SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[Amendment No.____]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RED HAT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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RED HAT, INC.
2600 Meridian Parkway
Durham, NC 27713
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 2, 2001
The Annual Meeting of Stockholders of Red Hat, Inc. (the "Company") will be
held at the Company's headquarters located at 2600 Meridian Parkway, Durham,
North Carolina, on Thursday, August 2, 2001, 10:00 a.m. local time, to
consider and act upon each of the following matters:
1. To elect two members to the Board of Directors to serve for a three-
year term as Class II Directors;
2. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of shares of Common Stock that the Company is
authorized to issue from 225,000,000 to 300,000,000;
3. To amend the Red Hat, Inc. 1999 Stock Option and Incentive Plan to
increase the number of shares authorized for awards from 13,000,000 to
28,000,000; and
4. To transact such other business as may properly come before the meeting
and any adjournments thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement. Only stockholders of record at the close of business on June
4, 2001, the record date, are entitled to notice of, and to vote at, the
Annual Meeting and at any adjournments or postponements thereof. A list of
such stockholders will be available for inspection at the Company's
headquarters located at 2600 Meridian Parkway, Durham, North Carolina, during
ordinary business hours for the ten-day period prior to the Annual Meeting.
By Order of the Board of Directors
/s/ Mark H. Webbink
Mark H. Webbink
Secretary
Durham, North Carolina
June 22, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY CARD IS MAILED IN THE UNITED STATES.
RED HAT, INC.
2600 Meridian Parkway
Durham, NC 27713
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held on August 2, 2001
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Red Hat, Inc. ("Red Hat" or the
"Company") for use at the Annual Meeting of Stockholders to be held at the
Company headquarters located at 2600 Meridian Parkway, Durham, North Carolina
on Thursday, August 2, 2001 at 10:00 a.m. and at any adjournments thereof (the
"Annual Meeting"). All proxies will be voted in accordance with the
stockholder's instructions, and if no choice is specified, the enclosed proxy
card (or any signed and dated copy thereof) will be voted in favor of the
matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by: (i) delivering
written revocation or a later dated proxy to the President or Secretary of the
Company; or (ii) attending the Annual Meeting and voting in person.
Only stockholders of record as of the close of business on June 4, 2001, the
record date fixed by the Board of Directors, will be entitled to vote at the
Annual Meeting and at any adjournments thereof. As of June 4, 2001, there were
an aggregate of 169,832,084 shares of common stock, par value $.0001 per
share, of the Company outstanding and entitled to vote. Each share is entitled
to one vote.
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter upon which a vote may properly be taken,
should be presented at the Annual Meeting, shares represented by all proxies
received by the Board of Directors will be voted with respect thereto in
accordance with the judgment of the persons named as attorneys in the proxies.
The Company's Annual Report on Form 10-K containing financial statements for
the fiscal year ended February 28, 2001 is being mailed together with this
Proxy Statement to all stockholders entitled to vote. It is anticipated that
this proxy statement and the accompanying proxy will be first mailed to
stockholders on or about June 22, 2001.
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the
outstanding shares of common stock entitled to vote at the Annual Meeting is
necessary to establish a quorum for the transaction of business. Shares
represented by proxies pursuant to which votes have been withheld from any
nominee for director, or which contain one or more abstentions or broker "non-
votes," are counted as present for purposes of determining the presence or
absence of a quorum for the Annual Meeting. A "non-vote" occurs when a broker
or other nominee holding shares for a beneficial owner votes on one proposal,
but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the
beneficial owner.
Election of Directors. Directors are elected by a plurality of the votes
cast, in person or by proxy, at the Annual Meeting. The two nominees receiving
the highest number of affirmative votes of the shares present or represented
and voting on the election of directors at the Annual Meeting will be elected
as Class II Directors for a three-year term. Shares represented by proxies
received by the Board of Directors and not so marked as to withhold authority
to vote for the nominee will be voted for the election of the nominee. If a
stockholder properly withholds authority to vote for the nominee, such
stockholder's shares will not be counted toward the nominee's achievement of a
plurality.
Amendment of the Certificate of Incorporation. An amendment to the
certificate of incorporation which increases the number of authorized shares
of common stock requires the affirmative vote of a majority of the voting
power of all of the then outstanding shares of capital stock of the Company
entitled to vote. Shares represented by proxies received by the Board of
Directors and not marked as either for or against this amendment or abstaining
will be voted for the amendment. Abstentions, as well as broker "non-votes"
will not be considered to have been voted for this matter and have the
practical effect of votes against the proposal.
Amendment of the 1999 Stock Option and Incentive Plan. Any amendment to the
1999 Stock Option and Incentive Plan may be approved by the affirmative vote
of the majority of the shares present or represented by proxy and voting on
the matter. Shares represented by proxies received by the Board of Directors
and not marked as either for or against this amendment or abstaining will be
voted for the amendment. Abstentions, as well as broker "non-votes" are not
considered to have been voted for this matter and have the practical effect of
reducing the number of affirmative votes required to achieve a majority for
such matter by reducing the total number of shares from which the majority is
calculated.
Other Matters. The affirmative vote of the majority of shares present, in
person or represented by proxy, and voting is required for approval for all
other matters being submitted to the stockholders at the Annual Meeting.
Abstentions, as well as broker "non-votes" are not considered to have been
voted for this matter and have the practical effect of reducing the number of
affirmative votes required to achieve a majority for such matter by reducing
the total number of shares from which the majority is calculated. If any other
matter not discussed in this Proxy Statement should be presented at the Annual
Meeting upon which a vote may be properly taken, shares represented by all
proxies received by the Board of Directors will be voted with respect thereto
in accordance with the judgment of the persons named as attorneys in the
proxies.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Pursuant to the Company's certificate of incorporation, the Board of
Directors of the Company is divided into three classes. There are two
directors currently serving in each of Class I and Class II and three
directors currently serving in Class III. Each director serves for a three-
year term, with one class of directors being elected at each Annual Meeting.
The Class II Directors' term will expire at this Annual Meeting. All directors
will hold office until their successors have been duly elected and qualified.
Prior to the Annual Meeting, Eric Hahn and F. Selby Wellman were the Class I
Directors; Kevin Harvey and Matthew Szulik were the Class II Directors; and
Robert F. Young, Eugene J. McDonald, and William S. Kaiser were the Class III
Directors. Mr. Harvey has elected not to stand for re-election. The nominees
for Class II Director are Eugene J. McDonald, presently a Class III Director
of the Company, and Matthew Szulik, presently a Class II Director of the
Company. Shares represented by all proxies received by the Board of Directors
and not marked to withhold authority to vote for these nominees will be voted
for their election. The Board of Directors knows of no reason why these
nominees should be unable or unwilling to serve, but if that should be the
case, proxies will be voted for the election of some other person, or for
fixing the number of directors at a lesser number.
Board of Directors Meetings and Committees
The Board of Directors of the Company held sixteen (16) meetings during the
fiscal year ended February 28, 2001. With the exception of Marc Ewing, whose
term to the Board of Directors ended at the last Annual Meeting, each of the
directors attended at least 75% of the aggregate of all meetings of the Board
of Directors and of all committees of the Board of Directors on which he then
served held during fiscal 2001. The Company has standing compensation and
audit committees. The compensation committee, of which Messrs. Harvey, Kaiser
and Hahn are members, determines the compensation of the Company's senior
management and administers the Company's stock option and stock purchase
plans. The compensation committee held four meetings during fiscal 2001. The
audit committee, of which Mr. Messrs. Harvey, Kaiser and McDonald are members,
oversees financial
2
results and internal controls of the Company, including matters relating to
the appointment and activities of the Company's independent auditors. The
audit committee held four meetings during fiscal 2001.
Compensation of Directors
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and for meetings of any
committees of the Board of Directors on which they serve. Directors are also
eligible to participate in Red Hat's 1999 Stock Option and Incentive Plan.
Upon initial election or appointment to the Board of Directors, a new non-
employee director is granted a non-qualified option to purchase 40,000 shares
of common stock at a price equal to fair market value on the date of grant.
This option vests 33 1/3% one year from grant date and 8 1/3% at the end of
each three-month period thereafter. Upon re-election, a non-employee director
is granted a non-qualified option to purchase 20,000 shares of common stock at
a price equal to fair market value on the date of grant. This option vests 33
1/3% one year from the date of re-election and 8 1/3% at the end of each
three-month period thereafter. In addition, upon completion of each year of a
non-employee director's tenure, the director is granted a non-qualified option
to purchase 10,000 shares of common stock at a price equal to fair market
value on the date of grant. This option is fully vested upon grant. The
following table sets forth the options granted to non-employee directors
during the fiscal year ended February 28, 2001.
