EXHIBIT 99.1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This joint proxy statement/prospectus and the documents incorporated by
reference into this joint proxy statement/prospectus contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties, as well as assumptions, that, if
they never materialize or prove incorrect, could cause the results of HP and
its consolidated subsidiaries, on the one hand, or Compaq and its consolidated
subsidiaries, on the other, to differ materially from those expressed or
implied by such forward-looking statements. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements. For example, forward-looking statements include
projections of earnings, revenues, synergies, accretion or other financial
items; any statements of the plans, strategies and objectives of management for
future operations, including the execution of integration and restructuring
plans and the anticipated timing of filings, approvals and the closing relating
to the merger; any statements concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; statements of belief and any statement of
assumptions underlying any of the foregoing. The risks, uncertainties and
assumptions referred to above include the challenge of managing asset levels,
including inventory; the difficulty of keeping expense growth at modest levels
while increasing revenues; the assumption of maintaining revenues on a combined
company basis following the merger; and other risks and uncertainties described
in the section entitled "Risk Factors" which follows on the next page and in
the documents that are incorporated by reference into this joint proxy
statement/prospectus.
If any of these risks or uncertainties materializes or any of these
assumptions proves incorrect, results of HP and Compaq could differ materially
from the expectations in these statements. HP and Compaq are not under any
obligation and do not intend to update their respective forward-looking
statements.
RISK FACTORS
HP and Compaq will operate as a combined company in a market environment
that cannot be predicted and that involves significant risks, many of which
will be beyond its control. In addition to the other information contained in,
or incorporated by reference into, this joint proxy statement/prospectus, you
should carefully consider the risks described below before deciding how to vote
your shares. Additional risks and uncertainties not presently known to HP and
Compaq or that are not currently believed to be important to you also may
adversely affect the merger and HP and Compaq as a combined company.
Although HP and Compaq expect that the merger will result in benefits to the
combined company, the combined company may not realize those benefits because
of integration and other challenges.
The failure of the combined company to meet the challenges involved in
integrating the operations of HP and Compaq successfully or otherwise to
realize any of the anticipated benefits of the merger, including anticipated
cost savings described in this joint proxy statement/prospectus, could
seriously harm the results of operations of the combined company. Realizing the
benefits of the merger will depend in part on the integration of technology,
operations, and personnel. The integration of the companies is a complex,
time-consuming and expensive process that, without proper planning and
implementation, could significantly disrupt the businesses of HP and Compaq.
The challenges involved in this integration include the following:
. demonstrating to the customers of HP and to the customers of Compaq that
the merger will not result in adverse changes in client service
standards or business focus and helping customers conduct business
easily with the combined company;
. consolidating and rationalizing corporate IT and administrative
infrastructures;
. consolidating manufacturing operations;
. combining product offerings;
. coordinating sales and marketing efforts to effectively communicate the
capabilities of the combined company;
. coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
. preserving distribution, marketing or other important relationships of
both HP and Compaq and resolving potential conflicts that may arise;
. minimizing the diversion of management attention from ongoing business
concerns;
. persuading employees that the business cultures of HP and Compaq are
compatible, maintaining employee morale and retaining key employees; and
. coordinating and combining overseas operations, relationships and
facilities, which may be subject to additional constraints imposed by
local laws and regulations.
The combined company may not successfully integrate the operations of HP and
Compaq in a timely manner, or at all, and the combined company may not realize
the anticipated benefits or synergies of the merger to the extent, or in the
timeframe, anticipated. The anticipated benefits and synergies relate to cost
savings associated with anticipated restructurings and other operational
efficiencies, greater economies of scale and revenue enhancement opportunities.
However, these anticipated benefits and synergies are based on projections and
assumptions, not actual experience, and assume a successful integration. In
addition to the integration risks discussed above, the combined company's
ability to realize these benefits and synergies could be adversely impacted by
practical or legal constraints on its ability to combine operations or
implement workforce reductions.
