HP's equity plans and the incentive compensation plans covering Section 16officers, and to the extent that such actions do not require stockholder approval,

17 may approve, amend, modify, interpret or ratify the terms of, or terminate anysuch plans and any awards made under such plans. In addition, the Committee

18 may authorize the assumption of equity outside a plan in acquisitions of a sizethat, pursuant to a policy approved by the Finance and Investment Committee of

19 the HP Board of Directors, do not require review or approval of the HP Board ofDirectors."

20• Recommend Director Compensation. "The Committee will establish

21 compensation policies and practices for directors for service on the Board and itscommittees. The Committee will annually review the appropriate level of

22 director compensation and recommend to the Board any proposed changes to

23such compensation."

• Monitor Director and Executive Stock Ownership. From time to time, the

24 Committee will develop guidelines for the ownership of HP stock by directors

25and Section 16 officers, and shall monitor compliance with such guidelines.

26

27

28CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT - 11 -

CASE NO.: 10-CV-03608 JW (CONSOLIDATED ACTION


1 33. Despite HP shareholders' call for compensation reform in 2007 and "pay for

2 performance" standards to be implemented, from 2007 to 2008 HP shares lost 29% of their value

3 yet HP continued to pay its executives excessive compensation:

4 • Hurd's total compensation for 2008 was $43 million, making him the country's

5fourth-highest-paid CEO that year.

6• CIO Randy Mott's total compensation jumped 400% in 2008 to $28 million.

• Imaging Executive Vice President Vyomesh Joshi's total compensation

7 increased 83% in 2008 to $22 million.

8 • Personal Systems Executive Vice President Todd Bradley's total compensation

9went up 263% in 2008 to $21 million.

• Technology Solutions' Executive Vice President Ann Livermore's

10 compensation went up 31 % that year to $21 million.

11 . Chief Financial Officer (and now-interim CEO) Catherine Lesjak got a 49%

12bump in total compensation in 2008 to $6 million.

13FACTUAL ALLEGATIONS

14Defendant Hurd's Employment at HP

34. On March 29, 2005, Hurd and the Company executed the Employment Agreement,15

pursuant to which HP hired Hurd as its President and CEO.16

35. Hurd's Employment Agreement stated that he was answerable to the Company's17

Board, and he would also be appointed to serve as a director of the Board as of April 1, 2005, the18

effective date of the agreement. Hurd was obligated to devote his full business efforts and time to19

the Company and to exercise good faith effort in discharging his obligations.20

36. The Employment Agreement also stated that Hurd's employment could be21

terminated "at any time, upon written notice to the other party, with or without good cause or for22

any or no cause, at the option of either the Company or Executive." In the event of voluntary23

resignation, Hurd would not be eligible for cash payments, grants of restricted stock, or unvested24

stock options.25

37. The Employment Agreement included a term provision, which stated, "[t]his26

Agreement will have an initial term of four (4) years commencing on the Effective Date" of the27

agreement.28

CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT - 12 -



1 38. The Employment Agreement was in effect for the full four year initial term, but was

2 not subsequently renewed or extended when it expired on March 29, 2009. Thus, since March 29,

3 2009, Hurd has been an "at-will" employee of HP with no contractual rights whatsoever.

4 The False 2010 Proxy Statement

5 39. Hurd and the other members of the Board, particularly the members of the HR and

6 Compensation Committee (defendants Babbio, Gupta, Hammergren, Hyatt and Salhany), which

7 held nine meetings during fiscal year 2009, knew that Hurd's Employment Agreement had expired

8 on March 29, 2009 and had not been renewed or extended. Nevertheless, on January 27, 2010, the

9 Board filed with the SEC and disseminated to HP shareholders the 2010 Proxy Statement, which

10 falsely represented that Hurd's Employment Agreement was still valid and in effect.

11 40. The 2010 Proxy Statement specifically referred to Hurd's then-expired Employment

12 Agreement at least nine separate times, including on page 56 with regard to mortgage subsidies and

13 home security services, and on pages 67 and 68 with regard to termination of employment, and

14 falsely represented that Employment Agreement was still valid and in effect.

15 41. Defendants' foregoing misrepresentations in the 2010 Proxy Statement were

16 material to shareholders' votes on, among other things, the election of Hurd for another term as a

17 Company director, and the approval of the Stock Incentive Plan, pursuant to which the Board

18 sought and received authority to, among other things, issue additional shares of stock for use in

19 compensating HP's officers, directors, and employees, including Hurd.

20 42. Defendants breached their fiduciary duties, and violated Section 14(a), by filing and

21 disseminating to shareholders the false and misleading 2010 Proxy Statement.

22 43. As a direct and proximate result of Defendants' breaches of fiduciary duties and

23 violation of Section 14(a), HP is entitled to preliminary and permanent equitable and injunctive

24 relief, including, but not limited to, an order invalidating the shareholder vote on the Stock

25 Incentive Plan and prohibiting the issuance of incentive awards pursuant to the invalidly approved

26 Stock Incentive Plan.

27




i Defendant Hurd's Resignation from HP

2 44. On August 6, 2010, HP filed a Form 8-K with the SEC announcing that, effective

3 immediately, Hurd was resigning his position on the Board as well as his positions as CEO and

4 President of HP. In Hurd's place, the Board voted to appoint Catherine A. Lesjak, then HP's Chief

5 Financial Officer, as HP's interim CEO and further voted to form a search committee for a

6 permanent CEO comprised of directors Marc L. Andreessen, Lawrence T. Babbio, Jr., John H.

7 Hammergren and Joel Z. Hyatt.

g 45. In announcing his resignation, Hurd acknowledged that "there were instances in

9 which I did not live up to the standards and principles of trust, respect and integrity that I have

10 espoused at HP...." and that, as a result Hurd believed "it would be difficult for me to continue as

11 an effective leader at HP ...."

12 46. On August 6, 2010, the Board issued a press release stating:

13 HP today announced that Chairman, Chief Executive Officer and President MarkHurd has decided with the Board of Directors, to resign his positions effective

14 immediately.

15

16 Mr. Hurd's decision was made following an investigation by outside legal counseland the General Counsel's office, overseen by the Board, of the facts and

17 circumstances surrounding a claim of sexual harassment against Hurd and HP by aformer contractor to HP. The investigation determined that there was no violation

i 8 of HP's sexual harassment policy, but did find violations of HP's Standards ofBusiness Conduct.

19***

20Mr. Hurd said: "As the investigation progressed, I realized there were instances in

21 which I did not live up to the standards and principles of trust, respect and integritythat I have espoused at HP and which have guided me throughout my career. After a

22 number of discussions with members of the board, I will move aside and the boardwill search for new leadership. This is a painful decision for me to make after five

23 years at HP, but I believe it would be difficult for me to continue as an effectiveleader at HP and I believe this is the only decision the board and I could make at this

24 time. I want to stress that this in no way reflects on the operating performance orfinancial integrity of HP."

25

26 47. By way of background, Between 2007 and 2009, Hurd hired Jodie Fisher (`Fisher"),

27 a formerly reality television contestant and actress with no industry experience, to help "organize"




1 marketing events for potential customers. These events were billed as CEO executive summit

2 meetings. Hurd had approved of paying Fisher amounts ranging from $1,000 to $10,000 per event.

3 48. Hurd often utilized Fisher's services for his own personal entertainment in addition

4 to her service to the Company, as she routinely dined and spent time with him after the conclusion

5 of the marketing events. In November 2009, however, Hurd stopped the Company's payments and

6 compensation to Fisher for her companionship, and in late May 2010, Fisher made claims that

7 Hurd had sexually harassed her, thus exposing Hurd and the Company to liability.

8 49. After the Board learned of these sexual harassment charges, it began a formal and

9 confidential investigation into the nature of Hurd's relationship with Fisher. The Board determined

10 that Fisher had attended more than a dozen events in numerous locales, some overseas.

