Document:

Letter Agreement by & between registrant & Charles R. Peters

 Exhibit 10.1 
  
 August 16, 2004 
  
 Charles E. Peters, Jr. 
 26 Loch Ridge Drive 
 Greensboro, North Carolina 27408 
  
 Dear Charlie: 
  
 We are pleased to offer you the position of Executive Vice President, Chief Financial Officer at Red Hat, Inc. (“Red Hat” or the “Company”). Your start date is scheduled for August 30, 2004 and you
will report to Matthew Szulik, CEO. You will be based in Raleigh, North Carolina at our corporate headquarters. 
  
 Compensation and Benefits 
  
 Your initial salary will be $275,000.00 on an annualized basis, to be paid in accordance with the customary pay procedures established by the Company as modified from
time to time. Currently, salaries are paid twice per month. In addition, you will be eligible to participate in Red Hat’s Executive Variable Compensation Plan (EVC Plan)with a target bonus of $200,000 on an annualized basis (currently
structured to be payable, if earned, on a annual basis). To facilitate your relocation, the Company will guarantee an EVC plan bonus payment of not less than $50,000 for the fiscal year 2005, i.e., approximately half of your target for the remainder
of the fiscal year will be earned (assuming a start date on or before September 1, 2004). 
  
 You may also expect the company to arrange for movement of your household goods to the area as well as covering your costs associated with sale of your home in Greensboro – i.e., real estate commission, typically
reimbursed miscellaneous closing costs, closing costs related to the purchase of your home in Raleigh, as well as tax gross-up of non-deductible reimbursed expenses. To the extent the Company can reduce the tax impact of the gross up of such closing
costs by treating the sale of your current residence through a Buyer Value Option with the company’s chosen Relocation company, we would ask that you cooperate with such firm to ensure this significant savings can be realized. We understand
that you will elect to defer the relocation of your family until the close of the school year. The company will reimburse you for the cost of a one-bedroom corporate apartment in the Raleigh area for these nine months. 
  
 You are also entitled to the Company’s other regular benefit plans. Red Hat currently
offers the following benefits: 
  

	 	•	Comprehensive major medical/dental/vision insurance plan 

  

	 	•	Flexible benefits plan for payment of medical and/or dependent care expenses 

  

	 	•	Life Insurance 

  

	 	•	401k with Company match 

  

	 	•	Short and Long Term Disability 

  

	 	•	Employee Stock Purchase Plan 

  

	 	•	Educational Reimbursement 

  
 You will be eligible to participate in these and other benefit programs subject to the terms and conditions established by the Company from time to time. For a more detailed understanding of the benefits and the
eligibility requirements, please consult the summary plan descriptions for the programs which will be made available to you. The Company has the right to change, modify or terminate any existing benefits at any time. 
  
 In addition, and subject to the approval of the Company’s Board of Directors, the
Company will grant you a total of 350,000 stock options, pursuant to the terms and conditions of the Company’s 1999 Stock Option Plan, as amended, (the “Plan”). You will be granted 200,000 stock options on first grant date (after
start date in this role) with Red Hat. The exercise price shall be the fair market value of the shares at the time of grant by the Board of Directors. The remaining 150,000 will be granted 50,000 per month on the one month anniversary of the
original grant until the full 350,000 is granted or on another such pre-agreed schedule of your choosing. Red Hat must be informed, in writing, of any alternate schedule no later than August 30, 2004. The schedule cannot be changed after this date.
The exercise price of these later grants shall be the fair market value of the shares at the time of grant by the Board of Directors . All options will be issued on the next grant date in accordance with our stock option plan. 
  