Compaq shareowners will receive a fixed ratio of 0.6325 of a share of HP
common stock for each share of Compaq common stock regardless of any changes in
market value of Compaq common stock or HP common stock before the completion of
the merger.
Upon completion of the merger, each share of Compaq common stock will be
converted into the right to receive 0.6325 of a share of HP common stock. The
market values of HP common stock and Compaq common stock have varied since HP
and Compaq entered into the merger agreement and will continue to vary in the
future due to changes in the business, operations or prospects of HP and
Compaq, market assessments of the merger, regulatory considerations, market and
economic considerations, and other factors. The dollar value of HP common stock
that Compaq shareowners will receive upon completion of the merger will depend
on the market value of HP common stock at the time of completion of the merger,
which may be different from, and lower than, the closing price of HP common
stock on the last full trading day preceding public announcement that HP and
Compaq entered into the merger agreement, the last full trading day prior to
the date of this joint proxy statement/prospectus or the date of the special
meetings. Moreover, completion of the merger may occur some time after
shareowner approval has been obtained. There will be no adjustment to the
exchange ratio (except for adjustments to reflect the effect of any stock split
or other recapitalization of HP common stock or Compaq common stock), and the
parties do not have a right to terminate the merger agreement, based upon
changes in the market price of either HP common stock or Compaq common stock.
Some of the directors and executive officers of HP and Compaq have interests
and arrangements that could have affected their decision to support or approve
the merger.
The interests of some of the directors and executive officers of HP and
Compaq in the merger and their participation in arrangements that are different
from, or are in addition to, those of HP and Compaq shareowners generally could
have affected their decision to support or approve the merger. These interests
include severance arrangements, retention bonuses contingent upon the
completion of the merger, employment agreements that are being negotiated in
connection with the merger and the acceleration of vesting of certain stock
options and restricted stock in connection with the merger. As a result, these
directors and officers may be more likely to recommend the proposals relating
to the merger than if they did not have these interests. Please see the section
entitled "Interests of HP and Compaq Directors and Executive Officers in the
Merger" beginning on page 64 of this joint proxy statement/prospectus.
HP and Compaq may be unable to obtain the regulatory approvals required to
complete the merger or, in order to do so, the combined company may be required
to comply with material restrictions or conditions.
The merger is subject to review by the United States Federal Trade
Commission under the Hart-Scott-Rodino Improvements Act of 1976, by the
European Commission under Council Regulation No. 4064/89 of the European
Community, and by the Canadian Competition Bureau under the Competition Act
(Canada). Under each of these statutes, HP and Compaq are required to make
pre-merger notification filings and to await the expiration or early
termination of statutory waiting periods and clearance prior to completing the
merger. Each of HP and Compaq received a request for additional information and
other documentary material from the Federal Trade Commission under the
Hart-Scott-Rodino Act in connection with the merger. This request effectively
extends the waiting period for the merger under the Hart-Scott-Rodino Act. In
practice, complying with a request for additional information or material under
the Hart-Scott-Rodino Act can take a significant amount of time. The merger
also may be subject to review by the governmental authorities of various other
jurisdictions under the antitrust laws of those jurisdictions. HP and Compaq
have not yet obtained any of the governmental or regulatory approvals required
to complete the merger.
The reviewing authorities may not permit the merger at all or may impose
restrictions or conditions on the merger that may seriously harm the combined
company if the merger is completed. These conditions could include a complete
or partial license, divestiture, spin-off or the holding separate of assets or
businesses. Either HP or Compaq may refuse to complete the merger if
restrictions or conditions are required by governmental authorities that would
materially adversely impact the combined company's results of operations or the
benefits anticipated to be derived by the combined company. Any delay in the
completion of the merger could diminish the anticipated benefits of the merger
or result in additional transaction costs, loss of revenue or other effects
associated with uncertainty about the transaction.