11 50. The Board's investigation further revealed that Hurd had authorized numerous

12 undisclosed and inappropriate payments to Fisher, and that Hurd had deliberately hidden his

13 relationship with Fisher by, among other things, falsifying expense reports. The expenses

14 submitted by Hurd often stated that he dined alone or with his bodyguard, when he had in fact

15 dined with Fisher. As well, on a few occasions, Fisher was reportedly paid fees and expenses to

16 attend executive summit meetings when none were actually held.

17 51. As a result of the investigation, the Board concluded that Hurd had violated its

18 Standards of Business Conduct after which Hurd resigned his position as CEO and Chairman of the

19 Board of the Company.

20 The Board Decides to Grant Hurd a Grossly

21Excessive Severance Award and Hurd is Unjustly Enrichment

52. HP's 2010 Proxy Statement includes the following chart demonstrating the22

payments to which Hurd would purportedly be entitled in the event of his resignation or voluntary23

or involuntary termination:24

25

26

27


CASE NO.: 10-CV-03608 1W (CONSOLIDATED ACTION)


1 Stock Restricted PRU

2 Termination Total Severance Options Stock Program Scenario (S) M M M M

3 Voluntary/For Cause — — — —Disability 27,290,766 — 2,773,500 7,808,404 16,708,862

4 Retirement — —Death 25,159,242 — 2,773,500 5,676,880 16,708,862

5 Not for Cause 52,950,237 11,644,693 2,773,500 7,808,404 30,723,640

6Change in Control 52,950,237 11,644,693 2,773,500 7,808,404 30,723,640

53. As set forth in HP's 2010 Proxy Statement, under the terms of Hurd's Employment7

Agreement with HP, because Hurd resigned his positions at HP, he was not eligible for a cash8

separation payment, awards of stock options or restricted stock, and performance share ownership9

interests. Nor was Hurd entitled to these substantial benefits as an "at will" employee.10

1154. On August 6, 2010 (the "Separation Date"), Hurd and the Company entered into the

12Separation Agreement, pursuant to which the Board granted Hurd, among other things:

13• a "Separation Amount" of $12,224,693.00 cash;

• the right to exercise each of the outstanding stock options to acquire Company

14 common stock that is vested and exercisable by Hurd during the Company's

15next open trading window, tentatively scheduled to commence August 23, 2010and end September 7, 2010, in accordance with the terms of the Company's

162004 Stock Incentive Plan;

• the right to pro-rata vesting and settlement, at the same time and on the same

17 terms as other HP employees, of 330,177 performance-based restricted stock

18units granted to Hurd on January 17, 2008 based on actual HP performanceduring the three-year performance period ending on October 31, 2010;

19 . the right to settlement on December 11, 2010 of 15,853 time-based restricted

20stock units granted to Hurd on December 11, 2009 at a price equal to the lesserof (a) the closing price of HP's common stock on August 6, 2010 or (b) the per

21share closing trading price of HP common stock on December 11, 2010;

22• Hurd's unpaid base salary accrued up to the Separation Date; and

23• vested amounts payable to Hurd under the Company's 401 K plan.

24 The total amount of money and benefits thus conferred to Hurd was approximately $53 million,

25 none of which he was entitled to.

26 55. The Separation Agreement was wasteful, inappropriate, unnecessary and a breach of

27 the duty of loyalty and good faith owed by the Board to HP and its shareholders. The Separation




i Agreement recites that the consideration granted to the Company by Hurd in exchange for the

2 substantial separation package identified above included a "general release of claims in favor of HP

3 ...." as it specifically stated that Hurd agreed to "waive, release and forever discharge any and all

4 claims and rights which [Hurd] ever had, now have or may have against the Company and any of

5 its subsidiaries or affiliated companies." However, Hurd had no claims to release and neither the

6 Separation Agreement, nor any public statement or filing by the Company states any facts

7 identifying a basis for any claim against HP by Hurd, or that he had one. Furthermore, Hurd did

8 not have a valid employment agreement with the Company, therefore, he could not have had any

9 potential claims pursuant thereto. Consequently, Hurd's release of claims against the Company

10 was virtually worthless, and certainly not worth anything close to the tens of millions of dollars he

11 received pursuant to the Separation Agreement as Hurd has provided nothing of value to the

12 Company in exchange for the grossly excessive and unconscionable separation award.

13 56. The Board's granting Hurd tens of millions of dollars in payments and benefits was

14 so disproportionate to the minimal value the Company received from Hurd's release of claims that

15 no reasonable businessperson would approve such a transaction. There was not, and could not

16 possibly have been, a good faith business reason to grant Hurd tens of millions of dollars of

17 payments and benefits in connection with his termination of employment.

18 57. Moreover, the Board completely ignored and/or otherwise failed to consider or

19 inform itself of the foregoing facts upon entering into the Separation Agreement in less than 24

20 hours after Hurd's decision to resign. Instead, the Board retained the services of a public relations

21 firm, because the defendants' primary, if not sole, concern was not with respect to the best interests

22 of HP but instead, that they not appear to "look like they didn't do their jobs right" when, in reality,

23 the members of the Board neither did their jobs right nor looked like they did.

24 Subsequent Events After Hurd's Separation from HP

25 58. On September 6, 2010, Oracle announced that Hurd joined Oracle as President and

26 was been named to Oracle's Board of Directors. As President of Oracle, Hurd shares

27 responsibilities with current Co-President, Safra Catz.


CASE NO.: I O-CV-03608 JW (CONSOLIDATED ACTION)


1 59. Plaintiffs Teamsters and Key West P&F filed a Preliminary Injunction Motion on

2 September 3, 2010, requesting that the Court enter an order to enjoin HP from granting Hurd any

3 shares of Company stock in settlement of the collective 346,030 performance-based restricted

4 stock units and time-based restricted stock units as provided for in the Separation Agreement, or

5 issuing any equity awards pursuant to the Amended Plan. Plaintiffs Teamsters and Key West P&F

6 had also previously filed an application for a Temporary Restraining Order ("TRO") on August 18,

7 2010, additionally requesting that the Federal Court enjoin Hurd from exercising any of his HP

8 stock options as provided for in the Separation Agreement. However, while the TRO was pending,

9 Hurd exercised certain of his stock options during the open trading window provided for in the

10 Separation Agreement.

11 60. On September 7, 2010, HP filed in the Superior Court of the State of California,

12 Santa Clara County, an action captioned Hewlett-Packard Company v. Hurd, et al., (Case No. 110-

13 CV-181699) (the "HP/Hurd Action") brought against Hurd to assert claims for breach of contract

14 and threatened misappropriation of trade secrets in connection with Hurd's new employment at

15 Oracle as its President and a Director. The HP/Hurd Action asserted against Hurd claims that he

16 could not commence work at Oracle without exposing HP trade secrets and breaching a

17 confidentiality agreement. In the lawsuit, HP stated that: "Hurd's position as president and member

18 of the board of directors for Oracle puts HP's trade secrets and confidential information in

19 jeopardy... As a competitor of HP, he will necessarily call upon HP's trade secrets and confidential

20 information in performing his job duties for Oracle."

21 61. On September 20, 2010, HP announced that it had resolved the HP/Hurd Action.

22 As part of that resolution and although no claim for such relief was requested in that action, Hurd

23 agreed to forfeit his right to receive the entire 346,030 shares of HP stock which were the subject

24 of Hurd's Separation Agreement. Specifically, under the terms of the modification, Hurd agreed to

25 forfeit and waive his rights to the 330,177 performance-based restricted stock units granted to him

26 in January 17, 2008 referenced in paragraph 2.d of the Separation Agreement and to the 15,853

27 time-based restricted stock units granted to Hurd on December 11, 2009 referenced in paragraph




1 2.e of the Separation Agreement, which collectively represented the only remaining compensation

2 that Hurd was entitled to receive under the terms of the Separation Agreement. Thus, Hurd was

3 allowed to escape additional liability arising from his alleged violations of his confidentiality

4 agreement with HP by surrendering stock grants that were not rightfully his and were, in fact, the

5 fruits of his unjust enrichment by the Board. In effect, HP funded a settlement with itself as

6 opposed to truly recovering any damages from Hurd.

