In the News

Red Hat Co-Founder Ends Daily Sales of Company Shares (Update1)

Friday, December 20, 2002
by Kelly Raleigh

Red Hat Inc. Co-Founder Robert Young said he stopped his daily sales of shares of the software maker after selling 3 million in a single transaction.

Young, who resigned as the company's chairman in April and remains a director, won't sell more shares until at least 2006, he said in a statement. Young had been selling 10,827 shares each business day. He declined to say who bought the 3 million shares.

A Securities and Exchange regulation called Rule 10b5-1, allows insiders to sell shares on a preset schedule, even if they have information that could affect the stock price. Some investors are concerned about 10b5-1 sales because insiders can revise or scrap the sales without disclosing the changes, said Marc J. Lane, a law professor at Northwestern University.

"A lot of people are looking at this plan as a smokescreen where you're able to camouflage what you're doing and still be safe-harbored," Marc J. Lane said. "Young did the right thing. He could have abandoned the plan and not even told us."

Executives at companies including Procter & Gamble Co., Staples Inc. and Inc. sell shares under 10b5-1 plans in an effort to reduce concerns about insider trading. Coach Inc. Chief Executive Officer Lew Frankfort and insiders at Pegasystems Inc. this week said they would adopt such plans.
The shares of Raleigh, North Carolina-based Red Hat, the largest U.S. distributor of the free Linux operating system, fell 17 cents to $5.99 at 1:18 p.m. New York time in Nasdaq Stock Market trading. They had fallen 16 percent this year and reached $151.31 in December 1999.

Investor Concern
Investors had worried about Young's scheduled sales, which he undertook to diversify his financial holdings, he said in the statement, leading him to sell the stock through a block trade.

"He didn't want it to appear as a slow drain on the stock," said Melissa London, a spokeswoman for Young's new company, Lulu Enterprises, based in Cary, North Carolina.

London said Young has sold about a quarter of his holdings in Red Hat and "he remains very bullish about the company."

Young, along with his wife, children and affiliated trusts, owned 14.5 million shares as of June, according to a proxy statement filed by Red Hat with the SEC.


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