HP and Compaq also may agree to restrictions or conditions imposed by
antitrust authorities in order to obtain regulatory approval, and these
restrictions or conditions could harm the combined company's operations. No
additional shareowner approval is expected to be required or sought for any
decision by HP or Compaq, after the special meeting of Compaq shareowners and
the special meeting of HP shareowners, to agree to any terms and conditions
necessary to resolve any regulatory objections to the merger, and shareowner
approval will not be sought unless the shareowner approval is required to
approve such terms and conditions under applicable law.
In addition, during or after the statutory waiting periods, and even after
completion of the merger, governmental authorities could seek to block or
challenge the merger as they deem necessary or desirable in the public
interest. In addition, in some jurisdictions, a competitor, customer or other
third party could initiate a private action under the antitrust laws
challenging or seeking to enjoin the merger, before or after it is completed.
HP, Compaq or the combined company may not prevail, or may incur significant
costs, in defending or settling any action under the antitrust laws.
The stock prices and businesses of HP and Compaq may be adversely affected
if the merger is not completed.
If the merger is not completed, the price of HP common stock and Compaq
common stock may decline to the extent that the current market prices of HP
common stock and Compaq common stock reflect a market assumption that the
merger will be completed. In addition, HP's business and Compaq's operations
may be harmed to the extent that customers, suppliers and others believe that
the companies cannot effectively compete in the marketplace without the merger,
or otherwise remain uncertain about the companies. HP and Compaq also will be
required to pay significant costs incurred in connection with the merger,
including legal, accounting and a portion of the financial advisory fees,
whether or not the merger is completed. Moreover, under specified
circumstances, HP may be required to pay Compaq a termination fee of $675
million, or Compaq may be required to pay HP a termination fee of $675 million,
in connection with the termination of the merger agreement.
Charges to earnings resulting from the application of the purchase method of
accounting may adversely affect the market value of HP's common stock following
the merger.
In accordance with United States generally accepted accounting principles,
the combined company will account for the merger using the purchase method of
accounting, which will result in charges to earnings that could have a material
adverse effect on the market value of the common stock of HP following
completion of the merger. Under the purchase method of accounting, the combined
company will allocate the total estimated purchase price to Compaq's net
tangible assets, amortizable intangible assets, intangible assets with
indefinite lives and in-process research and development based on their fair
values as of the date of completion of the merger, and record the excess of the
purchase price over those fair values as goodwill. The portion of the estimated
purchase price allocated to in-process research and development will be
expensed by the combined company in the quarter in which the merger is
completed. The combined company will incur additional depreciation and
amortization expense over the useful lives of certain of the net tangible and
intangible assets acquired in connection with the merger. In addition, to the
extent the value of goodwill or intangible assets with indefinite lives becomes
impaired, the combined company may be required to incur material charges
relating to the impairment of those assets. These depreciation, amortization,
in-process research and development and potential impairment charges could have
a material impact on the combined company's results of operations.
Customer uncertainties related to the merger could adversely affect the
businesses and results of operations of HP, Compaq and the combined company.
In response to the announcement of the merger or due to ongoing uncertainty
about the merger, customers of HP or Compaq may delay or defer purchasing
decisions or elect to switch to other suppliers. In particular, prospective
customers could be reluctant to purchase the combined company's products due to
uncertainty about the direction of the combined company's product offerings and
willingness to support and service existing products. To the extent that the
merger creates uncertainty among those persons and organizations contemplating
hardware, software or service purchases such that one large customer, or a
significant group of smaller customers, delays, defers or changes purchases in
connection with the planned merger, results of operations of HP, Compaq or the
combined company would be adversely affected. Further, customer assurances may
be made by HP and Compaq to address their customers' uncertainty about the
direction of the combined company's product and related support offerings which
may result in additional obligations of HP, Compaq or the combined company.
Accordingly, quarterly results of operations of HP, Compaq or the combined
company could be substantially below expectations of market analysts and a
decline in the companies' respective stock prices could result.
In order to be successful, the combined company must retain and motivate key
employees, which will be more difficult in light of uncertainty regarding the
merger, and failure to do so could seriously harm the combined company.