7 DUTIES OF THE DEFENDANTS

8 62. By reason of their positions as officers and/or directors of the Company and because

9 of their ability to control the business and corporate affairs of the Company, Defendants owed the

10 Company and its shareholders the fiduciary obligations of good faith, loyalty, due care, and candor,

11 and were and are required to use their utmost ability to control and manage the Company in a fair,

12 just, honest, and equitable manner. Defendants were and are required to act in furtherance of the

13 best interests of the Company and its shareholders so as to benefit all shareholders equally and not

14 in furtherance of their personal interest or benefit. Each director and officer of the Company owes

15 to the Company and its shareholders the fiduciary duty to exercise good faith and diligence in the

16 administration of the affairs of the Company and in the use and preservation of its property and

17 assets, and the highest obligations of fair dealing.

18 63. Defendants, because of their positions of control and authority as directors and/or

19 officers of the Company, were able to and did, directly and/or indirectly, exercise control over the

20 wrongful acts complained of herein.

21 64. To discharge their duties, Defendants, as officers and directors of the Company,

22 were required to exercise reasonable and prudent supervision over the management, policies,

23 practices and controls of the Company. By virtue of such duties, Defendants were required to,

24 among other things:

25 . exercise good faith in ensuring that the affairs of the Company were conductedin an efficient, business-like manner so as to make it possible to provide the

26 highest quality performance of its business;

27 . refrain from wasting the Company's assets;

28CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT _19-

CASE NO.: 10-CV-03608 7W (CONSOLIDATED ACTION


1 • refrain from unduly benefiting themselves and other Company insiders at theexpense of the Company; and

2• properly disclose to the Company's shareholders all material information

3 regarding the Company.

4 DERIVATIVE AND DEMAND EXCUSED ALLEGATIONS

5 65. Lead Plaintiffs are shareholders of HP, were shareholders of HP at the time of the

6 wrongdoing alleged herein, and have been shareholders of HP continuously since that time.

7 66. As a result of the facts set forth herein, which are incorporated herein by reference,

g Lead Plaintiffs did not make a pre-suit demand on the Board (Andreessen, Babbio, Baldauf, Gupta,

9 Hammergren, Hyatt, Joyce, Ryan, Salhany and Thompson) because the Board is incapable of

10 making an independent and disinterested decision to institute and vigorously prosecute this action,

11 as set forth below.

12 67. Where, as here, a shareholder sues the board of directors over an act that is not the

13 product of a valid exercise of business judgment, such as waste, Delaware law excuses demand.

14 Delaware law excuses demand whenever the challenged act of the board is not the product of a

15 valid exercise of business judgment, regardless of whether a majority of the board is disinterested

16 and independent.

17 68. Pursuant to the Hurd Separation Agreement, Mr. Hurd received tens of millions of

18 dollars in cash, stock and stock options. In exchange, HP received no valuable consideration. By

19 agreeing to the terms of the Hurd Separation Agreement, the Board has committed waste in the

20 matter of executive pay. Waste is egregious misconduct that is not protected by the business

21 judgment rule, and it provides an excuse for not making a demand. Waste is the transfer of

22 corporate assets for no consideration at all or for consideration so disproportionately small as to lie

23 beyond the range at which any reasonable person might be willing to trade. The Hurd Separation

24 Agreement meets the definition of waste under Delaware law.

25 69. Prior to August 6, 2010, the Board consisted of 11 directors, defendants Hurd,

26 Andreessen, Babbio, Baldauf, Gupta, Hammergren, Hyatt, Joyce, Ryan, Salhany and Thompson.

27 At the time this action was commenced, the Board consisted of 11 directors, defendants




1 Andreessen, Babbio, Baldauf, Gupta, Hammergren, Hyatt, Joyce, Ryan, Salhany, Thompson and

2 non-defendant Catherine A. Lesjak.

3 70. Defendant Andreessen is incapable of independently and disinterestedly considering

4 a demand to commence and vigorously prosecute this action because he wasted corporate assets by

5 approving the terms of the Separation Agreement, a transaction which was so one-sided that no

6 business person of ordinary, sound judgment could conclude that the Company received adequate

7 consideration. Andreessen's approval of the terms of the Separation Agreement and the severance

8 award to Hurd was so disproportionately large as to be unconscionable and was not the product of

9 a valid exercise of business judgment. Andreessen also faces a substantial likelihood of liability

10 for breaching his fiduciary duties by violating Section 14(a) by filing and disseminating to HP

11 shareholders the false and misleading 2010 Proxy Statement, which, inter alia, falsely represented

12 that Hurd's Employment Agreement was valid and in effect. Furthermore, Andreessen is incapable

13 of independently and disinterestedly considering a demand to commence and vigorously prosecute

14 this action because he knowingly disseminated the false and misleading 2010 Proxy Statement

15 which was not and could not have been, the product of a good faith exercise of business judgment.

16 71. Defendant Babbio is incapable of independently and disinterestedly considering a

17 demand to commence and vigorously prosecute this action because he wasted corporate assets by



20 consideration. Babbio's approval of the terms of the Separation Agreement and the severance


22 a valid exercise of business judgment. Babbio, particularly as a member of the HR and

23 Compensation Committee, also faces a substantial likelihood of liability for breaching his fiduciary

24 duties by violating Section 14(a) by filing and disseminating to HP shareholders the false and

25 misleading 2010 Proxy Statement, which, inter alia, falsely represented that Hurd's Employment

26 Agreement was valid and in effect. Furthermore, Babbio is incapable of independently and

27 disinterestedly considering a demand to commence and vigorously prosecute this action because he




1 knowingly disseminated the false and misleading 2010 Proxy Statement which was not and could

2 not have been, the product of a good faith exercise of business judgment.

3 72. Defendant Baldauf is incapable of independently and disinterestedly considering a

4 demand to commence and vigorously prosecute this action because she wasted corporate assets by



7 consideration. Baldauf s approval of the terms of the Separation Agreement and the severance


9 a valid exercise of business judgment. Baldouf also faces a substantial likelihood of liability for

10 breaching her fiduciary duties by violating Section 14(a) by filing and disseminating to HP


12 that Hurd's Employment Agreement was valid and in effect. Furthermore, Baldouf is incapable of

13 independently and disinterestedly considering a demand to commence and vigorously prosecute

14 this action because she knowingly disseminated the false and misleading 2010 Proxy Statement


16 73. Defendant Gupta is incapable of independently and disinterestedly considering a




20 consideration. Gupta's approval of the terms of the Separation Agreement and the severance


22 a valid exercise of business judgment. Gupta, particularly as a member of the HR and

23 Compensation Committee, also faces a substantial likelihood of liability for breaching his fiduciary



26 Agreement was valid and in effect. Furthermore, Gupta is incapable of independently and

27 disinterestedly considering a demand to commence and vigorously prosecute this action because he


CASE NO.: 10-CV-03608 7W (CONSOLIDATED ACTION)


1 knowingly disseminated the false and misleading 2010 Proxy Statement which was not and could

2 not have been, the product of a good faith exercise of business judgment.