OPTION GRANTS TO DIRECTORS IN LAST FISCAL YEAR
No. of Exercise
Name Type Shares Price
---- ----------- ------ --------
McDonald............................................ Initial 40,000 $20.0625
Kaiser.............................................. Initial(1) 20,000 $20.0625
Kaiser.............................................. Annual 10,000 $ 18.00
Hahn................................................ Re-election 20,000 $ 18.50
Harvey.............................................. Annual 10,000 $ 24.188
Wellman............................................. Initial 40,000 $ 8.656
--------
(1) This grant to Mr. Kaiser was made to correct for an under-granting of the
initial shares made to Mr. Kaiser in July 1999.
3
Directors and Executive Officers
The following table sets forth for each Class I Director, each Class II
Director, each Class III Director and the executive officers of the Company,
their ages and present positions with the Company as of the date of the Annual
Meeting:
Name Age Position
---- --- ---------------------------------------------------------------
Robert F. Young......... 46 Chairman of the Board of Directors (Class III Director)
Matthew J. Szulik (1)... 44 President, Chief Executive Officer and Class II Director
Timothy J. Buckley (1).. 50 Executive Vice President and Chief Operating Officer
Kevin B. Thompson (1)... 36 Executive Vice President, Chief Financial Officer and Treasurer
Paul J. Cormier (1)..... 44 Executive Vice President--Engineering
Mark H. Webbink (1)..... 50 Senior Vice President, General Counsel and Secretary
Howard A. Jacobson (1).. 40 Senior Vice President--Corporate Development
James J. Neiser (1)..... 50 Senior Vice President and Chief Marketing Officer
Michael Tiemann......... 36 Chief Technology Officer
Eric Hahn (2)........... 41 Class I Director
F. Selby Wellman........ 59 Class I Director
Kevin Harvey (2)(3)..... 36 Class II Director
William S. Kaiser
(2)(3)................. 45 Class III Director
Eugene J. McDonald (3).. 69 Class III Director
--------
(1) Officers of the Company are elected annually by the Board of Directors
and serve until the next Annual Meeting of the Board of Directors and
until their respective successors are elected and qualified or until
their earlier resignation or removal.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Executive Officers
Robert F. Young co-founded Red Hat and served as its President and a
director from its inception until November 1998. In November 1998, he was
elected as Chief Executive Officer and Chairman of the Board of Directors. In
November 1999, he resigned as Chief Executive Officer and currently serves as
the Chairman of the Board of Directors.
Matthew J. Szulik has served as Chief Executive Officer since November 1999,
as President since November 1998 and as a director since April 1999. Mr.
Szulik also served as Chief Operating Officer from November 1998 to April
1999. From September 1997 to October 1998, Mr. Szulik served as President of
Relativity Technologies, a computer software company. From February 1996 to
May 1997, Mr. Szulik served as President of Sapiens International, a computer
software company. Prior to that, from January 1993 to December 1995, he served
as Senior Vice President in charge of sales and marketing for MapInfo Corp., a
computer software company. Mr. Szulik is also a director of Tibco Software
Inc.
Timothy J. Buckley has served as Executive Vice President since February
2001 and Chief Operating Officer since April 1999. Mr. Buckley also served as
Senior Vice President from April 1999 to February 2001. From October 1997
until April 1999, Mr. Buckley was Senior Vice President of Worldwide Sales at
Visio Corp., a business software company ("Visio"). Mr. Buckley joined Visio
in November 1993 and served as Visio's Vice President of Worldwide Sales until
his promotion in October 1997.
Kevin B. Thompson has served as Executive Vice President since February 2001
and Chief Financial Officer since November 2000. From November 2000 to
February 2001, Mr. Thompson served as Senior Vice President. From September
2000 to November 2000, Mr. Thompson served as Vice President--Operations. From
June 2000 until September 2000, Mr. Thompson was a Technology Partner with the
international accounting firm of PricewaterhouseCoopers, LLP. Mr. Thompson
joined PricewaterhouseCoopers in January 1998. From May
4
1988 to January 1998, Mr. Thompson was with the international accounting firm
of Andersen, LLP, formerly known as Arthur Andersen. Mr. Thompson is a
certified public accountant.
Paul J. Cormier has served as Executive Vice President--Engineering since
May 2001. From March 1999 to May 2001, Mr. Cormier served as Senior Vice
President, Research and Development at BindView Development Corporation, a
network management software company. From June 1998 to March 1999, Mr. Cormier
served as Chief Technology Officer for Netect Internet Software Company, a
network security vendor. From January 1996 to June 1998, Mr. Cormier served as
Director of Engineering, Internet Security and Collaboration Product and then
Senior Director of Software Product Development, Internet Security Products
for AltaVista Internet Software, a web portal and internet services company.
Mark H. Webbink has served as Senior Vice President since February 2001,
Secretary since July 2000, and General Counsel since May 2000. From September
1994 to April 2000, Mr. Webbink was an attorney with the law firm of Moore &
Van Allen, PLLC, where he practiced in the areas of licensing, intellectual
property transactions, general corporate and trademarks, representing numerous
technology companies.
Howard A. Jacobson has served as Senior Vice President--Corporate
Development since February 2001, as Vice President--Corporate Development from
September 2000 to February 2001, and as Director--Corporate Development from
January 1999 to September 2000. From August 1995 to January 1999, Mr. Jacobson
was an attorney with the law firm of Moore & Van Allen, PLLC, where he
practiced intellectual property transaction law.
James J. Neiser, Ph.D. has served as Senior Vice President since February
2001 and as Chief Marketing Officer since December 2000. From January 1994 to
November 2000, Dr. Neiser was Vice President of Worldwide Distribution Channel
Marketing and Customer Set Marketing with the Software Group of International
Business Machines.
Michael Tiemann has served as Red Hat's Chief Technology Officer since
January 2000. Prior to joining Red Hat, he was a co-founder of Cygnus
Solutions in 1989, and held various positions with Cygnus Solutions, including
President, Director of Business Development and Director of Technical
Marketing.
Directors
Eric Hahn has served as a director since April 1999. Mr. Hahn serves as the
chairman of the compensation committee. Mr. Hahn is a founding partner of
Inventures Group, a leading "mentor investment" venture capital firm. He
served as Executive Vice President and Chief Technology Officer of Netscape
from November 1996 until June 1998. Prior to serving as Netscape's Chief
Technology Officer, from November 1995 to November 1996, Mr. Hahn was general
manager of Netscape's Server Products Division, overseeing product development
for Netscape's enterprise, internet and extranet servers. Mr. Hahn joined
Netscape following its acquisition of Collabra Software, Inc., which Mr. Hahn
founded in February 1993.
Eugene J. McDonald has served as a director since June 2000. Mr. McDonald
serves as the chairman of the audit committee. Mr. McDonald, who presently
serves as Investment Counsel to Duke University, served as President of the
Duke University Management Company, the asset management division of Duke
University, and Executive Vice President of the university from April 1990 to
September 2000. After joining Duke University in 1977 as Vice President and
University Counsel, Mr. McDonald also held the positions of Chief Financial
Officer and Chief Non-Academic Administrative Officer with the university. Mr.
McDonald is also a director of National Commerce Bank Corporation, Incara
Pharmaceuticals, Victory Funds, and Flag/Deustche Bank Funds.
F. Selby Wellman has served as a director since January 2001. Mr. Wellman,
who is presently retired, served as Senior Vice President and General Manager
of the InterWorks Business Division of Cisco Systems, Inc. from June 1997 to
August 2000. Mr. Wellman also served as corporate site executive for Cisco's
Research Triangle Park, North Carolina facility. During Mr. Wellman's tenure
with Cisco, which began in March 1995, Mr. Wellman also served as a Senior
Vice President and senior executive for corporate marketing. Mr. Wellman is
also a director of Workscape, HiddenMind, and the Microelectronics Center of
North Carolina.
5
Kevin Harvey has served as a director since August 1999. Mr. Harvey has been
a managing member of the general partner of Benchmark Capital Partners, a
venture capital firm, since January 1995. Mr. Harvey is also a director of
Critical Path, Inc., Broadbase Software, Ashford.com, and several privately
held companies.
William S. Kaiser has served as a director since September 1998. Mr. Kaiser
has been employed by Greylock Management Corporation, a venture capital firm,
since May 1986 and has been a general partner of the Greylock Limited
Partnerships since January 1988. Mr. Kaiser is also a director of Open Market
Inc., Clarus Corporation and Student Advantage, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended February 28, 2001, Kevin B. Thompson received a
$200,000 relocation advance from the Company. The advance is non-interest
bearing and is forgiven (a) ratably over four years provided Mr. Thompson
remains in the employment of the Company or (b) immediately upon any
termination of Mr. Thompson's employment without cause. During the last fiscal
year, $29,167 of this advance was forgiven.