 As an alternative to the 350,000 options offered above, you may elect to reduce the number of
options in return for restricted stock. One option can be traded for .35 restricted shares (i.e., 2.86 options may be traded for 1 restricted share). No more than 210,000 options may be traded, so the maximum number of restricted shares chosen would
be 73,500. Options will be granted 50% on first grant date after hire, with the remainder granted equally per month over the first, second, and third month anniversary of the original grant or on another such pre-agreed schedule of your choosing.
Red Hat must be informed, in writing, of any alternate schedule no later than August 30, 2004. Restricted stock will granted on date of hire 
  
 You also become first eligible for an “annual” grant starting in the year 2005. Such “annual” grants are typically granted in July of each year, but
may vary according to the discretion of the Board of Directors. Under current granting guidelines, which are subject to review and change by the Board of Directors, you could expect to receive an annual grant of 140,000 options. Of course, your
individual performance may impact the size of this grant. 
  
 Subject to approval
of the Company’s Board of Directors, in the event of a change of control of Red Hat, Inc. (where change of control is defined as a change in ownership of greater than 50% of the outstanding shares of the Corporation) and in the event that your
employment is involuntarily terminated for reasons other than for cause or constructively terminated as a result of such change of control (where constructive termination is 

  

 
defined as the individual not being offered a position of a similar level and responsibility in the combined company as the individual held in the
Corporation) then 100% of your remaining unvested options will immediately vest and be exercisable. 
  
 Terms and Conditions of Employment 
  
 By
accepting this offer of employment, you warrant to Company that you are available to render services as contemplated herein. Specifically, it is a condition of this offer that you are not subject to a restrictive covenant or other prohibition that
would prevent you from working in this capacity (i.e., that you have not entered into any agreements with previous employers which are in conflict with your obligations to Red Hat). 
  
 You also will be required to sign Red Hat’s Non-Competition and Employee Non-Disclosure and Developments Agreement(s)as a
condition of your employment with the Company. The Agreement(s) must be signed and returned to the Company on or before August 27, 2004. 
  
 Your employment will be terminable at will, which means that either you or the Company may terminate your employment at any time and for any or no reason. In the event
your employment is terminated by Red Hat for reasons other than cause, you will be eligible for a severance package, payable upon signing a general release, that equals one year of base pay. 
  
 Please sign the letter where indicated below to acknowledge your acceptance of this offer.
This offer will terminate if not accepted, signed, and returned by August 19, 2004. 
  
 Charlie, we look forward to your favorable response and welcome you to the Red Hat team! 
  
 You will be an incredible addition to our Red Hat leadership team. 
  
  

	
	Sincerely,
	
	/s/    Mary Sutton
	 Mary Sutton
 VP, Human Capital

  
 c.c. Matthew Szulik 
  

									
					
	Agreed to and accepted:	 	    /s/    Charles E. Peters, Jr.	 	 	 	Date:	 	      8/18/04Incentive Stock Option Agreement

 Exhibit 10.2 
  
 RED HAT, INC. 
  
 Stock Option Agreement 
 Cover
Sheet 
  
 Red Hat, Inc., a Delaware corporation, hereby grants as of the
date below (the “Grant Date”) to the person named below (the “Employee”) and the Employee hereby accepts, an option to purchase the number of shares (the “Option Shares”) listed below of the Company’s Common Stock,
$.0001 par value per share (“Common Stock”), at the price per share and with a vesting start date (the “Vesting Start Date”) listed below, such option to be on the terms and conditions specified in the attached Exhibit A.

  
 Employee Name: Charles Peters 
  
 Grant Date: 8/31/04 
  
 Vesting Start Date: 8/31/04 
  
 Number of Option Shares: 32,624 
  
 Exercise Price Per Share: $ 12.26 
  
 IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed
as of the Grant Date set forth above. 
  