In order to be successful, the combined company must retain and motivate
executives and other key employees. The market for highly skilled employees is
limited, and the loss of key employees could have a significant impact on the
combined company's operations. Employee retention may be a particularly
challenging issue in connection with the merger. Accordingly, the compensation
committee of the HP board of directors (consisting of Philip M. Condit, Sam
Ginn and Walter B. Hewlett) and the human resources committee of the Compaq
board of directors (consisting of Lawrence T. Babbio, Judith L. Craven and
Kenneth L. Lay), acting on the authority of the HP board of directors and the
Compaq board of directors, respectively, designed and adopted retention
programs to assure the continued dedication of key employees and to provide key
employees with financial incentives to remain with the combined company
following the completion of the merger. A number of factors, however, may
counteract the benefits of these retention programs. In particular, employees
of HP or Compaq may experience uncertainty about their future role with the
combined company until or after strategies with regard to the combined company
are announced or executed. This circumstance may adversely affect the combined
company's ability to attract and retain key management, marketing and technical
personnel. The combined company also must continue to motivate employees and
keep them focused on the strategies and goals of the combined company, which
may be particularly difficult due to the potential distractions of the merger,
morale challenges posed by the separate workforce reductions being implemented
by HP and Compaq and the additional workforce reductions of the combined
company anticipated in connection with the merger.
The economic downturn could adversely affect the results of operations of
the combined company.
The results of operations of the combined company will depend significantly
on the overall demand for computing and imaging products and services,
particularly in the product and service segments in which it will compete.
Softening demand for the products and services of HP and Compaq caused by the
ongoing economic downturn may result in decreased revenues, earnings levels or
growth rates and issues relating to the saleability of inventory and
realizability of customer receivables for the combined company in the future.
The global economy has weakened and market conditions continue to be
challenging. As a result, individuals and companies are delaying or reducing
expenditures, including those for information technology. Delays or reductions
in information technology spending could have a material adverse effect on
demand for the combined company's products and services, and consequently, its
results of operations, prospects and stock price.
The competitive pressures the combined company will face could harm its
operations and prospects.
The combined company will encounter aggressive competition from numerous and
varied competitors in all areas of its business, and will compete primarily on
the basis of technology, performance, price, quality, reliability,
distribution, customer service and support. If the combined company fails to
develop new products, services and support, periodically enhance its existing
products, services and support, or otherwise compete successfully, it could
harm its operations and prospects. Further, the combined company may have to
continue to lower the prices of many of its products, services and support to
stay competitive, while at the same time trying to maintain or improve gross
margins. If the combined company cannot proportionately decrease its cost
structure, its gross margins and therefore the profitability of the combined
company could be adversely affected.
If the combined company cannot continue to develop, manufacture and market
innovative products and services rapidly that meet customer requirements for
performance and reliability, it may lose market share and its results of
operations may suffer.
The process of developing new high technology products and services is
complex and uncertain, and failure to accurately anticipate customers' changing
needs and emerging technological trends and to develop or obtain appropriate
intellectual property could significantly harm the combined company. The
combined company must make long-term investments and commit significant
resources before knowing whether its predictions will eventually result in
products that the market will accept. After a product is developed, the
combined company must be able to manufacture sufficient volumes quickly and at
low costs. To accomplish this, it must accurately forecast volumes, mix of
products and configurations that meet customer requirements, and it may not
succeed.
If the combined company does not effectively manage the transition from
existing products to new products, its results of operations may suffer.
If the combined company does not make an effective transition from existing
products to new products, its results of operations may be seriously harmed.
Among the factors that make a smooth transition from current products to new
products difficult are delays in product development or manufacturing,
variations in product costs, delays in customer purchases of existing products
in anticipation of new product introductions and customer demand for the new
product. The combined company's results of operations may also suffer due to
the timing of product or service introductions by its suppliers and
competitors. This is especially challenging when a product has a short life
cycle or a competitor introduces a new product just before the combined
company's own product introduction. Furthermore, sales of the combined
company's new products may replace sales of some of the current products of HP
and Compaq, offsetting the benefit of even a successful product introduction.