6
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 23, 2001 (unless otherwise
indicated), certain information regarding beneficial ownership of the
Company's common stock (i) by each person who is known to beneficially own 5%
of the outstanding common stock, (ii) by each director of the Company, (iii)
by each executive officer named in the Summary Compensation Table on page 9,
and (iv) by all directors and executive officers of the Company as a group.
Amount and Percent of
Nature of Common
Beneficial Stock
Name and Address (1) Title(s) Ownership(2)(3) Outstanding
-------------------- ---------------------------- --------------- -----------
Robert F. Young (4)..... Chairman of the Board and 5%
Beneficial Owner 17,200,023 10.1
Marc Ewing (5).......... 5% Beneficial Owner 10,062,257 5.9
Matthew Szulik (6)...... President, Chief Executive
Officer and Director 5,361,670 3.1
Frank Batten, Jr. (7)... 5% Beneficial Owner
c/o Landmark
Communications
150 W. Brambleton Avenue
Norfolk, VA 23510-2075 23,656,228 13.9
William S. Kaiser (8)... Director 843,547 *
Eric Hahn............... Director 332,646 *
Kevin Harvey (9)........ Director 4,042,823 2.4
Eugene J. McDonald...... Director 1,000 *
F. Selby Wellman........ Director 0 *
Timothy J. Buckley Executive Vice President and
(10)................... Chief Operating Officer 3,846,540 2.2
Kevin B. Thompson....... Executive Vice President and
Chief Financial Officer 0 *
Howard A. Jacobson Senior Vice President--
(11)................... Corporate Development 128,415 *
Mark H. Webbink (12).... Senior Vice President,
General Counsel, and
Secretary 25,500 *
All executive officers
and directors as a
group (11 persons)
(13)................... 33,777,164 19.2
--------
* Less than one percent of the outstanding common stock.
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
Red Hat, Inc., 2600 Meridian Parkway, Durham, N.C. 27713.
(2) The persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except as
noted in the footnotes below and subject to community property laws, if
applicable.
(3) The inclusion herein of any shares of common stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
(4) Includes 6,093,569 shares held of record by Nancy Young, Mr. Young's
wife, 593,460 held by the Nancy R. Young GRAT dated April 28, 1999,
400,000 shares held of record by the Young Family Trust dated April 28,
1999 and 2,836,320 shares held of record by trusts for the benefit of Mr.
Young's children.
7
Mr. Young disclaims beneficial ownership of these shares. Also includes
593,460 shares held of record by the Robert F. Young GRAT dated April 28,
1999.
(5) Includes 400,000 shares held of record by the Ewing Family Trust dated
April 28, 1999 and 2,025,440 shares held of record by trusts for the
benefit of Mr. Ewing's children. Mr. Ewing disclaims beneficial ownership
of these shares. Also includes 1,186,921 shares held of record by the
Marc Ewing GRAT dated April 28, 1999.
(6) Includes 72,000 shares held of record by trusts for the benefit of Mr.
Szulik's children. Mr. Szulik disclaims beneficial ownership of these
shares. Also includes 52,509 shares held of record by the Matthew J.
Szulik GRAT dated May 26, 1999. Also includes 3,711,902 shares of common
stock issuable upon exercise of stock options.
(7) Includes 2,215,753 shares held of record by the 1988 Batten Trust and
21,440,475 shares held of record by the 1998 Frank Batten, Jr. Grantor
Annuity Trust.
(8) Includes 62,101 shares held by Greylock IX Limited Partnership and 62,101
shares held by Greylock IX GP Limited Partnership. Mr. Kaiser is a
general partner of Greylock IX GP Limited Partnership, the general
partner of Greylock IX Limited Partnership. Mr. Kaiser disclaims
beneficial ownership of these shares. Includes 20,000 shares of common
stock issuable upon exercise of stock options.
(9) Includes 3,565,232 shares held by Benchmark Capital Partners II, L.P. Mr.
Harvey is a managing member of Benchmark Capital Management Co. II,
L.L.C., the general partner of Benchmark Capital Partners II, L.P. Mr.
Harvey disclaims beneficial ownership of these shares. Includes 20,000
shares of common stock issuable upon exercise of stock options.
(10) Includes 2,717,240 shares of common stock issuable upon exercise of stock
options.
(11) Includes 100,000 shares of common stock issuable upon exercise of stock
options.
(12) Includes 25,000 shares of common stock issuable upon exercise of stock
options.
(13) Includes 6,594,142 shares of common stock issuable upon exercise of stock
options.
8
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Compensation Summary
The following table sets forth the annual and long-term compensation for
each of the past three fiscal years of each of (i) the Company's Chief
Executive Officer and (ii) each of the Company's four most highly compensated
executive officers who were serving as of February 28, 2001 and whose annual
compensation exceeded $100,000 (collectively, with the Chief Executive
Officer, the "Named Officers")
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation(1) Awards
---------------------- ------------
Securities
Fiscal Salary Bonus Underlying All Other
Name and Principal Position Year ($) ($)(2) Options(#) Compensation
--------------------------- ------ ------- ------- ------------ ------------
Matthew J. Szulik, President and Chief
Executive Officer...................... 2001 233,771 152,312 1,000,000 --
2000 170,207 100,000 0 --
1999 53,958 5,345,140 --
Timothy J. Buckley, Executive Vice
President and Chief Operating Officer.. 2001 188,333 226,875 200,000 38,087(3)
2000 133,751 4,117,240 --
Kevin B. Thompson, Executive Vice
President and Chief Financial Officer.. 2001 93,625 49,063 350,000 29,167(3)
Howard A. Jacobson, Senior Vice
President--Corporate Development....... 2001 129,875 146,375 200,000 --
Mark H. Webbink, Senior Vice
President, General Counsel and
Secretary.............................. 2001 110,518 35,938 100,000 --
--------
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or
10% of the total salary and bonus reported.
(2) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(3) Relocation compensation.
9
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options pursuant to the
Company's 1999 Stock Plan and the Company's 1998 Stock Plan granted during the
fiscal year-ended February 28, 2001 to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants (1)(2) for Option Term (4)
---------------------------------------------------------- ---------------------
Number of Percent of Total Exercise
Securities Options Granted or
Underlying to Employees in Base Price Expiration
Name Options Granted (#) Fiscal Year(3) ($/Sh) Date 5%($) 10%($)
---- ------------------- ---------------- ---------- ---------- ---------- ----------
Matthew J. Szulik....... 1,000,000 13.6 27.3125 6/29/10 17,176,685 43,529,090
Timothy J. Buckley...... 200,000 2.7 27.3125 6/29/10 3,435,337 8,705,818
Kevin B. Thompson....... 150,000 4.8 17.8125 9/27/10 1,680,328 4,258,281
200,000 7.031 11/28/10 884,352 2,241,121
Howard A. Jacobson...... 100,000 2.7 21.75 5/12/10 1,367,846 3,466,390
100,000 20.0625 7/26/10 1,261,720 3,197,446
Mark H. Webbink......... 25,000 1.4 27.875 5/1/10 438,261 1,110,639
75,000 20.0625 7/26/10 946,290 2,398,084
--------
(1) No stock appreciation rights were granted by the Company in the fiscal
year ended February 28, 2001.
(2) Stock options were granted under the Company's 1999 Stock Option and
Incentive Plan at an exercise price equal to the fair market value of the
Company's common stock on the date of grant.
(3) Represents all options granted to the individual during fiscal 2001 as a
percentage of all options granted to employees during fiscal 2001.
(4) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's common stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price growth. Actual gains,
if any, on stock option exercises and common stock holdings are dependent
on the timing of such exercise and the future performance of the Company's
common stock. There can be no assurance that the rates of appreciation
assumed in this table can be achieved or that the amounts reflected will
be received by the individuals.
10
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to options to
purchase the Company's common stock granted under the Company's 1998 Stock
Option Plan, as amended, the Company's 1999 Stock Option and Incentive Plan
and the Company's 1999 Employee Stock Purchase Plan to the Named Officers,
including (i) the number of shares of Common Stock purchased upon exercise of
options in the fiscal year ended February 28, 2001; (ii) the net value
realized upon such exercise; (iii) the number of unexercised options
outstanding at February 28, 2001; and (iv) the value of such unexercised
options at February 28, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
Value of
Number of Securities Underlying Unexercised
Unexercised Options at In-the-Money Options
Shares Acquired on Value February 28, 2001 (#) at February 28, 2001 ($)(3)
Name Exercise (#)(1)(2) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------ ------------ ------------------------------- ---------------------------
Matthew J. Szulik....... 0 0 3,345,140 / 1,000,000 $21,534,339 / $0
Timothy J. Buckley...... 0 0 2,717,240 / 200,000 $17,492,233 / $0
Kevin B. Thompson....... 0 0 0 / 350,000 $0 / $0
Howard A. Jacobson...... 45,000 1,513,328 75,000 / 200,000 $482,813 / $0
Mark H. Webbink......... 0 0 / 100,000 $0 / $0
--------
(1) The number of shares disclosed reflects the 2-to-1 stock split effected by
the Company on August 11, 1999 and the 2-to-1 stock split effected by the
Company on January 10, 2000.
