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Cygnus Questions and Answers
RalieghUnited States, November 15, 1999
Q: Why are you merging?
We believe there is tremendous synergy between Red Hat and Cygnus. Both companies have vast engineering and development expertise, successful and growing service offerings. We are also two of the most trusted and respected open source brands in the world. Independently, we're both at the top of our game and remain committed to our customers, employees, and partners.
Combine the two and you will have a company that not only fully supports the enterprise and Internet computing needs of today's organizations, but also an open source powerhouse positioned to drive open source into the 21st century of post-PC-centric computing.
Q: What is the value and financial terms of the merger?
The transaction will be completed in a stock for stock merger in which Red Hat will issue up to 6,624,344 shares for all of the outstanding securities of Cygnus. It is valued at $674 million based on Red Hat's Friday, November 12 closing price. The transaction will be accounted for under the pooling of interest method. It is expected to close in January 2000.
Q: What is the resulting company and management structure?
The combined company will be named Red Hat, Inc., will have more than 400 employees and will be headquartered in Research Triangle Park, N.C. Matthew Szulik, currently the president of Red Hat, will be CEO and president and lead the combined company. Bob Young, currently chairman and CEO, will be chairman of the combined company.
Q: How does the combination benefit customers?
The merger will make Red Hat the largest company in the world dedicated to providing open source technology, information and services, offering an end-to-end spectrum of open source software and support for enterprise servers, the Internet and embedded platforms. We expect end users worldwide will benefit from the vast technical expertise of our combined developers, engineers, tech support specialists and consultants and a wide-array of industry partnerships with major computing vendors that can support the rapid adoption of open source solutions.
Q: Do you expect key personnel from either company to leave as a result of the merger?
No, we believe that employees from both companies will support the transaction because of the exciting opportunity to be part of the largest company in the world dedicated to providing open source solutions. In addition, employees in both companies participate in stock option plans and will now become shareholders of the combined entity.
Q: How will the new Red Hat be organized and structured?
Red Hat will have offices throughout the world, including Research Triangle Park, N.C., Sunnyvale, Calif., Atlanta, Ga., Toronto, the United Kingdom, Germany and Japan.
Q: Will there be any reduction in the workforce?
We don't anticipate any reduction. We believe there will be enormous demand for our combined talent in open source solutions.
Q: Today you also announced that Matthew Szulik was promoted to president and CEO. Why will Bob Young turn day-to-day responsibilities over to Matthew and what will Bob Young's role be?
Matthew Szulik was instrumental in the widespread success of Red Hat during the past year, including the execution of Red Hat's successful IPO and the global expansion of the company's open source service offerings. He's been at the helm of the company as president for a year, but less visible to the public. This transition has been already been taking place, and the transaction that we announced today marks a perfect time to formally implement the change. No one is better qualified to lead Red Hat.
As Chairman, Bob Young will remain very active in Red Hat's strategic direction, success and growth, while helping the computing industry continue its rapid, successful adoption of the open source software model.
Q: Are you actively pursuing other mergers or acquisitions?
We are actively pursuing ways to accelerate the acceptance of open source and to strengthen Red Hat's leadership position as a provider of open source solutions. Obviously, we can't speak to the timing of future transactions, but we will communicate with everyone as soon as there is news to announce.
Q: What is open source?
Open source describes a new way of developing software with tremendous benefits to end users. Under the open source model, the source code---the inner workings of software---is open and freely available to all developers and users. This delivers users the freedom to make changes to the software's underpinnings to meet their unique needs.
Open source consists of two elements: the availability of complete source code and a license that lets any user modify, change or redistribute that code for their benefit . This differs from the traditional proprietary software development model, which generally does not provide anyone access to source code or the freedom to modify and distribute it. Under that traditional model, any and all changes must come from the vendor. The open model leverages the millions of developers and enthusiasts worldwide who make changes to Linux and other open source software products as needed, quickly improving it for all users.
There are many types of open source licenses. The most popular is the GNU General Public License (GPL). The flagship products of both companies---the Red Hat Linux OS and Cygnus GNUPro---are distributed under the GPL and similar licenses.
Q: Does the merger have an impact on your plans for international expansion?
Both companies have established overseas operations. International expansion remains a key component of our growth strategy and the merger will strengthen our position overseas and expansion opportunities. In addition to our offices in Europe and Japan, we're looking at other major markets.
Q: How do Cygnus' offerings differ from Red Hat's offerings?
Red Hat propelled Linux and open source into the mainstream, quickly becoming the market leader in operating system (OS) software and services for the servers running critical day-to-day and Internet business activities at companies worldwide. Cygnus pioneered the commercialization of open source software development tools for enterprise, Internet and embedded applications. These solutions are backed by more than 130 expert engineers.
Both companies have growing engineering and support services and have won numerous industry awards for their business and technology innovation. For more detailed information on both companies' offerings, visit the Web at /products/ and http://www.cygnus.com/product/index.html.
Q: How does this affect my current products?
The new Red Hat, Inc. will remain fully committed to supporting open source users and we anticipate no change in the products and services offered by either company. Customers and partners will continue to receive the highest levels of support, service and maintenance. Over time, solutions will be expanded as our combined resources create new product and service offerings for today's enterprise end users and a new generation of handheld and embedded devices.
Q: Why is open source and Linux good for embedded systems?
We believe the rapidly growing post-PC-centric age will include handhelds, PDAs, smart phones and many other intelligent devices with thousands of unique applications running on them. The open source model gives users complete control and freedom to alter the OS and applications for maximum performance on these devices.
Q: What is the open source opportunity for the post-PC-centric, embedded market?
IDC predicts that by 2002, there will be more than 55 million handheld and notebook-style information appliance devices and that by 2005, shipments of these appliances will exceed shipments of PCs. Look around at your office -- nearly everyone has a palm PC and cell phone. We believe there are many opportunities for the open source model and a flexible, stable OS like Red Hat Linux.
Q: What was the origin of this merger? Who initiated the transaction and why?
We have a strong shared vision for open source technologies, similar cultures, and our complementary and reinforcing product lines. We believe it's a terrific fit.
Q: Does the merger require stockholder approval?
The transaction is subject to approval by the shareholders of Cygnus. It does not require Red Hat shareholder approval.
Q: Will the composition of the Red Hat board of directors change as a result of the merger?
No. The Red Hat board remains the same.
Q: What are the advantages of Cygnus' presence in Silicon Valley?
A stronger foothold in Silicon Valley helps Red Hat recruit more talent from Silicon Valley and better service customers and partners in the area. This merger gives the combined companies a strong presence on both coasts as well as a growing global presence that can respond quickly to customer needs.
Q: What is Red Hat's current size and revenues?
Red Hat has 235 employees worldwide. It had revenues of $7.2 million in the six months ended on August 31, 1999, the midpoint of its 2000 fiscal year. This was a gain of 89 percent over the first half of the preceding fiscal year.
Q: What is Cygnus's current size?
Cygnus currently has 181 employees in locations worldwide.
Q: Is this the first acquisition for Red Hat?
Yes, this is the first acquisition for Red Hat.
LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.