There may also be overlaps in the current products of HP and Compaq product
portfolios that will be reduced or eliminated in connection with the merger. If
the combined company incurs delays in new product introductions, or does not
accurately estimate the market effects of new product introductions, given the
competitive nature of its industry, future demand for its products and its
revenues may be seriously harmed.
The combined company's operations will suffer if it cannot continue to
license or enforce the intellectual property rights on which its business will
depend or if third parties assert that the combined company violates their
intellectual property rights.
The combined company generally will rely upon patent, copyright, trademark
and trade secret laws in the United States and similar laws in other countries,
and agreements with its employees, customers, partners and other parties, to
establish and maintain its intellectual property rights in technology and
products used in the combined company's operations. However, any of its
intellectual property rights could be challenged, invalidated or circumvented,
or its intellectual property rights may not provide competitive advantages,
which could significantly harm its business. Also, because of the rapid pace of
technological change in the information technology industry, much of the
combined company's business and many of its products will rely on key
technologies developed by third parties, and the combined company may not be
able to continue to obtain licenses and technologies from these third parties.
Third parties also may claim that the combined company is infringing upon their
intellectual property rights. Even if the combined company does not believe
that its products or business are infringing upon third parties' intellectual
property rights, the claims can be time-consuming and costly to defend and
divert management's attention and resources away from the combined company's
business. Claims of intellectual property infringement might also require the
combined company to enter into costly settlement or license agreements. If the
combined company cannot or does not license the infringed technology or
substitute similar technology from another source, its operations could suffer.
In addition, it is possible that as a consequence of the merger, some
intellectual property rights of the combined company may be licensed to a third
party that had not been licensed prior to the creation of the combined company
or that certain restrictions are imposed on the business of the combined
company that had not been imposed on the business of HP or Compaq prior to the
merger. Consequently, the combined company may lose a competitive advantage
with respect to these intellectual property rights or the combined company may
be required to enter into costly arrangements in order to terminate or limit
these agreements.
If the combined company fails to manage distribution of its products and
services properly, or if its distributors' financial condition or operations
weaken, the combined company's results of operations could suffer.
The combined company will use a variety of different distribution methods to
sell its products and services, including third-party resellers and
distributors and both retail and direct sales to both enterprise accounts and
consumers. Since each distribution method has distinct risks and gross margins,
if the combined company fails to implement the most advantageous balance in the
delivery model for its products and services, it could adversely affect the
results of operations of the combined company. In addition, if the combined
company increases its commitment to direct sales, it could risk alienating
channel partners and adversely affecting its distribution model.
Some of the combined company's wholesale and retail distributors may have
insufficient financial resources and may not be able to withstand changes in
business conditions, including changes that may result from the merger. The
results of operations of the combined company could suffer if its distributors'
financial condition or operations weaken or if its relationships with them
deteriorate. Additionally, inventory management of the combined company will be
complex as the combined company will continue to sell a significant mix of
products through distributors.
Distributors may increase orders during times of product shortages, cancel
orders if their inventory is too high, or delay orders in anticipation of new
products. Distributors also may adjust their orders in response to the supply
of the combined company's products and the products of its competitors that are
available to the distributor and seasonal fluctuations in end-user demand. If
the combined company has excess inventory, it may have to reduce its prices and
write down inventory, which in turn could result in lower gross margins.
The combined company will depend on third party suppliers and its results of
operations could suffer if it fails to receive timely delivery of quality
components or if it fails to manage inventory levels properly.
The manufacturing operations of the combined company will depend on the
combined company's ability to anticipate its needs for components and product
and its suppliers' ability to deliver quality components and products in time
to meet critical manufacturing and distribution schedules. Given the wide
variety of systems, products and services that the combined company will offer
and the large number of its suppliers and contract manufacturers that are
dispersed across the globe, problems could arise in planning production and
managing inventory levels that could seriously harm the combined company. The
combined company occasionally may experience a short supply of certain
component parts as a result of strong demand in the industry for those parts.