3 74. Defendant Hammergren is incapable of independently and disinterestedly

4 considering a demand to commence and vigorously prosecute this action because he wasted

5 corporate assets by approving the terms of the Separation Agreement, a transaction which was so

6 one-sided that no business person of ordinary, sound judgment could conclude that the Company

7 received adequate consideration. Hammergren's approval of the terms of the Separation Agreement

8 and the severance award to Hurd was so disproportionately large as to be unconscionable and was

9 not the product of a valid exercise of business judgment. Hammergren, particularly as a member of

10 the HR and Compensation Committee, also faces a substantial likelihood of liability for breaching

11 his fiduciary duties by violating Section 14(a) by filing and disseminating to HP shareholders the

12 false and misleading 2010 Proxy Statement, which, inter alia, falsely represented that Hurd's

13 Employment. Agreement was valid and in effect. Furthermore, Hammergren is incapable of

14 independently and disinterestedly considering a demand to commence and vigorously prosecute



17 75. Defendant Hyatt is incapable of independently and disinterestedly considering a




21 consideration. Hyatt's approval of the terms of the Separation Agreement and the severance award

22 to Hurd was so disproportionately large as to be unconscionable and was not the product of a valid

23 exercise of business judgment. Hyatt, particularly as a member of the HR and Compensation

24 Committee, also faces a substantial likelihood of liability for breaching his fiduciary duties by

25 violating Section 14(a) by filing and disseminating to HP shareholders the false and misleading

26 2010 Proxy Statement, which, inter alia, falsely represented that Hurd's Employment Agreement

27 was valid and in effect. Furthermore, Hyatt is incapable of independently and disinterestedly


CASE NO.: I0-CV-036081W (CONSOLIDATED ACTION)


1 considering a demand to commence and vigorously prosecute this action because he knowingly

2 disseminated the false and misleading 2010 Proxy Statement which was not and could not have

3 been, the product of a good faith exercise of business judgment.

4 76. Defendant Joyce is incapable of independently and disinterestedly considering a




8 consideration. Joyce's approval of the terms of the Separation Agreement and the severance award


10 exercise of business judgment. Joyce also faces a substantial likelihood of liability for breaching



13 Employment Agreement was valid and in effect. Furthermore, Joyce is incapable of independently

14 and disinterestedly considering a demand to commence and vigorously prosecute this action

15 because he knowingly disseminated the false and misleading 2010 Proxy Statement which was not

16 and could not have been, the product of a good faith exercise of business judgment.

17 77. Defendant Ryan is incapable of independently and disinterestedly considering a




21 consideration. Ryan's approval of the terms of the Separation Agreement and the severance award


23 exercise of business judgment. Ryan also faces a substantial likelihood of liability for breaching



26 Employment Agreement was valid and in effect. Furthermore, Ryan is incapable of independently

27 and disinterestedly considering a demand to commence and vigorously prosecute this action


CASE NO.: l0 -CV-03608 JW (CONSOLIDATED ACTION)


1 because he knowingly disseminated the false and misleading 2010 Proxy Statement which was not

2 and could not have been, the product of a good faith exercise of business judgment.

3 78. Defendant Salhany is incapable of independently and disinterestedly considering a

4 demand to commence and vigorously prosecute this action because she wasted corporate assets by



7 consideration. Salhany's approval of the terms of the Separation Agreement and the severance


9 a valid exercise of business judgment. Salhany, particularly as a member of the HR and

10 Compensation Committee, also faces a substantial likelihood of liability for breaching her fiduciary



13 Agreement was valid and in effect. Furthermore, Salhany is incapable of independently and

14 disinterestedly considering a demand to commence and vigorously prosecute this action because

15 she knowingly disseminated the false and misleading 2010 Proxy Statement which was not and

16 could not have been, the product of a good faith exercise of business judgment.

17 79. Defendant Thompson is incapable of independently and disinterestedly considering

18 a demand to commence and vigorously prosecute this action because he wasted corporate assets by



21 consideration. Thompson's approval of the terms of the Separation Agreement and the severance


23 a valid exercise of business judgment. Thompson also faces a substantial likelihood of liability for

24 breaching his fiduciary duties by violating Section 14(a) by filing and disseminating to HP


26 that Hurd's Employment Agreement was valid and in effect. Furthermore, Thompson is incapable

27 of independently and disinterestedly considering a demand to commence and vigorously prosecute


CASE NO.: 10-CV-036081 W (CONSOLIDATED ACTION)




3 COUNT

4 AGAINST DEFENDANTS ANDREESSEN, BABBIO, BALDAUF, GUPTA,HAMMERGREN, HYATT, JOYCE, RYAN, SALHANY, AND THOMPSON

FOR WASTE OF CORPORATE ASSETS

6 80. Lead Plaintiffs incorporate by reference and reallege each and every allegation set

7 forth above, as though fully set forth herein.

8 81. As alleged in detail herein, defendants Andreessen, Babbio, Baldauf, Gupta,

9 Hammergren, Hyatt, Joyce, Ryan, Salhany and Thompson approved the terms of the Separation

10 Agreement, which constituted an exchange of corporate assets for consideration so

11 disproportionately small as to lie beyond the range at which any reasonable person might be

12 willing to trade, and which was so one-sided that no business person of ordinary, sound judgment

13 could conclude that the Company received adequate consideration.

14 82. As a direct and proximate result of the foregoing waste of corporate assets, the

15 Company has sustained damages, including, but not limited to, the loss of the severance payments

16 and benefits granted to Hurd pursuant to the Separation Agreement.

17 COUNT II

18 AGAINST DEFENDANTS ANDREESSEN, BABBIO, BALDAUF, GUPTA,HAMMERGREN, HYATT, JOYCE, RYAN, SALHANY, AND THOMPSON

19 FOR BREACH OF FIDUCIARY DUTY

2v 83. Lead Plaintiffs incorporate by reference and reallege each and every allegation set


22 84. As alleged in detail herein, defendants Andreessen, Babbio, Baldauf, Gupta,

23 Hammergren, Hyatt, Joyce, Ryan, Salhany and Thompson had a fiduciary duty to, among other

24 things, refrain from unduly benefiting themselves and other Company insiders at the expense of the

25 Company.

26 85. Defendants Andreessen, Babbio, Baldauf, Gupta, Hammergren, Hyatt, Joyce, Ryan,

27 Salhany and Thompson breached their fiduciary duties of loyalty and good faith by awarding


CASE NO.: 10 -Cv-036)08 .1 W (CONSOLIDATED ACTION)


1 defendant Hurd excessive and unwarranted severance payments and benefits, and by knowingly

2 failing to inform themselves regarding all material information in making that decision, as alleged

3 in detail herein.

4 86. As a direct and proximate result of the foregoing breaches of fiduciary duty, the

5 Company has sustained damages, including, but not limited to, the loss of the severance payments

6 and benefits granted to Hurd.

7 COUNT III

8 AGAINST DEFENDANT HURDFOR UNJUST ENRICHMENT

9

87. Lead Plaintiffs incorporate by reference and reallege each and every allegation set10

forth above, as though fully set forth herein.11

88. Hurd was unjustly enriched by his receipt and retention of an excessive and12

unwarranted payments and benefits pursuant to the Separation Agreement, as alleged herein, and it13

would be unconscionable to allow him to retain the benefits thereof.14

89. To remedy Hurd's unjust enrichment, the Court should order him to disgorge to the15

Company all of the payments and benefits he received in connection with the termination of his16

employment and as described in the Separation Agreement.17

18COUNT IV

AGAINST ALL DEFENDANTS19 FOR BREACH OF FIDUCIARY DUTY

20 90. Lead Plaintiffs incorporate by reference and reallege each and every allegation set


22 91. As alleged in detail herein, each of the defendants had a fiduciary duty to, among

23 other things, properly disclose to the Company's shareholders all material information regarding

24 the Company.

25 92. Each of the defendants breached their fiduciary duties of loyalty and good faith by

26 knowingly filing and disseminating to the Company's shareholders the false 2010 Proxy Statement,

27 which contained false and misleading statements regarding Hurd's Employment Agreement, as


CASE NO.: I 0-CV-03608 J W (CONSOLIDATED ACTION


1 alleged herein, and omitted material information necessary in order to make the statements therein

2 not false or misleading, specifically, that Hurd's Employment Agreement had expired in March

3 2009 and had not been renewed or extended.

