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HP facing inquiry on Mercury's options

March 10, 2007|From the Associated Press

SAN FRANCISCO — Still grappling with the fallout from a boardroom spying scandal, Hewlett-Packard Co. is facing a Senate investigation into stock option troubles it inherited last year with its $4.9-billion acquisition of software maker Mercury Interactive Corp.

HP has been asked for more information about Mercury's alleged mishandling of stock options in a request received Feb. 26 from an investigative arm of the U.S. Senate Committee on Homeland Security and Governmental Affairs, according to a regulatory filing Friday by HP.

The Palo Alto-based computer and printer maker said it intended to cooperate with the inquiry.

The Senate's interest in Mercury threatens to create more legal headaches for HP, which has spent much of the last six months trying to make amends for a company-approved probe that obtained personal information under false pretenses about more than a dozen HP directors, journalists and their families.

The subterfuge led to criminal charges being filed against HP's former chairwoman, Patricia Dunn, who ordered the investigation in hopes of identifying a boardroom leak, only to wind up resigning in disgrace. Dunn is fighting the charges against her.

In late 2005, Mercury ousted its longtime chief executive, Amnon Landon, and two other top executives after concluding that they had engaged in option backdating, in which the terms of a stock option grant are based on a date in the past instead of the date the grant is actually made.

Backdating can increase the potential value of the options and, if the backdated options aren't properly accounted for, can inflate a company's earnings.

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