(2) Amounts disclosed in this column do not reflect amounts actually received
by the Named Officers but are calculated based on the difference between
the fair market value of the Company's common stock on the date of
exercise and the exercise price of the options. The Named Officers will
receive cash only if and when they sell the common stock issued upon
exercise of the options, and the amount of cash received by such
individuals is dependent on the price of the Company's common stock at the
time of such sale.
(3) Value is based on the difference between the option exercise price and the
fair market value at February 28, 2001, the fiscal year-end ($6.4375 per
share as quoted on the Nasdaq National Market), multiplied by the number
of shares underlying the option.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
Matthew Szulik, Red Hat's Chief Executive Officer and President, is a party
to an incentive stock option agreement and a non-qualified stock option
agreement, which provides for the lapsing in full of Red Hat's repurchase
right as to any unvested option shares upon the termination of his employment,
either by Red Hat's successor without cause or by Mr. Szulik for good reason,
following a change in control of Red Hat.
Tim Buckley, Red Hat's Executive Vice President and Chief Operating Officer,
is a party to an incentive stock option agreement and a non-qualified stock
option agreement, which provides for the lapsing in full of Red Hat's
repurchase right as to any unvested option shares upon the termination of his
employment, either by Red Hat's successor without cause or by Mr. Buckley for
good reason, following a change in control of Red Hat.
Kevin B. Thompson is obligated to the Company for a $200,000 relocation
advance. The advance is non-interest bearing and is forgiven (a) ratably over
four years provided Mr. Thompson remains in the employment of the Company or
(b) immediately upon any termination of Mr. Thompson's employment without
cause.
11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the Board of Directors is currently composed
of Kevin Harvey, William Kaiser and Eric Hahn, none of who is currently an
officer or employee of the Company. Pursuant to the authority delegated by the
Board of Directors, the compensation committee is responsible for (i)
establishing and administering the base salaries and cash bonuses of the
Company's executive officers and (ii) administering and making recommendations
and awards under the Company's 1998 Stock Option Plan, as amended (the "1998
Plan"), 1999 Stock Option and Incentive Plan (the "1999 Plan") and the 1999
Employee Stock Purchase Plan (the "1999 ESPP").
The Company's executive compensation programs are designed (i) to attract
and retain experienced and well-qualified executives capable of leading the
Company to meet its business objectives and (ii) to motivate them to enhance
long-term stockholder value. In setting the compensation level for executive
officers, the compensation committee is guided by the following
considerations:
. compensation levels should be competitive with compensation generally
being paid to executives in the electronic commerce industry to ensure
the Company's ability to attract and retain superior executives;
. each individual executive officer's compensation should reflect the
performance of the Company as a whole, the performance of the officer's
business unit, if applicable, and the performance of the executive
officer; and
. a significant portion of executive officer compensation should be paid
in the form of equity-based incentives to link closely stockholder and
executive interests and to encourage stock ownership by executive
officers.
An executive's total compensation package includes a cash salary and bonus
determined by the compensation committee, long-term incentive compensation in
the form of stock options and various benefits, including a 401(k) retirement
plan and medical insurance plans that are available to all employees of the
Company. Salaries of the Company's Chief Executive Officer and the next four
most highly compensated executives during fiscal 2001 are listed in the
"Summary Compensation Table" found on page 9. The compensation committee
reviews executive salaries at least once per year and, while it is not
required to do so, it may in its discretion increase these salaries. The
compensation committee attempts to keep the Company's compensation programs
competitive by comparing them with those of other local and national companies
in the industry. The compensation committee also attempts to balance the
compensation level for an individual executive against his or her specific job
requirements, including the individual's influence on obtaining corporate
objectives.
Cash Compensation. The compensation committee sets the annual salaries for
individual executives by reviewing the salaries historically paid at the
Company, the salaries paid by the Company's competitors to persons holding
comparable positions and compensation studies prepared by independent third
parties. The compensation committee determines any increases in annual
salaries and bonuses based on a comparison of the executive's actual
performance against his or her performance objectives, as well as on various
subjective factors. The performance objectives for each executive depend on
his or her area of responsibility and may include achievement of performance
and financial objectives. Among the subjective factors considered by the
compensation committee are the executive's ability to provide leadership, to
develop the Company's business, to promote the Company's image with its
customers and stockholders and to manage the Company's continuing growth.
Equity Compensation. The Company's equity compensation program is designed
to (i) provide long-term incentives to executive officers, (ii) tie
compensation to creating long-term stockholder value, (iii) encourage
executive officers to remain with the Company and promote the Company's
business, and (iv) provide executives with the opportunity to obtain
significant, long-term stock ownership in the Company's common stock.
12
The compensation committee has granted options to executive officers as the
long-term incentive component of the executive officers' total compensation
package. The compensation committee generally grants options that become
exercisable over a four-year period as a means of encouraging executives to
remain with the Company and to promote its success. In fiscal 2001, the
compensation committee only awarded the Company's executives stock options
with exercise prices equal to the fair market value of the common stock on the
date of grant. As a result, executives will benefit from these stock option
grants only to the extent that the price of the Company's common stock
increases.
In deciding whether to grant options and in determining the number of shares
to be subject to such options, the compensation committee generally reviews
the option holdings of each of the executive officers, including the number of
unvested options and the then-current value of such unvested options. The
number of options granted to certain of the most highly compensated executive
officers of the Company in fiscal 2001 is set forth in the table captioned
"Option Grants in Last Fiscal Year" found on page 10. The total options held
by each of these executives at February 28, 2001 is set forth in the table
captioned "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values" found on page 11.
CEO Compensation. Compensation during fiscal 2001 for Mr. Szulik was
determined in accordance with the policies applicable to the other executive
officers of the Company described above. The compensation committee believes
that Mr. Szulik's compensation was competitive with the compensation paid by
other companies in its industry to their chief executive officers. The
compensation committee determined Mr. Szulik's compensation based upon the
Company's overall performance, the performance of his management team, the
compensation paid by competing companies and the Company's prospects, among
other objective and subjective factors, including the achievement of
performance targets in accordance with the Company's executive compensation
policies. The compensation committee does not find it practicable to quantify
or assign relative weight to the factors on which the Chief Executive
Officer's compensation is based. Mr. Szulik's annual compensation for the
fiscal year ended February 28, 2001 is reflected in the table captioned
"Summary Compensation Table" found on page 9. The compensation committee
granted options to Mr. Szulik in fiscal 2001 as reflected in the table
captioned "Option Grants in Last Fiscal Year" found on page 10. The total
options held by Mr. Szulik at February 28, 2001 is set forth in the table
captioned "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values" found on page 11.
Tax Matters. In general, under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), the Company cannot deduct, for federal
income tax purposes, compensation in excess of $1,000,000 paid to certain
executive officers. This deduction limitation does not apply, however, to
compensation that constitutes "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder. The compensation committee has considered the
limitations on deductions imposed by Section 162(m) of the Code, and it is the
compensation committee's present intention that, for so long as it is
consistent with its overall compensation objective, substantially all tax
deductions attributable to executive compensation will not be subject to the
deduction limitations of Section 162(m) of the Code.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Kevin Harvey
William Kaiser
Eric Hahn
13
AUDIT COMMITTEE REPORT
The audit committee of the Board of Directors (the "Committee") is currently
composed of Kevin Harvey, William Kaiser and Eugene J. McDonald, none of who
is currently an officer or employee of the Company. Mr. McDonald serves as
Chairman of the Committee. Each of the Committee members has requisite
experience in finance and accounting, each is independent within the
definition of independence as set forth in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards as applicable and as
modified or supplemented.