4 93. As a direct and proximate result of the foregoing breaches of fiduciary duties, HP is

5 entitled to preliminary and permanent equitable and injunctive relief, including, but not limited to,

6 an order invalidating the shareholder vote on the Stock Incentive Plan and prohibiting the issuance

7 of incentive awards pursuant to the invalidly approved Stock Incentive Plan.

8 COUNT V

9 AGAINST ALL DEFENDANTS FOR VIOLATION OF

10SECTION 14(a) OF THE SECURITIES EXCHANGE ACT

94. Lead Plaintiffs incorporate by reference and reallege each and every allegation set11

forth above, as though fully set forth herein.12

95. Rule 14-A-9, promulgated pursuant to § 14(a), provides that no proxy statement13

shall contain "any statement which, at the time and in the light of the circumstances under which it14

is made, is false or misleading with respect to any material fact, or which omits to state any15

material fact necessary in order to make the statements therein not false or misleading." 17 C.F.R.16

§ 240.14-A-9.17

96. The 2010 Proxy Statement described herein violated §14(a) and Rule 14-A-918

because it contained false and misleading statements regarding Hurd's Employment Agreement, as19

alleged herein, and omitted material information necessary in order to make the statements therein20

not false or misleading, specifically, that Hurd's Employment Agreement had expired in March21

2009 and had not been renewed or extended.22

97. The misrepresentations and omissions in the 2010 Proxy Statement were material,23

and were an essential link in Hurd's election as a director of the Company and in the approval of24

the Stock Incentive Plan, as alleged herein.25

98. As a direct and proximate result of the foregoing violations of §14(a) and Rule 14-26

A-9, HP is entitled to preliminary and permanent equitable and injunctive relief, including, but not27

28 CONSOLIDATED VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT -28-

CASE NO.: 10-CV-03608 J W (CONSOLIDATED ACTION


1 limited to, an order invalidating the shareholder vote on the Stock Incentive Plan and prohibiting

2 the issuance of incentive awards pursuant to the invalidly approved Stock Incentive Plan.

3 PRAYER FOR RELIEF

4 WHEREFORE, Lead Plaintiffs demand. judgment as follows:

5 A. Against all defendants and in favor of the Company for the amountof damages sustained by the Company as a result of their

6 misconduct, including requiring Hurd to disgorge to the Companyall of the payments and benefits he received in connection with the

7 termination of his employment and as described in the Separation

8Agreement;

B. Granting appropriate preliminary and permanent injunctive relief,9 including, but not limited to, an order invalidating the shareholder

vote on the Stock Incentive Plan and prohibiting the issuance of

10 incentive awards pursuant to the invalidly approved Stock

11Incentive Plan;

C. Granting additional appropriate equitable relief to remedy

12 Defendants' misconduct;

13 D. Awarding to Lead Plaintiffs the costs and disbursements of theaction, including reasonable attorneys' fees, accountants' and

14 experts' fees, costs, and expenses; and

15 E. Granting such other and further relief as the Court deems just and

16proper.

JURY TRIAL DEMANDED17

18Lead Plaintiffs demand a trial by jury.

19 DATED: December 3, 2010 BARROWAY TOPAZ KESSLERMELTZER & CHECK, LLP

20/s/ Robin Winchester

21 ERIC L. ZAGAR (250519)ROBIN WINCHESTER

22 LOUIS MOYA280 King of Prussia Road

23 Radnor, PA 19087Telephone: (610) 667-7706

24 Fax: (267) 948-2512

25 - and -

26 RAMZI ABADOU (222567)ERIK D. PETERSON (257098)

27 580 California Street, Suite 1750San Francisco, CA 94104




1 Telephone: (415) 400-3000Fax: (415) 400-3001

2

3 Attorneys for Plaintiffs Teamsters UnionLocal 4142 Pension Trust and Key West

4 Police & Fire Pension Fund and Co-Lead Counsel

5

6 BARRACK, RODOS & BACINE

7/s/ Stephen R. Basser

8 STEPHEN R. BASSER (121590)SAMUEL M. WARD (216562)

9 One America Plaza600 West Broadway, Suite 900

10 San Diego, CA 92101Telephone: (619) 230-0800

11 Fax: (619) 230-1874

12 -and-

13 A. ARNOLD GERSHONREGINA CALCATERRA

14 1350 Broadway, Suite 1001New York, NY 10018

15 Telephone: (212) 668-0782Fax: (212) 688-0783

16Attorneys for Plaintiffs Louis Levine and

17 Louisiana Municipal Police EmployeesRetirement System and Co-Lead

18 Counsel

19 KLAUSNER & KAUFMAN, PAROBERT D. KLAUSNER

20 STUART A. KAUFMAN10059 N.W. 1 St Court

21 Plantation, FL 33324Telephone: (954) 916-1202

22 Fax: (954) 916-1232

23 Additional Counsel for Plaintiff KeyWest Police & Fire Pension Fund

24

25

26

27




VERIFICATION

1, Tim Fahey, hereby verify that I have authorized the filing of the attached Consolidated

Verified Shareholder Derivative Complaint, that 1 have reviewed the Consolidated Verified

Shareholder Derivative Complaint, and that the facts therein are true and correct to the best of

my knowledge, information and belief. I declare under penalty of perjury that the foregoing is

true and correct.

DATE:

TL FKey West Police & Fire Pe ion Board of Trustees


VERIFICATION

I, Jay Smith, hereby verify that I have authorized the fling of the attached Consolidated

Verified Shareholder Derivative Complaint, that I have reviewed the Consolidated Verified

Shareholder Derivative Complaint, and that the facts therein are true and correct to the best of

my knowledge, information and belief. I declare under penalty of pet jury that the foregoing is

true and correct.

DATE:

JAY SMITH


I VERIFICATION

2 I, Louis Levine, hereby verify that I have reviewed the attached consolidated

3 shareholder derivative complaint, authorize its filing on my behalf and verify that the facts set

4 forth in the complaint are true and correct to the best of my knowledge, information and belief.

5 I verify under penalty of perjury that the foregoing is true and correct.

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78 DATE:

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13 Louis Levine

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1 VERIFICATION

2 1. R. Randall. Roche, hereby certify that I am authorized to make this certification on

behalf of the Louisiana Municipal Police Employees' Retirement System. I hereby verify that 1

4 have reviewed the attached consolidated. shareholder derivative complaint, authorize its filing on

5 behalf of the Louisiana Municipal Police Employees' Ietirement System and verify that the fact.

6 set forth in the complaint are true and correct to the best of.my knowledge. information and

7 belief.

8 T verify under penalty of perjury that the foregoing is true and correct.

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I I DATE: d"jt --`12

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R. Randall Roche

17 General Counsel

18 Louisiana Municipal Police Employees'Retirement System

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Exhibit A


HEWLETT-PACKARD COMPANY

MARK HURD EMPLOYMENT AGREEMENT

This Agreement is entered into as of March 29, 2005 by and between Hewlett-Packard Company (the "Company")and Mark Hurd ("Executive").

1. Duties and Scope of Employment.

(a) Positions and Duties. As of April 1, 2005 (the "Effective Date"), Executive will serve asPresident and Chief Executive Officer, reporting to the Company's Board of D irectors (the "Board"). Executive will rendersuch business and professional services in the performance of his duties, consistent with Executive's position within theCompany, as will reasonably be assigned to him by the Board. The period Executive is employed by the Company under thisAgreement is referred to herein as the "Employment Term".

