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HP says post-merger pay terms not binding

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CIOL Bureau
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SAN FRANCISCO: Hewlett-Packard Co. board members, seeking to stem concerns,

said HP and Compaq Computer Corp. chiefs had negotiated lavish post-merger

employment deals in secret. They said on Thursday that previously discussed

terms were not binding in any way.

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Walter Hewlett, the director leading opposition to the $22 billion merger,

announced two days ago that HP's compensation committee had considered two-year

deals for HP chief executive Carly Fiorina and Compaq chief Michael Capellas

worth more than $115 million over two years.

Compensation experts have called those deals lavish.

Hewlett, who sits on the compensation committee, argues the company wanted to

cover up an understanding that it would be obliged to use as a benchmark for

future pay talks, denying investors crucial information related to the

controversial merger.

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But other members of HP board committee said Hewlett had misstated the record

of their confidential talks. "The Compensation Committee has overtly

rejected the executive employment terms previously discussed. As such, they are

irrelevant," Phil Condit and Sam Ginn, Hewlett's two colleagues on the HP

board committee, said in an open letter.

"We all agreed that we needed to do a better job of aligning management

compensation with shareowner interests," they wrote. "We are stunned

by your blatant mischaracterizations of the actions of our committee," they

said.

Compaq's board in a separate statement said that there were no employment

contracts or agreements with Compaq and that the board stood by the disclosed

terms for the merger. The matter is partly important since the divisive merger

battle -- headed for a March 19 shareholder vote seen as too close to call --

has been fought on increasingly personal terms between the two sides.

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HP's shares have fallen 13 per cent since the merger was announced while

those of rival IBM are down just 2 per cent.

HP argues the deal would create a computer powerhouse and Hewlett says

Compaq's PC-centric business is not worth buying. Each side has sought to

undermine the other's credibility, and Fiorina and Hewlett are closely

identified with their causes.

Compensation specialists said the $70 million package for Fiorina was

excessive. Hewlett said the terms of the proposed package should be made public,

even though the compensation committee, on which he sits, rejected them.

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Hewlett, who controls about 5 per cent of HP and has marshaled the founding

families' 18 per cent stake against the merger, released on Thursday minutes of

the compensation committee on which he sits, as well as detailed term sheets for

Fiorina and Capellas's compensation.

The merger agreement calls for good faith negotiations with executives based

on "previously discussed" employment terms. The agreement goes on to

say that the terms are not part of the agreement but are "statements of

intent."

Since the agreement was not binding, Ginn and Condit argued in their Thursday

letter, it did not obligate the HP board to "agree to any specific terms or

consider any terms as benchmarks for future terms."

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