If shortages or delays persist, the results of operations of the combined
company could suffer until other sources can be developed. In order to secure
components for the production of new products, at times the combined company
may make advance payments to suppliers, or it may enter into non-cancelable
purchase commitments with vendors. If the prices of these component parts then
decrease or the combined company fails to properly anticipate customer demand
for its products or services after it has entered into binding price or
purchase agreements, the combined company's results of operations could suffer.
Furthermore, the combined company may not be able to secure enough components
at reasonable prices to build new products in a timely manner in the quantities
and configurations needed. Conversely, a temporary oversupply of these parts
also could adversely affect the combined company's results of operations. In
addition, failure to comply with import and export laws could result in
significant financial penalty or restriction on the combined company's actions
that could adversely affect its businesses.
Due to the international nature of the combined company's business,
political or economic changes could harm its future results of operations and
financial condition.
At the time of the completion of the merger, sales outside the United States
will make up more than half of the combined company's revenues. The future
results of operations and financial condition of the combined company could be
adversely affected by a variety of international factors, including:
. changes in a country's or region's political or economic conditions;
. longer accounts receivable cycles;
. trade protection measures;
. import or export licensing requirements;
. overlap of different corporate structures;
. unexpected changes in regulatory requirements;
. differing technology standards and/or customer requirements;
. problems caused by the conversion of various European currencies to the
Euro and macroeconomic dislocations that may result; and
. natural disasters.
A portion of the combined company's product and component manufacturing,
along with key suppliers, also will be located outside of the United States,
and also could be disrupted by some of the international factors described
above.
The combined company will be exposed to foreign currency exchange rate and
interest rate risks that could impact the results of operations of the combined
company.
The combined company will be exposed to foreign currency exchange rate risk
that will be inherent in its sales commitments, anticipated sales, and assets
and liabilities that are denominated in currencies other than the United States
dollar. The combined company also will be exposed to interest rate risk
inherent in its debt and investment portfolios. Failure to sufficiently hedge
or otherwise manage foreign currency risks properly could adversely affect the
combined company's results of operations. In addition, any downgrade in HP's
credit ratings associated with the merger would result in increased borrowing
costs, more restrictive covenants and the extension of less open credit, all of
which could negatively affect results of operations.
Impairment of investment and financing portfolios could harm the combined
company's results of operations.
The combined company will have an investment portfolio that will include
minority equity and debt investments and financing for the purchase of its
products and services. In most cases, the combined company will not attempt to
reduce or eliminate its market exposure on these investments and may incur
losses related to the impairment of these investments and therefore charges to
earnings. A number of the combined company's investments will be in privately
held companies that are still in the start-up or development stage. These
investments have inherent risks because the markets for the technologies or
products they have under development are typically in the early stages and may
never develop. Furthermore, the values of the combined company's investments in
publicly-traded companies will be subject to significant market price
volatility. The combined company's investments in technology companies often
will be coupled with a strategic commercial relationship. The combined
company's commercial agreements with these companies may not be sufficient to
allow it to obtain and integrate such products or technology into its
technology or product lines or otherwise benefit from the relationship, and
these companies may be subsequently acquired by third parties, including
competitors of the combined company. Moreover, due to the economic downturn and
difficulties that may be faced by some of the companies to which HP, Compaq or
the combined company has supplied financing, the combined company's investment
portfolio could be further impaired.
Failure to complete acquisitions and alliances and successfully integrate or
divest businesses or product lines could seriously harm the combined company's
results of operations.
In the normal course of business, HP and Compaq frequently engage in
discussions with third parties relating to possible acquisitions, strategic
alliances, joint ventures and divestitures. Completion of large, complex
transactions may have a material effect on the financial position, results of
operations or cash flows of the combined company taken as a whole, and any
transaction may contribute to the combined company's financial results
differing from the investment community's expectations in a given quarter.
Acquisitions and strategic alliances may require the combined company to
integrate with a different company culture, management team
and business infrastructure and could result in material restructuring charges.