(b) Board Membership. Executive will be appointed to serve as a member of the Board as of theEffective Date. Thereafter, at each annual meeting of the Company's stockholders during the Employment Term, theCompany will nominate Executive to serve as a member of the Board. Executive's service as a member of the Board will besubject to any required stockholder approval. Upon the termination of Executive's employment for any reason, Executivewill be deemed to have resigned from the Board (and any boards of subsidiaries) voluntarily, without any further requiredaction by the Executive, as of the end of the Executive's employment and Executive, at the Board's request, will execute anydocuments necessary to reflect his resignation.

(c) Oblizations. During the Employment Term, Executive will devote Executive's full businessefforts and time to the Company and will use good faith efforts to discharge Executive's obligations under this Agreement tothe best of Executive's ability. For the duration of the Employment Term, Executive agrees not to actively engage in anyother employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of theBoard (which approval will not be unreasonably withheld); provided, however, that Executive may, without the approval ofthe Board, serve in any capacity with any civic, educational, or charitable organization, provided such services do notinterfere with Executive's obligations to Company. This Agreement will not take effect until Executive obtains anagreement, in a form acceptable to the Company, from the Board of Directors of NCR Corporation (the "Current Employer")stating that any non-competition agreements entered into between Executive and the Current Employer, including, but notlimited to, the letter agreement dated March 6, 2003 between Executive and the Current Employer will not be enforced by theCurrent Employer during his employment with Company.

2. At-Will Employment. Executive and the Company agree that Executive's employment with the Companyconstitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may beterminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the optioneither of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severancebenefits depending upon the circumstances of Executive's termination of employment.


3. Term of Agreement. This Agreement will have an initial term of four (4) years commencing on theEffective Date.

4. Compensation.

(a) Base Salary. As of the Effective Date, the Company will pay Executive an annual salary of$1,400,000 as compensation for his services (such annual salary, as is then effective, to be referred to herein as "BaseSalary"). The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and besubject to the usual, required withholdings. Executive's salary will be subject to review by the HR/Compensation Committeeof the Board, or any successor thereto (the "Committee") not less than annually, and adjustments will be made in thediscretion of the Committee. Notwithstanding the foregoing, the Base Salary will not be reduced other than pursuant to areduction that also is applied to substantially all other executive officers of the Company and that reduces the Base Salary bya percentage reduction that is no greater than the percentage reduction applied to substantially all other executive officers.

(b) Annual Incentive. Executive will be eligible to receive annual cash incentives payable for theachievement of performance goals established by the Committee. Executive's target annual incentive will be at least 200%of Base Salary, with a maximum target opportunity of 600% of Base Salary assuming performance goals are achieved. Theactual earned annual cash incentive, if any, payable to Executive for any performance period will depend upon the extent towhich the applicable performance goal(s) specified by the Committee are achieved and will be decreased or increased fortinder- or over-performance. Except as specifically provided herein, Executive's annual cash incentive will be subject to the:::rms and conditions of the Company's Pay for Results Plan or any successor thereto, including payment date and continuedemployment obligations. Currently these incentives are calculated and paid on a fiscal half-year basis. For the second half offiscal year 2005 and the first half of fiscal year 2006, all performance goals will be deemed to have been achieved at target.Any incentive earned during the first half of fiscal 2005 will be pro-rated based on the hire date (calculated by multiplyingany annual incentive earned by Executive by a fraction with a numerator equal to the number of days between the EffectiveDate and the end of the calendar year and a denominator equal to 365).

(c) Long-Term Incentives.

(i) Long-Term Ongoing Performance Cash Incentive. Executive will be eligible to receivelong-term performance cash incentives at a level at least equal to 300% of Base Salary with a maximum award level of 900%of Base Salary, pro-rated for mid-plan entry in all existing cycles. Any long-term incentive will be subject to terms andconditions of the Company's Long-Tetra Cash Performance Plan (which is part of the Company's 2004 Stock IncentivePlan), or any successor thereto, and the Committee's standard terms and conditions for the applicable type of award,including vesting criteria such as continued service or performance objectives. For the first year of the first ful I performancecycle (that begins May 1, 2005), it will be assumed that any applicable performance goals were achieved at target.

(ii) Stock Options. Executive will be granted a stock option to purchase 700,000 shares ofCompany common stock at an exercise price equal to the average of the highest and lowest quoted sales price on the NewYork Stock Exchange ("NYSE") for the common stock of

the Company on the Effective Date (the "Initial Option"). The Initial Option, except as provided in this Agreement, will besubject to the terms, definitions and provisions of the Company's 2004 Stock Incentive Plan (the "2004 Plan") and will bescheduled to vest at a rate of twenty-five percent (25%) on each anniversary of the grant over four (4) years assumingExecutive's continued employment with the Company. if Executive is terminated for reasons other than Cause, Executive'sInitial Option will become fully vested and will remain exercisable until-the earlier of the date provided in the applicablestock option agreement or under any applicable work force reduction policy adopted by the Company from time to time. TheInitial Option will have a maximum term of eight (8) years. -

(d) One-Time Make-Up Grants; Restricted Stock and Options. In order to make up for compensationforfeited from his former employer when Executive joins the Company, Executive will be granted a stock option and sharesof restricted common stock of the Company. The stock option will cover 450,000 shares of Company common stock at anexercise price equal to the average of the highest and lowest quoted sales price on the NYSE for the common stock of theCompany on the Effective Date. The restricted stock grant will be for 400,000 shares of Company common stock. Therestricted stock and option will be granted tinder the Company's 2004 Plan, and except as provided in this Agreement will begoverned by the terms of the 2004 Plan and will be scheduled to vest at a rate of-thirty-three and a third percent (33.3%) oneach anniversary of the grant over three (3) years assuming Executive's continued employment with the Company. Theoption will have a maximum term of eight (8) years. If Executive is terminated for reasons other than Cause, Executive'sstock option will become fully vested and will remain exercisable until the earlier of the date provided in the applicable stock


option agreement or under any applicable work force reduction policy adopted by the Company from timeto time. Upon his termination without Cause, an additional number of shares of Executive's unvested restricted stock wiltvest on a pro-rata basis. This will be calculated separately for each vesting tranche by (i) multiplying the number of unvestedshares in the tranche by a fraction with a numerator equaling the number of whole months that have elapsed from theEffective Date to the Date of Termination and a denominator equal to twelve (12) for those shares scheduled to vest duringthe first year of the gran% a denominator equal to twenty-four (24) for those shares scheduled to vest during the second yearof the grant and a denominator equal to thirty-six (36) for those shares scheduled to vest during the third year of the grant andthen (ii) subtracting the number of shares in that tranche that previously vested.

(e) Signing Bonus. Within thirty (30) days of the Effective Date, Executive will receive a signingbonus equal to $2,4000,000 (the "Signing Bonus'J. If Executive is terminated for Cause within two (2) years of the EffectiveDate, Executive will return to the Company an amount equal to the Signing Bonus multiplied by a fraction with thenumerator equaling the number of whole months that have elapsed from the Effective Date to the Date of Termination and adenominator equal to twenty-four (24).

(f) Price Protection. Executive will be reimbursed for declines in the per share fair market value ofthe Current Employer's common stock ("Price Protection"). The Price Protection will only apply to 850,184 shares coveredby Executive's vested options issued by the Current Employer prior to March 24, 2005. The Price Protection is limited todeclines of value of twenty percent (20%) or less. If the decline of value is greater than twenty percent (20 9/6), Executive willbe reimbursed only for the first twenty percent (20%) of the common stock's decline in value. For purposes of this section,"per share fair market value" will mean the highest closing price during the

five (5) full trading days on the NYSE immediately preceding the public announcement of Executive's resignation from hiscurrent position. The Price Protection will end and be paid upon the earlier of Executive's sale of the underlying shares ofcommon stock or ninety (90) days after Executive's last day of employment with the Current Employer.

