News release

U.S. Appeals Court Reverses U.S. Tax Court Decision Regarding Compaq Arbitrage Transaction

In an opinion released Friday, December 28, 2001, the U.S. Fifth Circuit Court of Appeals has agreed with Compaq Computer Corporation's (NYSE: CPQ) position on the tax implications of a 1992 arbitrage transaction and has reversed a decision of the U.S. Tax Court imposing penalties on Compaq.

Compaq appealed the 1999 U.S. Tax Court ruling concerning tax implications of an arbitrage transaction relating to Royal Dutch Shell American Depository Receipts.

The Fifth Circuit sided with Compaq, characterizing the U.S. Tax Court's analysis of the profitability of the arbitrage as "employing a curious method of calculation" involving "neither the transaction's pre-tax profitability nor its post-tax profitability." At issue was the proper treatment of Netherlands withholding taxes on dividends in the calculation of pre-tax income. Compaq had maintained that the arbitrage was profitable on both a pre-tax and after-tax basis.

"We are extremely pleased with the opinion. We always believed our position was sound and within the law and would ultimately prevail in the courts," said Tom McBride, Compaq vice president of Taxes.

Company Background

Founded in 1982, Compaq Computer Corporation is a leading global provider of enterprise technology and solutions. Compaq designs, develops, manufactures and markets hardware, software, solutions and services, including industry-leading enterprise storage and computing solutions, fault-tolerant business-critical solutions, communication products, and desktop and portable personal computers that are sold in more than 200 countries. Information on Compaq and its products and services is available at http://www.compaq.com.