On April 26, 2000, the Board of Directors adopted a written charter for the
Committee, a copy of which is appended hereto as an Appendix. Pursuant to that
charter, the Committee has:
1. reviewed and discussed the audited financial statements with management;
2. discussed with the independent accountants the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards,
AU (S) 380), as modified or supplemented;
3. received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees), as modified or supplemented, and discussed with
the independent accountants the basis for the firm's independence; and
4. based on the review and discussions referred to in paragraphs 1-3 above,
recommended to the Board of Directors that the audited financial
statements be included in the company's Annual Report on Form 10-K for
the last fiscal year for filing with the Securities and Exchange
Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
Kevin Harvey
William Kaiser
Eugene J. McDonald
INDEPENDENT ACCOUNTANTS
Selection and Presence at the Annual Meeting
Upon the recommendation of the audit committee, the Board of Directors has
selected PricewaterhouseCoopers, LLP to serve as the Company's independent
accountants for the fiscal year ending February 28, 2002. Representatives of
PricewaterhouseCoopers, LLP are expected to be present at the Annual Meeting,
will have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers, LLP for professional
services rendered for the audit of the Company's annual financial statements
for the fiscal year ended February 28, 2001 and the review of the Company's
quarterly financial statements during the fiscal year were $238,701.
All Other Fees
The aggregate fees billed by PricewaterhouseCoopers, LLP during the fiscal
year ended February 28, 2001 for professional services rendered in the
preparation of the Company's tax returns and for other consulting services
rendered in association with improving the Company's internal controls,
acquisitions, and formation of new subsidiaries were $829,853. The audit
committee considers the provision of these services to be compatible with
maintaining the principal accountant's independence.
14
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total
stockholder return on Red Hat's common stock during the period from August 11,
1999 through February 28, 2001, with the cumulative total return on the Nasdaq
Market Index as reported by Media General Financial Services and the MG Group
Index for Internet software and services as reported by Media General
Financial Services. The comparison assumes $100 was invested on August 11,
1999 in Red Hat's common stock and in each of the foregoing indices and
assumes reinvestment of dividends, if any.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
ASSUMES $100 INVESTED ON AUG. 11, 1999
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING FEB. 28, 2001
8/11/1999 2/28/2000 2/28/2001
---------------------------------------------------------------------------
RED HAT, INC. 100.0 233.13 24.73
INTERNET SOFTWARE & SVCS 100.0 247.25 41.65
NASDAQ MARKET INDEX 100.0 174.33 81.59
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
C. The Index level for all series was set to 100.0 on August 11, 1999.
D. This graph is not "soliciting material," is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934 whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
E. The stock price performance shown on the graph is not necessarily
indicative of future price performance. Information used on the graph was
obtained from the Media General Financial Services, Richmond, Virginia, a
source management believes to be reliable, but the Company is not
responsible for any errors or omissions in such information.
15
PROPOSAL NO. 2--APPROVAL OF
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES
Proposed Amendment
The Board of Directors on April 23, 2001 adopted resolutions approving an
amendment of the Company's certificate of incorporation to increase the
authorized shares of common stock from 225,000,000 shares to 300,000,000
shares and directing that the proposed amendment be submitted to a vote of the
stockholders at the Annual Meeting. The Board of Directors determined that the
amendment is in the best interests of the Company and unanimously recommends
approval by the stockholders. If the stockholders approve the amendment, the
Company will file a certificate of amendment with the Delaware Secretary of
State reflecting the amendment, which will become effective on the date the
certificate of amendment is accepted for filing.
The Board of Directors recommends a vote FOR approval of Proposal No. 2.
Background And Reasons for the Proposal
The certificate of incorporation presently authorizes the issuance of up to
225,000,000 shares of common stock and 21,972,726 shares of preferred stock.
No shares of preferred stock are issued and outstanding. Of the 225,000,000
shares of common stock authorized, as of the close of business on June 4, 2001
there were 169,832,084 shares of issued and outstanding and 27,714,046 shares
reserved for future issuance. Of the shares then reserved for future issuance,
(i) 2,439,900 shares were reserved for issuance pursuant to outstanding
warrants; (ii) 13,000,000 shares were reserved for issuance under the
Company's 1999 Stock Option and Incentive Plan; (iii) 6,740,132 shares were
reserved for issuance under the Company's 1998 Stock Option Plan; (iii)
1,393,144 shares were reserved for issuance under the Company's Employee Stock
Purchase Plan; and (iv) 4,140,870 shares were reserved for issuance pursuant
to outstanding options granted under the various stock option plans assumed by
the Company in its acquisitions.
After deducting outstanding and reserved shares, of the 225,000,000 shares
of common stock presently authorized, there are 27,453,870 authorized shares
that have not been issued and are not reserved for a specific purpose. The
Board of Directors believes that it is in the Company's best interests to
increase the number of authorized shares of common stock to make additional
shares available for issuance to meet the Company's future business needs. The
increase in shares not reserved for any specific purpose would give the
Company the flexibility to meet business needs as they arise in the future.
The Company's management has no present arrangements, agreements,
understandings or plans for the issuance or use of the additional shares of
common stock proposed to be authorized by the amendment. The Board of
Directors believes the availability of such shares will benefit the Company by
providing flexibility to issue stock for a variety of other proper corporate
purposes as the Board of Directors may deem advisable without further action
by the Company's stockholders, except as may be required by law, regulation or
stock exchange rule. These purposes could include, among other things, the
sale of stock to obtain additional capital funds, the purchase of property,
the acquisition or merger into the Company of other companies, the use of
additional shares for various equity compensation and other employee benefit
plans, the declaration of stock dividends or distributions and other bona fide
corporate purposes. Were any of these situations to arise, the issuance of
additional shares of stock could have a dilutive effect on earnings per share,
and, for a person who does not purchase additional shares to maintain his or
her pro rata interest, on a stockholder's percentage voting power in the
Company. Holders of the common stock do not have preemptive rights to
subscribe to additional securities that may be issued by the Company, which
means that current stockholders do not have a prior right to purchase any new
issue of stock of the Company in order to maintain their proportionate
ownership interest.
Although an increase in the authorized shares of common stock could, under
certain circumstances, have an anti-takeover effect (for example, by diluting
the stock ownership of a person seeking to effect a change in the composition
of the Board of Directors or contemplating a tender offer or other transaction
directed to the
16
combination of the Company with another company), the current proposal to
amend the certificate of incorporation is not in response to any effort to
accumulate the Company's stock or to obtain control of the Company by means of
a merger, tender offer, solicitation in opposition to management or otherwise.
As of the date of this Proxy Statement, management is not aware of any actions
taken by any person or group to obtain control of the Company. In addition,
the proposal is not part of any plan by management to recommend a series of
similar amendments to the Board of Directors and the stockholders.
Provisions with Potential Anti-Takeover Effect
Although the purpose of seeking an increase in the number of authorized
shares of common stock is not intended for anti-takeover purposes, the rules
of the Securities and Exchange Commission require disclosure of the provisions
of the Company's certificate of incorporation and bylaws that could have an
anti-takeover effect. The 1999 Stock Option and Incentive Plan and the laws of
the State of Delaware contain additional provisions that also may have the
effect of delaying, deterring or preventing a change in control of the
Company. These provisions are described below.
Certificate and Bylaws. The certificate of incorporation and bylaws contain
provisions that may have the effect of delaying, deterring or preventing a
change in control of the Company, including: (i) the requirement that special
meetings of stockholders may only be called by certain members of management;
(ii) a bar to the use of written consents of stockholders in lieu of a
meeting; (iii) the prohibition of cumulative voting in the election of
directors; (iv) the requirement of advance notice and certain information for
stockholder nominations of directors; (v) the right of the Board of Directors
to consider non-economic factors in evaluating a takeover bid; (vi) a
prohibition against the removal of any director for other than cause; (vii)
staggered terms of office for directors; (viii) the requirement that Board of
Directors vacancies be filled only by the remaining directors; (ix) the
requirement for a supermajority vote to approve certain amendments to the
certificate of incorporation; (x) the requirement for a supermajority vote for
the stockholders to amend the bylaws; and (xi) ability of the board of
directors under the certificate of incorporation to authorize the issuance of
up to 5,000,000 shares of preferred stock, in one or more series, having such
preferences, limitations and relative rights as are determined by the Board of
Directors.
1999 Stock Option and Incentive Plan. The 1999 Stock Option and Incentive
Plan provides that, in the event of a change in control of the Company, the
board of directors may accelerate the vesting of options and such options
would be exercisable effective immediately.
Delaware Anti-Takeover Statute. Section 203 of the Delaware General
Corporation Law ("DGCL"), commonly referred to as the "Delaware Anti-Takeover
Statute." Section 203 inhibits would-be acquirors from conducting hostile
business consolidations by imposing a three-year waiting period on such
transactions from the time the acquiror becomes an "Interested Stockholder"
unless the acquiror: (i) acquires over 85% of the target company's stock in
the transaction in which he becomes the interested party; (ii) the transaction
is approved by the board of directors and two-thirds of the outstanding shares
not held by the acquiror after the interested stockholder acquires his shares;
or (iii) the transaction is approved by the board of directors of the target
prior to the acquiror's share acquisition. An "Interested Stockholder" is
defined as a person who, at the time of determination of whether a person is
an interested stockholder, (a) beneficially owns 15% or more of the Company's
common stock; or (b) is an affiliate or associate of the Company and
beneficially owned 15% or more of the Company's common stock at any time
within three years of the date of the determination.