(g) Relocation Benefit. In accordance with Company's relocation policy, Executive will receive thestandard Company relocation package with the following adjustments: (i) temporary housing for up to one (1) year, (ii) nolimit on the weight of household goods shipped, and the number of cars covered will be three (3); (iii) a four (4) yearmortgage interest subsidy; (iv) the storage of household goods for up to one (1) year, and (v) a relocation allowance of$2,750,000 (the "Relocation Allowance"), with Executive receiving such Relocation Allowance in lieu of the relocationallowance otherwise provided for under the Company's relocation policy.

5. Emplovee Benefits.

(a) Generally. Executive will be eligible to participate in accordance with the terms of all Companyemployee benefit plans, policies, and arrangements that are applicable to other executive officers of the Company, as suchplans, policies, and arrangements may exist from time to time.

(b) Vacation. Executive will be entitled to receive paid annual vacation in accordance with Companypolicy for other senior executive officers. In no event will Executive receive less than twenty-five (25) days of paid vacationtime per calendar year.

(c) Perquisites. Executive will receive Company perquisites on at least the same level as theCompany's other senior executive officers.

(d) Security. The Company will provide Executive with appropriate home security in accordancewith standard market practice.

6. Expenses. The Company wi I l reimburse Executive for reasonable travel, entertainment, and other expensesincurred by Executive in the furtherance of the performance of Executive's duties hereunder, in accordance with theCompany's expense reimbursement policy as in effect from time to time.

7. Termination of Employment. In the event Executive's employment with the Company terminates for anyreason, Executive will be entitled to any (a) unpaid Base Salary accrued up to the effective date of termination, (b) unpaid,but earned and accrued annual incentive for any completed fiscal year as of his termination of employment, (c) pay foraccrued but unused vacation that the Company is legally obligated to pay Executive, (d) benefits or compensation asprovided under the terms of any employee benefit and compensation agreements or plans applicable to Executive,(e) unreimbursed business expenses required to be reimbursed to Executive, and (f) rights to indemnification Executive mayhave under the Company's Articles of Incorporation, Bylaws, the Employment Agreement, or separate indemnification


agreement, as applicable. In addition, if the termination is by the Company without Cause, Executive will beentitled to the amounts and benefits specified in Section S.

S. Severance.

(a) Termination Without Cause. If Executive's employment is terminated by the Company withoutCause, then, subject to Section 9, Executive will be eligible to participate in the then existing Severance Program forExecutives (the "Severance Program"), and will receive any "banked" amounts in the Long-Tenn Cash Performance Plan. Itis understood that the Severance Program is reviewed annually by the Committee. In addition, and notwithstanding the termsof the Severance Program, if, (i) Executive's duties and responsibilities as Chief Executive Officer of the Company aresubstantially reduced without his consent, or (ii) Executive is not reelected to the Board during the Employment Term, thenExecutive will be deemed to have been terminated without Cause. Notwithstanding the foregoing, the amount of severancebenefits received by Executive under this Section 8(a) will not exceed 2.99 times the sum of Executive's Base Salary andbonus, unless such benefits are approved by the Company's stockholders pursuant to the Company's established policy.

(b) Termination for Cause. If Executive's employment is terminated for Cause by the Company,then, except as provided in Section 7, (i) all further vesting of Executive's outstanding equity awards will terminateimmediately; (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and(iii) Executive will be eligible for severance benefits only in accordance with the Company's then established plans,programs, and practices.

(c) Other Termination Including due to Death or Disability. If Executive's employment terminatesfor any other reason, including but not limited to, by reason of death or Disability, then, except as provided in Section 7,(i) Executive's outstanding equity awards will terminate in accordance with the terms and conditions of the applicable awardagreement(s); (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and(iii) Executive will be entitled to receive benefits only in accordance with the Company's then established plans, programs,and practices.

9. Conditions to Receiut of Severance. No Duty to Mitigate.

(a) Nondisvaragement. During the Employment Term and for the twelve (12) months thereafter,Executive will not knowingly disparage, criticize, or otherwise make any derogatory statements regarding the Company, itsdirectors, or its officers. The foregoing restrictions will not apply to any statements that are made truthfully in response to asubpoena or other compulsory legal process.

(b) Other Requirements. Executive's receipt of continued severance payments will be subject toExecutive continuing to comply with the terms of the Confidential Information Agreement as amended by this Agreement.

(c) No Duty to Mitigate. Executive will not be required to mitigate the amount of any paymentcontemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any suchpayment.

10. Definitions.

(a) Cause. For purposes of this Agreement, "Cause" will have the same deemed meaning as in theSeverance Program.

(b) Disability. For purposes of this Agreement, Disability will mean Executive's absence from hisresponsibilities with the Company on a full-time basis for 180 calendar days in any consecutive twelve (12) months period asa result of Executive's mental or physical illness or injury.

11. Indemnification. Subject to applicable law, Executive will be provided indemnification to the maximumextent permitted by the Company's bylaws and Certificate of Incorporation, including, if applicable, any directors andofficers insurance policies, with such indemnification to be on terms determined by the Board or any of its committees, buton terms no less favorable than provided to any other Company executive officer or director and subject to the terms of anyseparate written indemnification agreement.

12. Confidential Information. Executive will execute the Company's Agreement Regarding ConfidentialInformation and Proprietary Developments appended hereto as Exhibit A (the "Confidential Information Agreement").


13. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors, andlegal representatives of Executive upon Executive's death, and (b) any successor of the Company. Any such successor of theCompany will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose,"successor" means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, orotherwise, directly or indirectly acquires al I or substantially all of the assets or business of the Company. None of the rightsof Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred exceptby will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition ofExecutive's right to compensation or other benefits will be null and void.

14. Notices. All notices, requests, demands, and other communications called for hereunder will be in writingand will be deemed given (a) on the date of delivery if delivered personally, (b) one (1) day after being sent overnight by awell established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, returnreceipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such otheraddresses as the parties may later designate in writing:

If to the Company:

Attn: Chairman of the HR/Compensation Committeec/o Corporate Secretary

Hewlett-Packard Company3000 Hanover StreetPalo Alto, CA 94304

If to Executive:

at the last residential address known by the Company.

15. Severabitity. If any provision hereof becomes or is declared by a court of competent jurisdiction to beillegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision.

16. Arbitration. The Parties agree that any and all disputes arising out of the terms of this Agreement,Executive's employment by the Company, Executive's service as an officer or director of the Company, or Executive'scompensation and benefits, their interpretation, and any of the matters herein released, will be subject to binding arbitrationin Santa Clara, California before the Judicial Arbitration and Mediation Services, Inc. under the American ArbitrationAssociation's National Rules for the Resolution of Employment Disputes, supplemented by the California Rules of CivilProcedure. The Parties agree that the prevailing party in any arbitration will be entitled to injunctive relief in any court ofcompetent jurisdiction to enforce the arbitration award. The Parties hereby agree to waive their right to have any dispute11 -^tween them resolved in a court of law by a judge or jury. This paragraph will not prevent eitherparty from seekinginjunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matterof their dispute relating to Executive's obligations under this Agreement and the Confidential Information Agreement

17. Legal and Tax Expenses. The Company will reimburse Executive for reasonable legal and tax adviceexpenses incur red by him in connection with the negotiation, preparation, and execution of this Agreement and thetermination of his employment with the Current Employer. In addition, in the event of a dispute relating to any provision ofthis Agreement following the Effective Date, the Company will reimburse Executive's fees and expenses as incurredquarterly, including reasonable attorneys' fees, in connection with such dispute, provided Executive prevails on at least onematerial issue in such dispute, or provided an arbitrator does not determine that Executive's legal positions were frivolous orwithout legal foundation. In the event Executive does not so prevail or in the event of such determination, Executive willrepay to the Company any amounts previously reimbursed by it, and Executive will reimburse the Company for its fees andexpenses, including reasonable attorneys' fees, incurred in connection with the dispute.