									
				
	 	 	/s/    Charles E. Peters, Jr.	 	 	 	RED HAT, INC.
	(Employee Signature)	 	 	 	 1801 Varsity Drive
 Raleigh, North Carolina
27606

					
	 	 	26 Loch Ridge Dr.	 	 	 	By:	 	/s/    Matthew Szulik
	(Street Address)	 	 	 	 Name:
	 	Matthew Szulik
	 	 	 	 	 Title:
	 	President
					
	 	 	Greensboro, NC 27408	 	 	 	 	 	 
	(City/State/Zip Code)	 	 	 	 	 	 
	 	 	 	 	 	 	 

  
 PLEASE RETURN ONE
SIGNED COVER SHEET 
 TO EMILY DEL TORO/ LEGAL DEPT. 
 CENTENNIAL CAMPUS 
  
 FAX
NUMBER (919) 754-3715 
  

 EXHIBIT A 
  
 RED HAT, INC. 
  
 Incentive Stock Option Agreement 
 Terms and Conditions 
  
 1. Grant
Under Red Hat, Inc. 1999 Stock Option and Incentive Plan. This option is granted pursuant to and is governed by the Company’s 1999 Stock Option and Incentive Plan (the “Plan”) and, unless the context otherwise requires,
terms used herein shall have the same meaning as in the Plan. Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on the Grant Date. 
  
 2. Grant as Incentive Stock Option. This option is intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”). However, to the extent that the aggregate fair market value of the stock with
respect to which the Employee may exercise this option as an incentive stock option for the first time during any calendar year, together with any other incentive stock options that are exercisable for the first time during any such year exceeds one
hundred thousand dollars ($100,000), such option in excess of such limitation shall not be treated as incentive stock options in accordance with Section 422 of the Code, but shall instead be treated as options not intended to be subject to Section
422 of the Code. 
  
 3. Vesting of Option if Employment
Continues. All of the option shares initially shall be unvested shares. For so long as the Employee remains continually employed by the Company the option shares shall become vested according to the schedule set forth below and the Employee
may exercise this option as to any vested shares: 
  

					
	 Vesting Date

	 	 	    	 Number of Vested Shares

	One year from the Vesting Start Date	 	-	    	25% of the Option Shares
			
	On the first day of each subsequent three month period following one year from the Vesting Start Date	 	-	    	6.25% of the Option Shares

  
 Notwithstanding the
foregoing, the Board may, in its discretion, accelerate the date that any installment of this option becomes exercisable. The foregoing rights are cumulative and (subject to Sections 4 or 5 hereof if the Employee ceases to be employed by the
Company) may be exercised only before the date which is ten years from the date of this option grant. 
  
 4. Termination of Employment. 
  
 (a) Termination Other Than for Cause. If the Employee ceases to be employed by the Company, other than by reason of
death or disability as defined in Section 5 or termination for Cause as defined in Section 4(c), no further installments of this option shall become exercisable, and this option shall expire (may no longer be exercised) after the passage of three
months from the Employee’s last day of employment, but in no event later than the scheduled expiration date. For purposes hereof, employment shall not be considered as having terminated during any leave of absence if such leave of absence has
been approved in writing by the Company and if such written approval contractually obligates the Company to continue the employment of the Employee after the approved period of absence; in the event of such an approved leave of absence, vesting of
this option shall be suspended (and the period of the leave of absence shall be added to all vesting dates) unless otherwise provided in the Company’s written approval of the leave of absence. For purposes hereof, employment shall include a
consulting arrangement between the 

  

 
Employee and the Company that immediately follows termination of employment, but only if so stated in a written consuling agreement executed by the Company
that specifically refers to this option. This option shall not be affected by any change of employment within or among the Company and its Subsidiaries so long as the Employee continuously remains an employee of the Company or any Subsidiary (as
defined in the Plan). 
  
 (b) Termination
for Cause. If employment of the Employee is terminated for Cause (as defined in Section 4(c)), this option shall expire (that is, may no longer be exercised) upon the Employee’s receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever. 
  
 (c) Definition of Cause. “Cause” shall mean conduct involving one or more of the following: (i) the substantial and continuing failure of the Employee, after notice thereof, to
render services to the Company in accordance with the terms or requirements of his or her employment; (ii) disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to the Company; (iii) deliberate disregard of
the rules or policies of the Company, or breach of an employment or other agreement with the Company, which results in direct or indirect loss, damage or injury to the Company; (iv) the unauthorized disclosure of any trade secret or confidential
information of the Company; or (v) the commission of an act which constitutes unfair competition with the Company or which induces any customer or supplier to breach a contract with the Company. 
  