PROPOSAL NO. 3--APPROVAL OF AMENDMENT
TO THE 1999 STOCK OPTION AND INCENTIVE PLAN
General
The Board of Directors on May 25, 2001 adopted an amendment to the Company's
1999 Stock Option and Incentive Plan (the "Plan"), subject to approval of the
stockholders, to increase then number of shares of common stock that may be
issued under the plan by 15,000,000 shares. As of May 31, 2001, there were
options
17
to purchase 7,184,957 shares outstanding under the Plan and 5,815,043 shares
authorized for future awards, for a total of 13,000,000 shares reserved for
issuance pursuant to the plan. The Plan provides that the exercise price of
options awarded under the Plan will be determined by the board of directors or
its designee.
The ability to offer stock through options has been and will continue to be
a necessary and beneficial method by which the Company can attract and retain
competent personnel. The Board of Directors believes that the Plan will
continue to promote the growth and prosperity of the Company by providing
employees and others with an additional incentive to contribute their best
efforts to the Company. The Board of Directors believes that options create
this incentive by providing the recipient an opportunity to acquire a
proprietary interest in the Company and thereby providing a means to
participate in the future growth of the Company.
The Board of Directors recommends a vote FOR approval of Proposal No. 3.
Description of Plan
The following description of the Plan is merely a summary of some of its
terms and provisions, is not intended to be a complete description of the Plan
and is qualified in its entirety by reference to the full text of the Plan.
The Plan is not generally subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Plan is not a qualified
plan under Section 401 of the Code.
Nature and Purpose
The Plan provides for grants to participants in the form of incentive stock
options, nonqualified stock options, restricted stock awards and other stock-
based awards. All awards made under the Plan prior to the date of this Proxy
Statement have been either incentive stock options or nonqualified stock
options.
The Plan is designed, for the benefit of the Company, to attract and retain
personnel of exceptional ability; to motivate such personnel through added
incentives to make a maximum contribution to greater profitability; to develop
and maintain a highly competent management team; and to be competitive with
other similar companies with respect to executive and non-executive
compensation.
Administration
The Plan is administered by the compensation committee, as designated by the
Board of Directors. The compensation committee has the exclusive right to
interpret, construe and administer the Plan and to select the persons eligible
to receive awards. The compensation committee determines the number of shares
subject to an award and the form, terms, conditions and duration of each
award. The compensation committee's decisions are conclusive, final and
binding upon all parties.
The compensation committee has broad discretion to adopt rules, regulations
and procedures of general application for the administration of the Plan. In
addition, the compensation committee has full power and authority to determine
whether, to what extent and under what circumstances any award under Plan may
be canceled or suspended if a participant's employment status with the Company
changes.
Securities To Be Offered
The Company has been authorized to issue an aggregate of 13,000,000 shares
of common stock under the Plan since the inception of the Plan in 1999. Of
that amount, as of May 31, 2001 there have been no shares issued pursuant to
exercises of previously granted options, 7,184,957 shares are reserved for
issuance pursuant to outstanding options and 5,815,043 shares are available
for future awards. The proposed amendment to the Plan will increase the number
of authorized shares issuable under the Plan by 15,000,000 shares. Common
stock subject to awards under the Plan will be made available from the
authorized and unissued shares of common stock. The last sale price of the
common stock on May 31, 2001 on the Nasdaq Stock Market was $5.45 per share.
18
To the extent any shares of common stock awarded or subject to purchase
under the Plan are not delivered or purchased, or are reacquired by the
Company, such shares are not charged against the aggregate number of shares
available for awards under the Plan and may again be awarded under the Plan.
This would occur, for example, upon a termination, expiration or cancellation
of a stock option under the Plan.
The compensation committee will make equitable adjustments upon the
occurrence of certain events that result in changes in the outstanding shares
of common stock or that result in exchanges of shares of common stock for a
different number or class of common stock or other securities of the Company
or another corporation. These events include, without limitation, (i) a
reorganization or recapitalization of the Company or reclassification of its
shares, (ii) a stock split-up, stock dividend or consolidation of shares of
common stock, (iii) a merger, consolidation or sale of assets of the Company,
or (iv) any distribution to stockholders other than a cash dividend. Under
such circumstances, adjustments may be made by the compensation committee in
the limitation on the aggregate number of shares of common stock that may be
awarded under the Plan, the number and class of shares that may be subject to
an award, the terms, conditions or restrictions applicable to outstanding
stock options, including the purchase price for shares of common stock and the
limitation on annual grants to an individual participant of a grant of options
to purchase in excess of 6,250,000 shares of common stock described under
"Incidents of Stock Options" below.
The compensation committee is also authorized to make adjustments in
performance-based criteria or in the terms and conditions of other awards
under the Plan in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The compensation committee may also correct any
defects or omissions or reconcile any inconsistencies in the Plan or any
agreements evidencing awards under the Plan in the manner and to the extent it
shall deem desirable. Moreover, the compensation committee may, in its
discretion, make such adjustments in the terms of awards under the Plan as it
deems appropriate if the Company assumes any outstanding employee benefit
awards or the right or obligation to make future awards in connection with the
acquisition of any other entity.
Eligible Participants
The compensation committee has the exclusive right to determine those
persons eligible to participate in the Plan and will select the persons
eligible to receive awards. Subject to the foregoing, any employee of the
Company, as well as any other consultant or advisor to the Company, including
directors, may participate in the Plan if the compensation committee
determines such participation is in the best interest of the Company, subject
to any limitations as may be provided by applicable law or the board of
directors. As of May 31, 2001 the Company had approximately 700 employees
(including part-time employees) and seven directors, five of whom were not
employees of the Company.
Types of Awards
The compensation committee has broad discretion to determine the terms and
conditions of incentive stock options, nonqualified stock options, restricted
stock awards and other stock grants granted under the Plan. Each award granted
will be evidenced by a written agreement setting forth the terms and
conditions of the award. Each such agreement will also be subject to and
incorporate the applicable terms and conditions of the Plan and any other
terms and conditions, not inconsistent with the Plan, required by the
compensation committee.
Incentive Stock Options
The Company is authorized to grant incentive stock options ("ISOs") that may
be entitled to favorable tax treatment under Section 422 of the Code. See "Tax
Effects of Awards Under the Plan" below. ISOs may be granted to eligible
participants under the Plan at such time or times as determined by the
compensation committee until June 2, 2009, subject to certain conditions
described below.
The exercise price of an ISO under the Plan may not be less than 100% of the
fair market value of the common stock at the date of grant (110% for 10%
owners of the Company). The fair market value of the common
19
stock for any day in question will be determined for purposes of the Plan
based upon the last sale price of the common stock on The Nasdaq Stock Market.
The compensation committee is also authorized to establish an alternate method
of determining fair market value of the common stock.
An ISO granted under the Plan must be exercised in whole or in part from
time to time within 10 years from the date of grant, or such shorter period as
specified by the compensation committee in the corresponding award agreement.
Upon a termination of employment of the optionee with the Company, as
determined by the compensation committee in its discretion, the ISO will lapse
and cease to be exercisable upon, or within such period following, the
termination of employment, as determined by the compensation committee and
provided in the award agreement. In no event, however, can the period of time
during which an ISO remains exercisable following a termination of employment
exceed three months, unless employment is terminated because of death or
disability of the optionee, or death occurs following termination of
employment and while an ISO was still exercisable. In either case, the period
of time during which an ISO right may be exercised cannot exceed one year
after the date of death or, if termination arose as a result of a disability,
one year from the date of disability. In no event can the period of time
following a termination of employment during which an ISO may be exercised
extend beyond the original exercise period of the ISO.
The amount of ISOs first exercisable by any one participant in any calendar
year that may receive favorable tax treatment as ISOs may not exceed $100,000.
To the extent the aggregate fair market value of the shares of common stock
with respect to which ISOs are first exercisable in a calendar year by an
eligible participant exceeds $100,000, such options will be treated as
nonqualified stock options. The aggregate fair market value of the common
stock for these purposes is determined as of the date the ISO is granted.
An ISO granted under the Plan also will be subject to such other terms and
conditions as the board of directors deems necessary to impose in order to
qualify the ISO under Section 422 of the Code, as well as any other terms and
conditions not inconsistent with applicable law and the ISO provisions of the
Plan as determined by the compensation committee.
Nonqualified Stock Options
The Company may also grant nonqualified stock options ("NQSOs") to eligible
participants to purchase shares of common stock at such time or times as
determined by the compensation committee. These stock options will not be
eligible for the favorable tax treatment available to ISOs under Section 422
of the Code. The exercise price of an NQSO under the Plan will be established
by the compensation committee in the agreement evidencing the award but may
not be less than 100% of the fair market value of the common stock on the date
of grant.