18. Integration. This Agreement, together with the Confidential Information Agreement and the standardforms of equity award grant that describe Executive's outstanding equity awards, represents the entire agreement andunderstanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreementswhether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be bindingunless in a writing and is signed by duly authorized representatives of the parties hereto. In entering into this Agreement, noparty has relied on or made any representation, warranty, inducement, promise or understanding that is not in thisAgreement Executive acknowledges that Executive is not subject to any contract, obligation or understanding (whetherwritten or not), other than the obligations under Executive's resignation letter with the Current Employer, that would in anyway restrict the performance of Executive's duties as set forth in this Agreement.


19. Waiver of Breac4. The waiver of a breach of any term or provision of this Agreement, which must be inwriting, will not operate as or be construed.to be a_waiver of any other previous or subsequent breach of this Agreement.

20. SurvivaL The Confidential Information Agreement, the Company's and Executive's responsibilities underSection 9 will survive the termination of this Agreement.

21. Headings. All captions and Section headings used in this Agreement are for convenient reference only anddo not form a part of this Agreement.

22. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding ofapplicable taxes.

23. Goveming Law. This Agreement will be governed by the laws of the State of California.

24. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with andobtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all theprovisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

25. Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the sameforce and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a dulyauthorized officer, as of the day and year written below.

COMPANY:

HEWLETT-PACKARD COMPANY

/s/Patricia C. Dunn Date: March 29, 2005Patricia C. DunnNon-executive Chairman of the Board ofDirectors

EXECUTIVE:

/s/ Mark Hurd Date: March 29, 2005

Mark Hurd - -

EX-99.2 3 a05-5910 1ex99d2.htin EX-99.2

EXHIBIT 99.2

Summary of Final Terms for Hurd Compensation

COMPENSATIONPosition President and CEO

Term of Employment At will employment. Employment may be terminated by Mark Hurd ("Hurd") or Hewlett-Packard Company ("the Company"), at any time. The Mark Hurd Employment Agreement("the Agreement") will have an initial term of 4 years.

Board of Directors Hurd shall be appointed to the Board of Directors upon his hire and thereafter nominated asa member of the Board during each year of Hurd's employment. Following Hurd'stermination, he will be deemed to have resigned from the Board.


Salary $1,400,000 base salary. The base salary will not be reduced other than pursuant to a_. reduction applied to substantially all other executive officers of the Company and a

reduction that is no greater than the percentage reduction applied to substantially all otherexecutive officers.

Bonus At least $2,800,000 (target at 200% of base), pro-rated for mid-year entry with a maximumtarget opportunity of $8,400,000 (600% of base) assuming performance goals are achievedunder the Company's executive pay-for-results plan. The applicable targets for the second 6months of 2005 and the first 6 months of 2006 will be deemed to have been met and anyincentive earned during the first half of fiscal year 2005 will be pro-rated based on the hiredate.

Long-Term Incentives

Long-Term Cash At least $4,200,000 (300% of base) pro-rated for mid-plan entry in the three-year cyclesPerformance Plan beginning May 1, 2003 and May 1, 2004, respectively. The Plan provides for a cash payout

after 3 years with additional cycles beginning May 1 of every year. The potential cashpayout can range from $0 to $12,600,000, depending on actual Company performance. Theapplicable targets for the first year of the first full target cycle (beginning May 1, 2005) willbe deemed to have been met.

Stock OptionsNumber of Shares Option for 700,000 shares (with a maximum term of 8 years) with a grant date of April 1,Black-Scholes Value 2005Vesting Schedule Approximately $4,200,000

Vests at a rate of 25% annually over 4 years.


COMPENSA'T'IONOne-Time Make-Up Grants:Restricted Stock and Options

Restricted Stock and Options

Number of Shares 400,000 shares of restricted stock and option for 450,000 shares (with a maximum term of8 years) with a grant date of April 1, 2005.

Value at Grant Approximately $8,000,000 for shares and $2,700,000 for optionsVesting Schedule Vests at a rate of 33.3% annually over 3 years.

Signing Bonus $2,000,000 cash bonus payment to be paid within 30 days of April 1, 2005 and removal ofany conditions. If Hurd is terminated for cause within 2 years of Hurd's hiring date, Hurdwill return a pro-rata portion of the bonus to the Company.

Price Protection Hurd will be reimbursed up to 20% for declines in the per share fa ir market value of NCR'sstock as covered by his vested options. In the event that the share value decreases morethan 20%, only the first 209/6 will be reimbursed. This price protection applies to the850,184 shares vested prior to March 24, 2005. The starting fair market value for this priceprotection shall be the highest share price during the 5 full trading days immediatelypreceding the public announcement of Hurd's resignation from NCR. This price protectionshall end upon Hurd's sale of the shares covered by his vested options (or 90 days after heterminates employment with NCR, whichever is sooner).

Benefits Hurd will be eligible to participate in the Company's employee benefit plans, policies andarrangements applicable to other executive officers including: participation in the shareownership plan, 401(k) plan, deferred compensation plan, cash balance retirement plan,medical, dental, vision and life and disability insurance.

Perquisites Hurd will be eligible for Company perquisites at at least the same level as other seniorexecutive officers including financial counseling and executive physicals.

Time-Off Hurd will receive paid time off in accordance with Company policy for other seniorexecutive officers. In no event will Hurd receive less than 25 days of paid time off percalendar year.

Security The Company will provide Hurd with appropriate home security in accordance with marketpractice.

COMPENSA'T'ION

Relocation Benefit Hurd shall receive the standard relocation package with the followingadjustments:

• $2,750,000 relocation allowance to be paid as promptly as practicable after theexecution of a definitive agreement and removal of any conditions (such relocationallowance paid in lieu of any other relocation allowance provided for under theCompany's relocation policy);

• Mortgage interest subsidy for 4 years;• Temporary housing for up to 1 year;• No limit on the weight of household goods shipped, and the number of cars covered

will be 3; and• Storage of household goods for up to 1 year.

Severance Participation in the then current Severance Program for Executives if Hurd is terminatedwithout Cause and provides an execution of a full release of claims. Under the current


Severance Program for Executives, Hurd shall receive:• A one time cash payment equal to 2.5 times Hurd's then-current base salary plus

target bonus;• Payment of any accrued salary and bonus;• Hurd's stock options will become fully vested, exercisable and will remain

exercisable until the earlier of the date provided in the applicable stock optionagreement or under any applicable work force reduction policy adopted by theCompany from time to time;

• Any unvested restricted stock will vest on a pro-rata basis;• Any banked amounts in the Long-Term Cash Performance Plan; and• Continuation of certain health benefits

The HR/Compensation Committee reviews the Severance Program for Executivesannually. If Hurd's duties as CEO are substantially reduced without his consent or if Hurdis not reelected to the Board during his term of employment, then Huid will be deemed tohave been terminated without

COMPENSATION

Cause. The amount of severance benefits received by Hurd will not exceed2.99 times the sum of his base salary and bonus, unless such benefits are approvedby the Company's stockholders.

Confidential Information and Hurd will execute the Company's Agreement Regarding Confidential Information andIntellectual Property Proprietary Developments.

Attorneys' Fees The Company shall reimburse Hurd for reasonable legal and tax advice expenses incurredin the negotiation, preparation and execution of the Employment Agreement as well as hisseparation from his current employer.

Arbitration All disputes arising as a result of Hurd's employment, including the termination thereof, orHurd's compensation or benefits shall be resolved through binding arbitration.

Indemnification Hurd shall be provided indemnification on terms no less favorable than that provided to anyother Company executive officer or director, including, if applicable, appropriate directorsand officers insurance.

Documents

NATURE AND SUMMARY OF THE ACTION - Stanford …securities.stanford.edu/filings-documents/1045/HPQ10_01/2010123_r...NATURE AND SUMMARY OF THE ACTION 25 1. ... 22 was a co-founder of