Throughout the applicable period, in each Form 10-Q and Form 10-K filed with the SEC, the defendants falsely reported that they “ratably” recognized revenue from subscriptions. In fact, as the market learned on July 13, it did not. Instead, the defendants recognized revenue from subscriptions on a monthly basis, rather than on a daily basis. For example, if a subscription was signed on the last day of a month, a full month’s revenue would have been recognized on that day, rather than a day’s worth of revenue. After the auditor within PriceWaterhouse Cooper rotated, the new uditor required recognition of revenue from subscriptions on a daily basis as required by Generally Accepted Accounting Principles. This change in accounting practice resulted in Red Hat’s having to restate its financial results for fiscal years 2002, 2003, and the first quarter of 2004. The defendants have publicly announced that the restatement “is expected to result in significant percentage differences in certain items such as quarterly operating profit and net income.”

During the seven-month class period, defendants Timothy Buckley and Matthew Szulik
sold shares of Red Hat for over $34 million and $37 million respectively, while the other defendants collectively sold an additional $8 million in Red Hat securities.

Red Hat has also announced an SEC inquiry into the company’s results as filed in their Form 10-K. On Monday, June 14, 2004, the company announced unexpectedly that its Chief Financial Officer was resigning “to pursue other interests” -- the company claims that its restatement is unrelated to its former CFO’s resignation. On this news, Red Hat stock plummeted $4.62 or 22.7% per share, losing $600 million in market capitalization to close at $15.73 per share.

If you purchased securities issued by Red Hat during the applicable period, you may request appointment by the court as a lead plaintiff if you do so by September 13, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiffs. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve you in this action, or you may choose to do nothing, and remain in the class as a silent member.