An NQSO under the Plan will be exercisable in full or in part from time to
time as specified by the compensation committee or in the corresponding award
agreement. Upon termination of employment of the optionee, the NQSO will lapse
and cease to be exercisable upon, or within such period following, the
termination of employment as determined by the compensation committee and
specified in the award agreement. The period of time during which the NQSO may
be exercisable following termination of employment cannot exceed three months
except in certain circumstances. If the termination of employment is as a
result of death or disability, such period may not exceed one year after the
date of death or disability. If death occurs following termination of
employment while the NQSO remains exercisable, such period may not exceed one
year after the date of death. In no event will such period extend the original
exercise period of the NQSO. An NQSO also may be subject to such other terms
and conditions, not inconsistent with the Plan, as determined by the
compensation committee.
Restricted Stock Awards
The compensation committee may grant awards entitling recipients to acquire
shares of the Company's common stock, subject to (i) delivery to the Company
by the recipient of a check in an amount at least equal to the par value of
the shares purchased, and (ii) the right of the Company to repurchase all or
part of such shares
20
at their issue price or other stated or formula price from the recipient in
the event that conditions specified by the compensation committee in the
applicable award are not satisfied prior to the end of the applicable
restriction period or periods established by the board for such award. The
compensation committee shall determine the terms and conditions of any such
restricted stock award. As of the date of this Proxy Statement, no restricted
stock awards had been granted.
Incidents of Stock Options
Each stock option granted under the Plan will be subject to such terms and
conditions, not inconsistent with the Plan, as may be determined by the
compensation committee.
Except as provided otherwise by the compensation committee, a stock option
granted under the Plan will not be transferable by the participant.
The purchase price for shares of common stock upon exercise of a stock
option under the Plan will be payable in such amounts, at such times, and upon
such terms as will be determined by the compensation committee. The
compensation committee may establish payment terms for the exercise of stock
options that permit the participant to deliver shares of common stock with a
fair market value equal to the stock option exercise price as payment upon
exercise of a stock option.
No cash dividends will be paid on shares of common stock subject to
unexercised stock options under the Plan.
To the extent a participant may be required to pay the Company amounts with
respect to income and employment tax withholding in connection with the
exercise of NQSOs and/or with respect to certain dispositions of common stock
acquired upon exercise of ISOs, the compensation committee, in its sole
discretion, may permit the participant to satisfy the obligation by making an
irrevocable election that a portion of the total fair market value of the
applicable shares of common stock be applied to the satisfaction of the
withholding obligations.
No participant may be granted, in any fiscal year of the Company, options to
purchase more than 6,500,000 shares of common stock.
Effects of Acquisition
In the event of an acquisition of the Company, any or all of the then-
outstanding options granted may, in the discretion of the compensation
committee, become fully vested and, except as cashed out (as described below),
exercisable effective immediately prior to the acquisition. The compensation
committee in its discretion may direct that the value of all outstanding stock
options, in each case to the extent vested, be cashed out on the basis of the
acquisition within a specified period of time following the date of notice of
such acquisition. The compensation committee has discretion to take such
actions that are not inconsistent with these terms as the compensation
committee deems necessary or advisable in the event of an acquisition.
An "acquisition" means (a) any merger or consolidation after which the
voting securities of the Company outstanding immediately prior thereto
represent (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such event; or (b) any sale of
all or substantially all of the assets or capital stock of the Company (other
than in a spin-off or similar transaction); or (c) any other acquisition of
the business of the Company as determined by the compensation committee.
Amendment and Termination
The Plan will continue in effect until terminated by the compensation
committee. Notwithstanding the perpetual nature of the Plan, no awards may be
granted under the Plan after June 2, 2009.
21
The compensation committee may amend, suspend or terminate the Plan, or any
portion thereof, at any time. To the extent required by Code Section 422, no
amendment to the Plan may be made without approval by the Company's
stockholders that would make certain changes, including (i) altering the group
of persons eligible to participate in the, (ii) increasing the maximum number
of shares of common stock or stock options available for awards under the Plan
(except as otherwise provided in the Plan), (iii) extending the period during
which ISOs may be granted under the Plan beyond June 2, 2009, (iv) limiting or
restricting the powers of the compensation committee in administering the
Plan, (v) changing the definition of participants eligible for ISOs or
increasing the limit or value of shares of common stock for which eligible
participants may be granted ISOs under the Plan, (vi) materially increasing
the benefits accruing to participants under the Plan, (vii) materially
modifying the requirements of eligibility for participation in the Plan or
(viii) changing the amendment provisions of the Plan.
Notwithstanding the foregoing, no amendment to or discontinuation of the
Plan or any provision thereof may adversely affect any award previously
granted to a participant under the Plan without the written consent of such
participant. The compensation committee is empowered to determine whether an
amendment or discontinuation adversely affects any existing award.
Transfer Restrictions
Participants under the Plan may be restricted under certain circumstances in
their ability to transfer shares of common stock purchased or awarded under
the Plan. Transfer restrictions may be imposed by virtue of the provisions of
the Plan and the applicable award agreement and/or by application of the
federal and state securities laws.
Tax Effects of Awards Under the Plan
The following discussion of the federal income tax consequences of awards
granted under the Plan is intended only as a summary of the present federal
income tax treatment of stock options under the Plan. The federal income tax
laws pertaining to the Plan are highly technical, and such laws are subject to
change at any time. This summary does not discuss the tax consequences of a
participant's death or the provisions of the income tax laws of any
municipality, state or foreign country in which a participant may reside. Some
variations on the federal income tax effects of Plan participation described
below may occur with respect to participation by persons subject to Section
16(b) of the Exchange Act.
Incentive Stock Options. Although the Company has obtained neither a letter
ruling from the IRS nor an opinion of counsel stating that the ISO provisions
of the Plan constitute an incentive stock option plan under the Code, it is
expected that the options granted under the ISO provisions of the Plan will
qualify as ISOs for federal income tax purposes.
In general, no taxable income will be realized by an optionee, and no
federal income tax deduction will be allowed to the Company, upon the grant or
exercise of an ISO. The federal income tax consequences of a disposition of
common stock received pursuant to the exercise of an ISO will depend upon
whether the optionee has held the shares for the requisite holding period. If
the optionee disposes of such shares after the later to occur of (a) two years
from the date of the grant of the ISO or (b) one year after the date of the
transfer of the shares to him (the "Holding Period"), then any gain or loss to
the optionee will be taxed as a capital gain or loss according to the rules of
sales and exchanges generally. The amount subject to tax will be the
difference between the amount realized and the optionee's cost basis in the
shares of common stock, which difference will be a capital gain or loss if the
shares are held as a capital asset. In such event, the Company will not be
entitled to a tax deduction by reason of the disposition. For purposes of this
discussion, "disposition" means a lifetime transfer of legal title, such as by
sale, exchange, or gift, but does not include a transfer that is triggered by
death, such as one by bequest or inheritance or one made by a decedent to his
estate.
A "disqualifying disposition" takes place if the optionee makes a
disposition of the shares of common stock acquired through the exercise of an
ISO before satisfying the Holding Period. If a "disqualifying disposition"
22
occurs, the optionee must include as ordinary income the gain realized on that
disposition to the extent of the lesser of (a) the fair market value of the
common stock on the date of exercise of the ISO minus the option price or (b)
the amount realized on the disposition minus the option price. The excess, if
any, of the realized gain over the ordinary income component will be taxable
as capital gain. Upon the occurrence of a "disqualifying disposition," the
Company will be entitled to deduct, as compensation paid, the amount so
included as ordinary income by the optionee.
The federal alternative minimum tax consequences of the exercise of an ISO
under the Plan may differ from the general federal income tax consequences of
such exercise. The difference between the option price and the fair market
value of the shares upon exercise will be a preference item subject to the
federal alternative minimum tax.
Nonqualified Stock Options. Holders of NQSOs will not be entitled to the
special tax treatment afforded by Sections 421 and 422 of the Code in
connection with ISOs. Under the Code, an optionee granted an NQSO will realize
no taxable income upon grant of the NQSO but will be deemed to have realized
ordinary taxable income equal to the excess of the fair market value of the
stock acquired at the time of the exercise of the NQSO over the option price
paid. If the optionee is an employee, the Company will be required for federal
income tax purposes to withhold tax on the amount of income realized by the
optionee in the transaction. The Company will be entitled to a deduction for
federal income tax purposes in the year the optionee must report the income in
an amount equal to the ordinary income realized by the optionee as a result of
exercise of his NQSO.
