HP 2006 Annual Report Download - page 136

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings (Continued)
Note 17: Litigation and Contingencies (Continued)
Thomas J. Perkins from HP’s Board of Directors, HP’s May 22, 2006 and September 6, 2006
filings with the Commission on Form 8-K, stock repurchases by HP and securities transactions
by its officers and directors that occurred between May 1 and October 1, 2006, and HP’s
policies, practices and approval of securities transactions. The Commission has issued a formal
order of investigation in connection with its inquiry. HP has responded and is continuing to
respond to those requests.
• In September 2006, HP received a request from the Federal Communications Commission for
records and information relating to the processes employed in the leak investigation. HP is
responding to that request.
HP is continuing to cooperate fully with all ongoing inquiries and investigations.
On December 7, 2006, HP announced that it has entered into an agreement with the California
Attorney General to resolve civil claims arising from the leak investigation, including a claim made by
the California Attorney General in a Santa Clara County Superior Court action filed on December 7,
2006 that HP committed unfair business practices under California law in connection with the leak
investigation. As a result of this agreement, which includes an injunction, the California Attorney
General will not pursue civil claims against HP or its current and former directors, officers and
employees. Under the terms of the agreement, HP will pay a total of $14.5 million and implement and
maintain for five years a series of measures designed to ensure that HP’s corporate investigations are
conducted in accordance with California law and the company’s high ethical standards. Of the
$14.5 million, $13.5 million will be used to create a Privacy and Piracy Fund to assist California
prosecutors in investigating and prosecuting consumer privacy and information piracy violations,
$650,000 will be used to pay statutory damages and $350,000 will reimburse the California Attorney
General’s office for its investigation costs. There was no finding of liability against HP as part of the
settlement.
In addition, four stockholder derivative lawsuits have been filed in California purportedly on behalf
of HP stockholders seeking to recover damages for alleged breach of fiduciary duty and to require HP
to improve its corporate governance and internal control procedures as a result of the activities of the
leak investigation: Staehr v. Dunn, et al. was filed in Santa Clara County Superior Court on
September 18, 2006; Worsham v. Dunn, et al. was filed in Santa Clara County Superior Court on
September 14, 2006; Tansey v. Dunn, et al. was filed in Santa Clara County Superior Court on
September 20, 2006; and Hall v. Dunn, et al. was filed in Santa Clara County Superior Court on
September 25, 2006. On October 19, 2006, the Santa Clara County Superior Court consolidated the
four California cases under the caption In re Hewlett-Packard Company Derivative Litigation. The
consolidated complaint filed on November 19, 2006 also seeks to recover damages in connection with
sales of HP stock alleged to have been made by certain current and former HP officers and directors
while in possession of material non-public information. An additional stockholder derivative lawsuit,
Pifko v. Babbio, et al., was filed in Chancery Court, County of New Castle, Delaware, on September 19,
2006 seeking to recover damages for alleged breaches of fiduciary duty and to obtain an order
instructing the defendants to refrain from further breaches of fiduciary duty and to implement
corrective measures that will prevent future occurrences of the alleged breaches of fiduciary duty. The
HP Board of Directors has appointed a Special Litigation Committee consisting of independent Board
members authorized to investigate, review, and evaluate the facts and circumstances asserted in these
derivative matters and to determine how HP should proceed in these matters.
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