HP Sends Letter to Walter Hewlett

Dear Walter:

We continue to be extremely disappointed with the manner in which you have chosen to oppose the merger with Compaq. We take serious issue with your latest set of public statements on this topic.

As you are well aware, merging with Compaq is the culmination of a two-and-a-half year process - a process in which the Board of Directors took a long, hard look at what was right and what was wrong with our business. This process began with the Board's acknowledgement that -- in light of the changing industry dynamics - HP was losing ground and decisive action was required. When the board brought in a new CEO, we began an intensive evaluation of our customers' needs and HP's ability to meet them.

While we fully agree with your view that HP must invest in and grow our imaging and printing business, the health and profitability of our other businesses impact our ongoing ability to make these investments. Furthermore, high-growth categories like digital publishing and digital imaging are completely interrelated to HP's capabilities in storage, servers, network management and services.

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Merging with Compaq will enable HP to fill the gaps in our enterprise portfolio in a way that simply can't be achieved through organic growth and small, targeted acquisitions. Compaq brings market-leadership in critical growth markets, like Windows servers, high-performance computing and enterprise storage.

With Compaq, we will double our service and support capacity in mission critical consulting, outsourcing and support. Support is not a low-margin business as you've suggested, but a highly profitable business that we want more of.

HP shouldn't simply walk away from the PC business. PCs are important to our strategy of being an end-to-end solutions provider. As you know, we have already outsourced our PC manufacturing. We can fix this business, but more needs to be done. Specifically, by combining HP's successful retail model with Compaq's commercial model we can build a profitable, cash-generating business and achieve far more together - faster - than either company could on its own.

Furthermore, recent statements that you have made about our CEO suggest to the public that she and management have been making strategic decisions independently and mere rubber-stamping is occurring at the Board level. You are misrepresenting our thorough process and the intensive effort we undertook to evaluate numerous alternatives. As you know, we vigorously debated all matters of strategy, including the Compaq merger. You have insulted our personal commitment and fiduciary responsibility which each of us takes very seriously.

Lastly, we want to state clearly that your comments about our CEO do not represent the opinion of your fellow Board members. We have never wavered in our confidence in Carly and our support for her performance. You know this firsthand.

Signed,

Philip M. Condit

Patricia C. Dunn

Richard A. Hackborn

Sam Ginn

George A. Keyworth II

Robert E. Knowling Jr.

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