An optionee's tax basis in shares acquired upon the exercise of an NQSO will
be the fair market value of such shares used to determine the amount of
ordinary taxable income reported by the optionee with respect to the exercise
of the NQSO. Upon any sale of such shares of common stock, the optionee's gain
or loss will therefore equal the difference between the sale price and such
tax basis. Any such gain or loss will be short or long-term capital gain or
loss, depending on whether the shares have been held for at least 12 months.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 2002
Annual Meeting of Stockholders must be received by the Company at its
principal executive offices no later than the close of business on February
22, 2002 (the one hundred twentieth (120th) day prior to the first anniversary
of the date of this proxy statement) nor earlier than the close of business on
January 23, 2002 (the one hundred fiftieth (150th) day prior to the first
anniversary of the date of this proxy statement).
EXPENSES AND SOLICITATION
The Company will bear the entire cost of this proxy solicitation, including
the preparation, printing and mailing of the Proxy Statement, the proxy and
any additional soliciting materials sent by the Company to stockholders. The
Company has retained the services of Mellon Investor Services to assist in the
solicitation of proxies from the Company's stockholders. The fees to be paid
to Mellon Investor Services by the Company for these services are not expected
to exceed $10,500, plus reasonable out-of-pocket expenses. Further, the
Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for reasonable expenses incurred by them in
forwarding proxy soliciting materials to such beneficial owners. In addition
to solicitations by mail, certain of the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, facsimile and personal interviews. Solicitation by officers and
employees of the Company may also be made of some stockholders in person or by
mail, telephone or facsimile following the original solicitation.
23
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of
the Company's common stock (collectively, "Reporting Persons") to file with
the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the SEC to furnish the Company
with copies of all such filings. Based on its review of the copies of such
filings received by it with respect to the fiscal year ended February 28, 2001
and written representations from certain Reporting Persons, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in the fiscal year ended February 28, 2001, with the following
exception(s): one Initial Statement of Beneficial Ownership of Securities on
Form 3 was filed late for Eugene J. McDonald and one Statement of Changes in
Beneficial Ownership of Securities on Form 4 was filed late for Timothy J.
Buckley.
24
APPENDIX
AUDIT COMMITTEE CHARTER
A. Purpose and Scope
The primary function of the Audit Committee (the "Committee") is to assist
the Compensation committee in fulfilling its responsibilities by reviewing:
(i) the financial reports provided by the Corporation to the Securities and
Exchange Commission ("SEC"), the Corporation's shareholders or to the general
public; and (ii) the Corporation's internal financial and accounting controls.
B. Composition
The Committee shall be comprised of a minimum of three directors as
appointed by the Board of Directors, who shall meet the independence and audit
committee composition requirements under any rules or regulations of The
NASDAQ National Market, as in effect from time to time, and shall be free from
any relationship that, in the opinion of the Board of Directors, would
interfere with the exercise of his or her independent judgment as a member of
the Committee.
All members of the Committee shall either (i) be able to read and understand
fundamental financial statements, including a balance sheet, cash flow
statement and income statement, or (ii) be able to do so within a reasonable
period of time after appointment to the Committee. At least one member of the
Committee shall have employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable experience or
background which results in the individual's financial sophistication,
including being or having been a chief executive officer, chief financial
officer or other senior officer with financial oversight responsibilities.
The Board may appoint one member who does not meet the independence
requirements set forth above and who is not a current employee of the
Corporation or an immediate family member of such employee if the Board, under
exceptional and limited circumstances, determines that membership on the
Committee by the individual is required in the best interests of the
Corporation and its shareholders. The Board shall disclose in the next proxy
statement after such determination the nature of the relationship and the
reasons for the determination.
The members of the Committee shall be elected by the Board of Directors at
the meeting of the Board of Directors following each annual meeting of
stockholders and shall serve until their successors shall be duly elected and
qualified or until their earlier resignation or removal. Unless a Chair is
elected by the full Board of Directors, the members of the Committee may
designate a Chair by majority vote of the full Committee membership.
C. Responsibilities and Duties
To fulfill its responsibilities and duties, the Committee shall:
Document Review
1. Review and assess the adequacy of this Charter periodically as conditions
dictate, but at least annually (and update this Charter if and when
appropriate).
2. Review with representatives of management and representatives of the
independent accounting firm the Corporation's audited annual financial
statements prior to their filing as part of the Annual Report on Form 10-
K. After such review and discussion, the Committee shall recommend to the
Board of Directors whether such audited financial statements should be
published in the Corporation's annual report on Form 10-K. The Committee
shall also review the Corporation's quarterly financial statements prior
to their inclusion in the Corporation's quarterly SEC filings on
Form 10-Q.
A-1
3. Take steps designed to ensure that the independent accounting firm reviews
the Corporation's interim financial statements prior to their inclusion in
the Corporation's quarterly reports on Form 10-Q.
Independent Accounting Firm
4. Recommend to the Board of Directors the selection of the independent
accounting firm, and approve the fees and other compensation to be paid to
the independent accounting firm. The Committee shall have the ultimate
authority and responsibility to select, evaluate and, when warranted,
replace such independent accounting firm (or recommend such replacement for
shareholder approval in any proxy statement).
5. On an annual basis, receive from the independent accounting firm a formal
written statement identifying all relationships between the independent
accounting firm and the Corporation consistent with Independence Standards
Board ("ISB") Standard 1. The Committee shall actively engage in a dialogue
with the independent accounting firm as to any disclosed relationship or
services that may impact its independence. The Committee, shall take, or
recommend that the Board of Directors take, appropriate action to oversee
the independence of the independent accounting firm.
6. On an annual basis, discuss with representatives of the independent
accounting firm the matters required to be discussed by Statement on
Auditing Standards ("SAS") 61, as it may be modified or supplemented.
7. Meet with the independent accounting firm prior to the audit to review the
planning and staffing of the audit.
8. Evaluate the performance of the independent accounting firm and recommend
to the Board of Directors any proposed discharge of the independent
accounting firm when circumstances warrant. The independent accounting firm
shall be ultimately accountable to the Board of Directors and the
Committee.
Financial Reporting Process
9. In consultation with the independent accounting firm and management, review
annually the adequacy of the Corporation's internal financial and
accounting controls.
Compliance
10. To the extent deemed necessary by the Committee, it shall have the
authority to engage outside counsel and/or independent accounting
consultants to review any matter under its responsibility.
Reporting
11. Prepare, in accordance with the rules of the SEC as modified or
supplemented from time to time, a written report of the audit committee to
be included in the Corporation's annual proxy statement for each annual
meeting of stockholders occurring after December 14, 2000.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Corporation's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles.
A-2
RED HAT, INC.
Annual Meeting of Stockholders to be held on August 2, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Matthew J. Szulik
and Kevin B. Thompson and each of them, with full power of substitution, as
proxies to represent and vote all shares of stock of Red Hat, Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Stockholders of the Company to be held on August 2,
2001, at 10:00 a.m. local time, at the Company's headquarters located at 2600
Meridian Parkway, Durham, North Carolina, and at all adjournments thereof, upon
matters set forth in the Notice of Annual Meeting of Stockholders and Proxy
Statement dated June 19, 2001, a copy of which has been received by the
undersigned. The proxies are further authorized to vote, in their discretion,
upon such other business as may properly come before the meeting or any
adjournments thereof.
The Board of Directors recommends a vote FOR the election of directors, the
amendment of the Certificate of Incorporation, and the amendment of the Red Hat,
Inc. 1999 Stock Option and Incentive Plan.
SEE REVERSE SIDE
[X] Please mark votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR THE
PROPOSALS IN ITEMS 2, 3 AND 4.
1. To elect two members to the Board of Directors to serve for a three-year
term as a Class II Director:
NOMINEES: Matthew J. Szulik [_] FOR [_] WITHHOLD
Eugene J. McDonald [_] FOR [_] WITHHOLD
2. To approve an amendment to the Company's certificate of incorporation to
increase the number of shares of common stock that the Company is
authorized to issue from 225,000,000 to 300,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To amend the Red Hat, Inc. 1999 Stock Option and Incentive Plan to
increase the number of shares of common stock authorized for awards under
the Plan from 13,000,000 to 28,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To transact such other business as may properly come before the meeting
and any adjournment thereof.
[_] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
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Please sign exactly as name appears below. Joint owners must both sign.
Attorney, executor, administrator, trustee or guardian must give full title as
such. A corporation or partnership must sign its full name by an authorized
person.
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Signature of Stockholder
Date:____________________, 2001
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Signature if held jointly
PLEASE COMPLETE, SIGN DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE, OR OTHERWISE PROVIDE YOUR PROXY BY TELEPHONE OR THE INTERNET.
I/We will attend the meeting. [_] YES [_] NO