 5. Death; Disability. 
  
 (a) Death. If the Employee dies while
in the employ of the Company, this option may be exercised, to the extent otherwise exercisable on the date of his or her death, by the Employee’s estate, personal representative or beneficiary to whom this option has been transferred pursuant
to Section 10, only at any time within 180 days after the date of death, but not later than the scheduled expiration date. 
  
 (b) Disability. If the Employee ceases to be employed by the Company by reason of his or her disability, this option
may be exercised, to the extent otherwise exercisable on the date of cessation of employment, only at any time within 180 days after such cessation of employment, but not later than the scheduled expiration date. For purposes hereof,
“disability” means “permanent and total disability” as defined in Section 22(e)(3) of the Code. 
  
 6. Partial Exercise. This option may be exercised in part at any time and from time to time within the above limits, except that this option
may not be exercised for a fraction of a share. 
  
 7.
Payment of Exercise Price. 
  
 (a) Payment Options. The exercise price shall be paid by one or any combination of the following forms of payment that are applicable to this option: 
  

	 	(i)	in cash, or by check payable to the order of the Company; or 

  

	 	(ii)	delivery of an irrevocable and unconditional undertaking, satisfactory in form and substance to the Company, by a creditworthy broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or delivery by the Employee to the Company of a copy of irrevocable and unconditional instructions, satisfactory in form and substance to the Company, to a creditworthy broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price; or 

  

	 	(iii)	 subject to Section 7(b) below, if the Common Stock is then traded on a national securities exchange or on the Nasdaq National Market (or successor trading
system), by delivery of 

  

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shares of Common Stock having a fair market value equal as of the date of exercise to the option price; or 
  
 In the case of (iii) above, fair market value as of the date
of exercise shall be determined as of the last business day for which such prices or quotes are available prior to the date of exercise and shall mean (x) the last reported sale price (on that date) of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (y) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market (or successor trading
system), if the Common Stock is not then traded on a national securities exchange. 
  
 (b) Limitations on Payment by Delivery of Common Stock. If Section 7(a)(iii) is applicable, and if the Employee
delivers Common Stock held by the Employee (“Old Stock”) to the Company in full or partial payment of the exercise price and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the
Employee and the Company, an equivalent number of Option Shares shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the Employee paid for the Option Shares by delivery of Old Stock, in addition to any
restrictions or limitations imposed by this Agreement. Notwithstanding the foregoing, the Employee may not pay any part of the exercise price hereof by transferring Common Stock to the Company unless such Common Stock has been owned by the Employee
free of any substantial risk of forfeiture for at least six months. 
  
 8. Securities Laws Restrictions on Resale. Until registered under the Securities Act of 1933, as amended, or any successor statute (the “Securities Act”), the Option Shares will be of an illiquid nature and
will be deemed to be “restricted securities” for purposes of the Securities Act. Accordingly, such shares must be sold in compliance with the registration requirements of the Securities Act or an exemption therefrom. Unless the Option
Shares have been registered under the Securities Act, each certificate evidencing any of the Option Shares shall bear a legend substantially as follows: 
  
 “The shares represented by this certificate are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged,
hypothecated or other-wise disposed of except in accordance with and subject to all the terms and conditions of a certain Stock Option Agreement, a copy of which the Company will furnish to the holder of this certificate upon request and without
charge.” 
  
 9. Method of Exercising Option.
Subject to the terms and conditions of this Agreement, this option may be exercised by written notice to the Company at its principal executive office, or to such transfer agent as the Company shall designate. Such notice shall state the election to
exercise this option and the number of Option Shares for which it is being exercised and shall be signed by the person or persons so exercising this option. Such notice shall be accompanied by payment of the full purchase price of such shares, and
the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received. Such certificate or certificates shall be registered in the name of the person or persons so exercising this
option (or, if this option shall be exercised by the Employee and if the Employee shall so request in the notice exercising this option, shall be registered in the name of the Employee and another person jointly, with right of survivorship). In the
event this option shall be exercised, pursuant to Section 5 hereof, by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option. 