The combined company also may have to develop, manufacture and market products
with its products in a way that enhances the performance of the combined
business or product line and otherwise manage integration risks. Even if an
acquisition or alliance is successfully integrated, the combined company may
not receive the expected benefits of the transaction. Divestitures of part of
the combined company's business may result in the cancellation of orders and
charges to earnings. In addition, a transaction may not be completed at all, in
which case the combined company will not realize the intended benefits of the
transaction and may be adversely affected by negative market perception
relating to the pursuit of the transaction. Managing acquisitions, alliances
and divestitures require varying levels of management resources, which may
divert the combined company's attention from other business operations.
Currently, HP has several acquisitions that are pending completion, including
the proposed merger with Compaq, or that recently have been completed and are
still being integrated. The number of pending transactions and the size and
scope of the proposed merger with Compaq increase both the scope and
consequences of ongoing integration risks.
Terrorist acts and acts of war may seriously harm the combined company's
business and results of operations.
Terrorist acts or acts of war (wherever located around the world) may cause
damage or disruption to the combined company, its employees, facilities,
partners, suppliers, distributors and resellers, and customers, which could
significantly impact the combined company's results of operations. The
terrorist attacks that took place in the United States on September 11, 2001
were unprecedented events that have created many economic and political
uncertainties, some of which may materially harm the combined company's
business and results of operations. The long-term effects of the September 11,
2001 attacks on the combined company's business and results of operations are
unknown. The potential for future terrorist attacks, the national and
international responses to terrorist attacks, and other acts of war or
hostility have created many economic and political uncertainties, which could
adversely affect the business and results of operations of HP, Compaq or the
combined company in ways that cannot presently be predicted. In addition, as
major multi-national companies with headquarters and significant operations
located in the United States, any of HP, Compaq or the combined company may be
impacted by actions against the United States. The combined company will be
predominantly uninsured for losses and interruptions caused by terrorist acts
and acts of war.
Business disruptions could seriously harm future results of operations of
the combined company.
The combined company's worldwide operations could be subject to natural
disasters and other business disruptions which could seriously harm its results
of operations and financial position. The corporate headquarters of the
combined company, a portion of its research and development activities, other
critical business operations and a certain number of its suppliers will be
located in California, near major earthquake faults. The ultimate impact on the
combined company, its significant suppliers and its general infrastructure of
being located near major earthquake faults is unknown, but results of
operations could be significantly harmed in the event of a major earthquake. In
addition, some areas, including California, have experienced, and may continue
to experience, ongoing power shortages, which have resulted in "rolling
blackouts." These blackouts could cause disruptions to the operations of the
combined company and the operations of its suppliers, distributors and
resellers, and customers. The combined company will be predominantly uninsured
for losses and interruptions caused by earthquakes, power outages and other
natural disasters.
Unforeseen environmental costs could impact the future results of operations
and financial position of the combined company.
Some of the combined company's operations will use substances regulated
under various federal, state and international laws governing the environment.
The combined company could be subject to liability for remediation if it does
not handle these substances in compliance with applicable laws. It will be the
combined company's policy to apply strict standards for environmental
protection to sites inside and outside the United States, even when not subject
to local government regulations. The combined company will record a liability
for environmental remediation and related costs when it considers the costs to
be probable and the amount of the costs can be reasonably estimated.
The revenues and profitability of the operations of HP and Compaq have
historically varied.
The revenues and profit margins of HP and Compaq vary among their respective
products, customer groups and geographic markets. The revenue mix of the
combined company will be different than the revenue mix of either HP or Compaq
alone, particularly with respect to the proportion contributed by personal
computers and printing and imaging devices and supplies. Overall profitability
in any given period is dependent partially on the product, customer and
geographic mix reflected in that period's net revenue, and therefore revenue
and gross margin trends cannot be reliably predicted. Actual trends may cause
the combined company to adjust its operations, which could cause
period-to-period fluctuations in the combined company's results of operations.
Failure to successfully execute planned cost reductions could adversely
affect the combined company's expected results of operations.
