Hell's Kitchen Systems, Inc Questions and Answers


United States, January 5, 2000

Q: Why will Red Hat acquire Hell's Kitchen Systems, Inc. (HKS)?
HKS' e-commerce payment software is a vital piece of e-commerce infrastructure for any company trying to do business on the Internet. The acquisition will bring this software into the Red Hat solutions family, enabling Red Hat to provide users worldwide with a complete open source e-commerce server and services solution for fast-growing e-business initiatives.

HKS offers a completely open architecture that can support and be embedded in virtually any operating system or next-generation, post-PC device. Red Hat can embed HKS software directly into the Red Hat OS and the post-PC devices conducting the next generation of e-commerce. It's the next step in Red Hat's strategy to create a next-generation software company spanning powerful servers, Internet infrastructure and pervasive, post-PC-centric computing platforms.

Q: What is the value and financial terms of the acquisition?
Under the terms of the agreement, Red Hat will issue up to 398,335 shares of Red Hat common stock to acquire all the outstanding shares of HKS. The transaction will be accounted for as a purchase transaction and is subject to approval by HKS shareholders and other customary closing conditions.

Q: What is the resulting company and management structure?
Red Hat, Inc. remains headquartered in Research Triangle Park, N.C. Matthew Szulik, is still the CEO and president of the company.

Q: Where are open source solutions used in e-commerce today?

  • 22 percent of Internet commerce independent software vendors (ISVs) surveyed by Forrester offered their applications on Linux in 1999, and a third expect to do so in 2001.
  • According to a recent NetCraft, Inc. survey, the open source Apache Web server runs 55 percent of the Internet's Web sites.
  • Sendmail, an open source messaging solution, powers 80 percent of Internet Service Providers (ISPs).
  • More than 150 ISPs, online merchants and financial institutions leverage HKS' payment processing engine for their e-commerce offerings.
  • Red Hat Linux servers powered NetAid, the largest streaming video event in Web history with a Web page download success rate higher than the top 40 Internet sites. Homewarehouse.com, emusic.com, angelfire.com (a Lycos property) and other top Web sites are built on Red Hat Linux.
  • 29% of all public web servers run on Linux, making Linux the most popular operating system for public web sites.

Q: How will Red Hat market and sell HKS' solution?
Red Hat will bundle HKS' credit card verification system software with the Professional Edition of its Red Hat Linux operating system, providing users worldwide with a complete open source e-commerce server and services solution for fast-growing e-business initiatives.

As part of that complete solution, Red Hat also added worldwide support for top open source Internet software in November 1999, including the Apache Web Server, Sendmail and Postfix. (These solutions are currently included on the application CD that accompanies the Red Hat Linux Professional Edition.)

Q: How does the combination of HKS and Red Hat benefit customers?
Enterprises worldwide and HKS' customer base of more than 150 Internet Service Provider (ISP), online merchants and financial institution customers will benefit from Red Hat's complete open source solutions portfolio, providing all the software, information and services needed for Internet and enterprise e-business initiatives. Red Hat is the largest organization in the world dedicated to open source solutions and has tremendous support and information for companies turning to open source solutions for their next-generation e-business initiatives.

For more detailed information on both companies' offerings, visit the Web at /products/ and http://www.hks.net.

Q: Do you expect key personnel from either company to leave as a result of the acquisition?
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.

Q: How will the new Red Hat be organized and structured?
Red Hat has offices throughout the world. The headquarters remains in Research Triangle Park, North Carolina.

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 codeâeuro”the inner workings of softwareâeuro”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). Red Hat Linux and Cygnus GNUPro from Cygnus are distributed under the GPL and similar licenses.

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.

Q: Does the acquisition require shareholder approval?
The acquisition is subject to approval by HKS shareholders and other customary closing conditions.

Q: Will the composition of the Red Hat board of directors change as a result of the acquisition?

Q: What is Red Hat's current size and revenues?
Red Hat has more than 200 employees worldwide. It had revenues of $12.6 million in the nine months ended on November 30,1999. This was a gain of 77 percent over the first nine months of the preceding fiscal year.

Q: Is this the first acquisition for Red Hat?
This is the second acquisition. Red Hat signed an agreement to acquire Cygnus solutions on November 15, 1999.

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