 
 10. Option Not Transferable. This option is not transferable
or assignable except by will or by the laws of descent and distribution. During the Employee’s lifetime only the Employee can exercise this option. 
  
 11. No Obligation to Exercise Option. The grant and acceptance of this option imposes no obligation on the Employee to exercise it.

  

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 12. No Obligation to Continue Employment. Neither the Plan, this Agreement, nor the grant
of this option imposes any obligation on the Company to continue the Employee in employment. 
  
 13. No Rights as Stockholder until Exercise. The Employee shall have no rights as a stockholder with respect to the Option Shares until such time as the Employee has exercised this option by
delivering a notice of exercise and has paid in full the purchase price for the shares so exercised in accordance with Section 9. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no
adjustment shall be made for dividends or similar rights for which the record date is prior to such date of exercise. 
  
 14. Capital Changes and Business Successions. The Plan contains provisions covering the treatment of options in a number of contingencies
such as stock split and mergers. Provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. 
  
 15.
Withholding. If the Company in its discretion determines that it is obligated by law to withhold from the Employee any tax or any other amount in connection with the exercise of this option, or in connection with the transfer of, or the
lapse of restrictions on, any Common Stock or other property acquired pursuant to this option, the Employee hereby agrees that the Company may withhold from the Employee’s wages or other remuneration the appropriate amount. At the discretion of
the Company, the amount required to be withheld may be withheld in cash from such wages or other remuneration or in kind from the Common Stock or other property otherwise deliverable to the Employee on exercise of this option. The Employee further
agrees that, if the Company does not withhold an amount from the Employee’s wages or other remuneration sufficient to satisfy the withholding obligation of the Company, the Employee agrees to indemnify the Company in full for the amount
underwithheld and to make reimbursement on demand, in cash, for the amount underwithheld within thirty (30) days after the exercise of the option that gives rise to the withholding obligation. 
  
 16. Early Disposition. The Employee agrees to notify the
Company in writing immediately after the Employee transfers any Option Shares, if such transfer occurs on or before the later of (a) the date that is two years after the date of this Agreement or (b) the date that is one year after the date on which
the Employee acquired such Option Shares. The Employee also agrees to provide the Company with any information concerning any such transfer required by the Company for tax purposes. 
  
 17. Lock-up Agreement. The Employee agrees that in the event that the Company effects an underwritten public
offering of Common Stock registered under the Securities Act, the Option Shares may not be sold, offered for sale or otherwise disposed of, directly or indirectly, without the prior written consent of the managing underwriter(s) of the offering, for
such period of time after the execution of an underwriting agreement in connection with such offering that all of the Company’s then directors and executive officers agree to be similarly bound. 
  
 18. Provision of Documentation to Employee. By signing this
Agreement the Employee acknowledges receipt of a copy of this Agreement and a copy of the Plan. 
  
 19. Miscellaneous. 
  
 (a) Notices. All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered
mail, postage prepaid, return receipt requested, if to the Employee, to the address set forth below or at the address shown on the records of the Company, and if to the Company, to the Company’s principal executive offices, attention of the
Corporate Secretary. 
  
 (b) Entire
Agreement; Modification. This Agreement and the Plan constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the
parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties. 
  

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 (c) Fractional Shares. If this option becomes exercisable for a
fraction of a share because of the adjustment provisions contained in the Plan, such fraction shall be rounded down to the nearest whole share. 
  
 (d) Severability. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way
affect the validity, legality or enforceability of any other provision. 
  
 (e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth in
Section 10 hereof. 
  
 (f) Governing
Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Delaware, without giving effect to the principles of the conflicts of laws thereof. 
  

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