Historically, each of HP and Compaq has separately undertaken restructuring
plans to bring operational expenses to appropriate levels for each of its
businesses, while simultaneously implementing extensive new company-wide
expense-control programs. In addition to the previously announced workforce
reductions of the separate companies, the combined company may have additional
workforce reductions. Significant risks associated with these actions that may
impair the ability of the combined company to achieve anticipated cost
reductions or otherwise harm its business include delays in implementation of
anticipated reductions in force in highly regulated locations outside of the
United States, redundancies among restructuring programs, and the failure to
meet operational targets due to the loss of employees or decreases in employee
morale.
HP's stock price has historically fluctuated and may continue to fluctuate.
HP's stock price, like that of other technology companies, can be volatile.
Some of the factors that can affect its stock price are:
. the announcement of new products, services or technological innovations
by HP or its competitors;
. quarterly increases or decreases in HP's revenue or earnings;
. changes in quarterly revenue or earnings estimates by the investment
community; and
. speculation in the press or investment community about HP's strategic
position, financial condition, results of operations, business or
significant transactions.
General market conditions and domestic or international macroeconomic and
geopolitical factors unrelated to HP's performance may also affect HP's stock
price. For these reasons, investors should not rely on recent trends to predict
future stock prices or financial results. In addition, following periods of
volatility in a company's securities, securities class action litigation
against a company is sometimes instituted. This type of litigation could result
in substantial costs and the diversion of management time and resources. HP
anticipates that it will continue to face similar risks associated with stock
price volatility following the merger.
The effective tax rate of the combined company is uncertain.
The impact of the merger on the overall effective tax rate of the combined
company is uncertain. Although the combined company will attempt to optimize
its overall effective tax rate, it is impossible to predict the effective tax
rate of the combined company accurately. The combination of the operations of
HP and Compaq may result in an overall effective tax rate for the combined
company that is higher than HP's currently reported tax rate, and it is
possible that the combined effective tax rate of HP and Compaq as a combined
company may exceed the average of the pre-merger tax rates of HP and Compaq.
Some anti-takeover provisions contained in HP's certificate of
incorporation, bylaws and shareowner rights plan, as well as provisions of
Delaware law, could impair a takeover attempt.
HP has provisions in its certificate of incorporation and bylaws, each of
which could have the effect of rendering more difficult or discouraging an
acquisition deemed undesirable by the HP board of directors. These include
provisions:
. authorizing blank check preferred stock, which could be issued with
voting, liquidation, dividend and other rights superior to its common
stock;
. limiting the liability of, and providing indemnification to, directors
and officers;
. limiting the ability of HP shareowners to call special meetings;
. requiring advance notice of shareowner proposals for business to be
conducted at annual meetings of HP shareowners and for nominations of
candidates for election to the HP board of directors;
. controlling the procedures for conduct of board and shareowner meetings
and election and removal of directors; and
. specifying that shareowners may take action only at a duly called annual
or special meeting of shareowners.
These provisions, alone or together, could deter or delay hostile takeovers,
proxy contests and changes in control or management of HP.
In addition, HP has adopted a shareowner rights plan. The rights are not
intended to prevent a takeover of HP. However, the rights may have the effect
of rendering more difficult or discouraging an acquisition of HP deemed
undesirable by the HP board of directors. The rights will cause substantial
dilution to a person or group that attempts to acquire HP on terms or in a
manner not approved by the HP board of directors, except pursuant to an offer
conditioned upon redemption of the rights.
As a Delaware corporation, HP is also subject to provisions of Delaware law,
including Section 203 of the Delaware General Corporation law, which prevents
some shareowners from engaging in certain business combinations without
approval of the holders of substantially all of HP's outstanding common stock.
Any provision of HP's certificate of incorporation or bylaws, HP's
shareowner rights plan or Delaware law that has the effect of delaying or
deterring a change in control could limit the opportunity for HP shareowners
(including former Compaq shareowners who become HP shareowners upon completion
of the merger) to receive a premium for their shares of HP common stock, and
could also affect the price that some investors are willing to pay for HP
common stock.