Gaither's letter to Carly Fiorina

As a Director of the William and Flora Hewlett Foundation and a long-time admirer of the Hewlett-Packard Company, I have become increasingly troubled by the marketing campaign you launched to discredit Walter Hewlett, as well as the Hewlett Foundation which you suggest is controlled by Walter Hewlett. I'm also very troubled by your suggestion that there may be 36,000 HP jobs at risk if your proposal is not approved.

HP is a great company with a great future. It was built by two people of unquestioned integrity and thousands of employees whom they respected and relied upon. Together, they established a culture respected throughout the world which cherished responsibility, innovation and entrepreneurship, and which was based upon honesty and fair dealing.

Consistent with the Company's values, this transaction should be debated on the merits, with a Board and Management committed to respecting the views of the shareholders -- whether they vote for or against this transaction.

Because your sales pitch has become so personal as it relates to Walter Hewlett and the Hewlett Foundation, I concluded that I should respond publicly to each of your major arguments. I do so because of my respect for the Company, its employees, its shareholders, and for the two founding families who have done so much for our community and our country.

1. You have asserted that 36,000 jobs (41% of the HP workforce) will be at risk if the transaction is not approved.

The fact is that 36,000 jobs will not be at risk if the acquisition of Compaq is voted down by shareholders. The HP Board would never support such action even if you decided to propose it.

2. You seek to discredit Walter Hewlett, questioning his right to speak up as a director and shareholder -- a strange assertion in light of the recent events at Enron. Additionally, you imply that Walter is alone in his opposition to this transaction while other Board members with some "300 years" of business experience are in favor.

A director and shareholder should speak out concerning a matter submitted for shareholder approval if he believes the transaction is not in the best interests of the shareholders, and indeed, that it might jeopardize the future of this great company.

In addition, as you know, the opposition to this transaction is widespread. Many business executives, investment professionals and concerned shareholders have come to the same conclusion as Walter, even after you have personally tried to sell your proposal to them. Investors have spoken with their valuation of the HP stock (down 23% the week after the proposal was announced, compared to the S&P 500 which was down 4% that week); many stock analysts have serious questions about the transaction; and by the Company's own admission, large numbers of current and former HP employees (many of whom are running top companies in the Silicon Valley) question the transaction. As you also know, members of the Hewlett family, members of the Packard family, Trustees of the William R. Hewlett Revocable Trust, and Directors of The William and Flora Hewlett Foundation and The David and Lucile Packard Foundation -- all shareholders with extensive knowledge and an enormous stake in the Company -- have concluded that this transaction is not in the best interests of the shareholders.

The two Foundations reached that conclusion based upon independent reviews by experienced professional advisors. The reviews by both Foundations included business leaders from many industries and companies, including HP. In the case of the Hewlett Foundation, a Special Committee of four business executives and investment professionals established several years ago to handle all HP stock matters completely independent from the Company and the Hewlett family reached that conclusion after a study led by Laurance Hoagland, its Chief Investment Officer. Mr. Hoagland previously served as President of Stanford Management Company, overseeing $10 billion of investment assets for Stanford.

The Packard Foundation conducted a separate and independent review of the transaction, employing Booz Allen & Co. to lead the study. The result of that review was a determination by the Packard Board that the transaction was not in the best interests of the shareholders.

The combined years of experience of these business leaders who agree with Walter is more than comparable to the "300 years" you cite.

3. Despite Mr. Hewlett's 15 years on the HP Board, you suggest that because he is an "academic and musician," he should not be taken seriously. Perhaps you have forgotten that one of the great directors of HP and of the William and Flora Hewlett Foundation, Dr. Condoleeza Rice, is also an "academic and musician" who now serves with great distinction as National Security Advisor to President Bush.

4. You argue that all of the opposition to the merger is based on a desire to return to the past (the subject of a costly nationwide advertising campaign which you launched).

As you know from trying personally to convince both Foundations to vote in favor of the acquisition, such an argument is without merit. Rather, the opposition is based upon a careful assessment and thorough professional review which has led the Foundations and the Hewlett Trust to conclude that the potential benefits of this transaction are marginal at best and are far outweighed by its risks -- that it is not a sound value proposition for the shareholders. History tells us that acquisitions, particularly of this magnitude, are seldom successful.

Compaq's own history shows how such an attempt can lead to severe deterioration in a company, and, as you know, Compaq used the same rationale for its acquisitions of DEC and Tandem that you are using today.

5. Finally you imply that if the shareholders do not vote with you, there will be chaos at HP for a long time to come.

Part of that chaos, you suggest, would come from a decision by you to step down. That action would not result in chaos; instead, the HP Board would most certainly move quickly to fulfill its responsibilities by establishing a strong management team and assessing the Company's strategic alternatives. Moreover, there can be little question that HP employees would enthusiastically recommit themselves to restoring energy, cohesiveness and innovation to capitalize on HP's opportunities and to address the challenges facing the Company. To suggest that there are no good alternatives is to ignore the recent success of IBM which reformed itself from within. The suggestion that there are no good alternatives at HP also ignores the great strengths of HP -- its employees and their capacity to innovate, its cutting edge research and development, its leading position in the rapidly growing imaging markets, and its ability to build upon its strengths in wireless devices, storage products, servers, networking devices and high end consulting services, providing highly differentiated products and services for robust and growing markets.

I hope we can now turn to a debate, free from personal attacks, about the merits of the transaction, with an explicit recognition of the right and responsibility of shareholders to express their views on that transaction and for the board and management to honor their views, even if different from your own.

Sincerely,

James C. Gaither