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After months of battling each other behind the scenes, the key legal strategists in the war over Hewlett-Packard Co.’s fate finally faced off in the Delaware Court of Chancery on Tuesday. Stephen Neal of Palo Alto, Calif.-based Cooley Godward took the lead for client Walter Hewlett, making a smooth presentation that took a surprising twist. Hewlett-Packard’s lead lawyer, Larry Sonsini, of Palo Alto-based Wilson Sonsini Goodrich & Rosati, observed from the gallery as his litigation partners handled trial duties, but his influence was clearly on display. At stake is the future of Palo Alto-based Hewlett-Packard, which is moving ahead with its merger with Compaq Computer Corp. Hewlett, son of one of the company’s founders, has for months attempted to derail the merger, first with an unsuccessful proxy fight and now with a lawsuit. Hewlett claims that last month’s shareholder vote narrowly approving the merger should be invalidated because the company improperly pressured certain big shareholders to switch their votes and because the company misled the public about integration plans. From the start it was clear that Neal, who has significant courtroom experience, enjoys performing in a high-pressure setting like this. Before the proceedings began he casually strolled through the packed courtroom, joking and chatting with lawyers and onlookers. He kept up a light, almost playful tone during his opening statement, starting with a joke about advice given to him by his brother, a former judge. (Richard Neal was a justice on the California 2nd District Court of Appeal.) In a surprise move, Neal did not focus on the allegations that HP engaged in improper vote-buying with Deutsche Bank Asset Management � even though those claims formed the primary basis of the complaint and have been widely touted in the press. Apparently without any smoking guns to back up those allegations, Neal instead turned the court’s attention mainly to claims that HP management misled investors about the progress of its integration plans. Neal and his team unearthed dramatic internal company documents that appeared to show that, unbeknownst to investors, the company’s integration plans were way off course. As he lifted up a series of large white exhibit boards, Neal showed Chancellor William Chandler III, the judge in the case, a series of seemingly critical messages about the merger from inside HP’s ranks. One board, for example, indicated that — according to a member of the integration team — projected 2003 earnings per share would be 20 percent below what the company had said they would be in its securities filings. In another exhibit, Neal displayed a March excerpt from the personal journal of Michael Capellas, the CEO of Compaq. Capellas wrote: “Sobering thought. We are about to really start one of the most historic periods in U.S. business history. Case study for years. At the current course and speed we will fail.” Around the same time, Neal noted, HP CEO Carly Fiorina was publicly stating that the combined companies would “overachieve” the synergies sought. “There was material information that was not disclosed to the shareholders of this company,” Neal stressed in his bass voice. In contrast to Neal’s strong and confident presentation, Hewlett-Packard’s opening got off to a rocky start. Wilson Sonsini partner Steven Schatz seemed visibly nervous — almost rattled — by the pressure. His voice was high-pitched, faltering and at times barely audible. He rocked from side to side at the podium, darting at times toward exhibits managed by two junior attorneys. The judge occasionally had to remind him to speak into the microphone. Schatz, who also argued the unsuccessful motion to dismiss before Chandler, started off by chastising Hewlett and his legal team. He claimed they had “dragged Hewlett-Packard’s officers and directors through the mud both in the courtroom and in the national media based on nothing but speculations and supposition, not fact.” Addressing the embarrassing internal documents highlighted by Neal, Schatz said they were quoted out of context and didn’t reflect the full picture of what was going on at HP. “It’s just a little snippet,” he said about the damaging numbers Neal revealed. During Schatz’s unsteady performance, Sonsini sat in the viewers’ gallery, in the first row on the aisle. For much of that time, Sonsini kept his head down and did not look at Schatz. The influence of Sonsini — who has described himself as the principal architect of this transaction — became evident during the testimony of HP’s Fiorina, who was Neal’s first witness. Before she took the stand, Fiorina conferred privately with Sonsini at the side of the courtroom during a break. Later, when she stepped down from the stand for the lunch break, Sonsini rushed to the stand and was the first to talk to her. The exchange between Neal and Fiorina was a battle of wills. Neal kept his tone light and respectful and continued to make occasional jokes, but insistently pressed the CEO about the accuracy of numbers disclosed in securities filings. Fiorina just as adamantly maintained that Neal had twisted the facts. Neal repeated questions two, three, sometimes four times, seeking the answer he wanted. “When did you first tell shareholders after Dec. 19 that you were no longer predicting $4.9 billion of operating profit?” Neal asked. Fiorina danced around the question, and Neal asked it again. Finally, Fiorina admitted she hadn’t told shareholders. (She would later explain that she didn’t consider this information solid enough to pass along to shareholders.) Fiorina’s questioning was handled by Wilson Sonsini partner Boris Feldman, who easily guided his client through a series of questions designed to show all the careful planning behind the merger. She stressed that the figures cited by Neal from the internal documents were simply “snapshots,” and did not reflect the entire picture. The proceedings ended Tuesday before Neal had a chance to re-examine Fiorina. Susan Beck is a senior writer for The American Lawyer based in San Francisco.

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