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Filed by VA Linux Systems, Inc.
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Exchange Act of 1934
Subject Company: Andover.Net, Inc.
Commission File No. 001-15499
FEBRUARY 3, 2000
CONFERENCE CALL SCRIPT
VA LINUX SYSTEMS' ACQUISITION OF ANDOVER.NET
Good afternoon, I'm Todd Schull, Chief Financial Officer of VA Linux Systems.
Welcome and thanks for joining us today on such short notice. With me are Larry
Augustin, CEO and founder of VA Linux Systems and Bruce Twickler, CEO of
Andover.Net. As most of you have seen by now, at the close of market today we
announced a definitive agreement to acquire Andover.Net. The press release was
sent over the wire services at approximately 5:30 AM EST and is also available
on our web site: www.valinux.com.
I will first explain the financial facts of this transaction. Following my
comments, Larry will discuss the VA's strategy for the deal and why this is the
most significant transaction in the history of the Linux business.
Before we begin I'd like to remind you that matters we will be discussing today
will include statements relating to future results of the company
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(including certain projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1955.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties. These risks and uncertainties include, but are not
limited to: VA Linux's ability to integrate Andover.Net into its operations; the
timing of new product introductions; pricing pressures and other competitive
factors; and the fact that VA Linux and Andover.Net have incurred and will
continue to incur substantial losses. Further information regarding these risks
will be detailed in an S-4 registration statement to be filed with the
Securities and Exchange Commission (SEC). In addition, each of VA Linux and
Andover.Net may achieve results that differ materially from those projected
herein. Further information on the risks and uncertainties affecting each
company is contained in each company's filings with the SEC, including their
respective S-1 registration statements. The above mentioned documents contain
important information and you are urged to review them carefully. Each such
document is available free of charge at the SEC Website at www.SEC.gov.
Under the terms of the merger agreement, which was approved by the Board of
Directors of each company, each share of Andover.Net Common Stock will be
exchanged for 0.425 of a share of VA Linux Systems Common Stock, reduced by an
aggregate of $60 million in cash payments to Common Stock holders of
Andover.Net. The transaction is expected to be completed during VA Linux
Systems' third fiscal quarter and will be accounted for as a purchase. The $60
million of cash will be paid ratably to all stockholders
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of Andover.Net and the exchange ratio will be reduced to reflect the amount of
cash received per share. The final exchange ratio will be determined on the
closing date by subtracting from 0.425 the ratio of this cash amount per share
of Andover.Net Common Stock to the average closing price of VA Linux Systems'
Common stock over the 10 day trading period beginning four days prior to
yesterday. For example, based upon the number of Andover.Net shares of Common
Stock currently outstanding and assuming that this 10 day average trading price
is equal to $136.875, which was the closing price of VA Linux Systems' Common
Stock yesterday, each share of Andover.Net Common Stock would be exchanged for
$3.81 of cash and 0.397 of a share of VA Linux Systems Common Stock. The actual
amount of cash and VA Linux Systems Common Stock exchanged for each share of
Andover.Net Common Stock will vary based upon the actual number of shares of
Andover.Net Common Stock outstanding at the closing date and the average closing
price of VA Linux Systems' Common Stock over the 10 trading days beginning four
days prior to yesterday. Under these assumptions, Andover.Net's stockholders
would own approximately 13.5% of the combined company on a fully converted
basis. The transaction is subject to approval by the stockholders of Andover.Net
and customary closing conditions. Officers, directors and certain affiliates of
Andover.Net have executed voting agreements in support of this transaction.
Based upon analyst's estimates, we expect the transaction to be accretive to
both revenue and gross margins this year. Further, this transaction will
accelerate our business model for our web and professional services business
sectors.
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I'd now like to turn the call over to Larry who will discuss our business
strategy and how Andover.Net leverages our current web and service efforts.
Larry:
Thanks Todd. Thank you for joining us today. We appreciate your interest and
support of the company.
VA Linux is the leading company in the United States focusing exclusively on the
Linux market, and is the only complete Linux solution provider. We offer
hardware, software, and services based on Linux and Open Source Software. Our
leading Web presence is a key enabler of those businesses. We intend to grow all
aspects of our business aggressively, both organically and though acquisition.
Today we are excited to announce the most significant transaction in Linux
history. This acquisition relates to our web presence and the future of Open
Source Software development. We've talked in the past about our services model
being based on leveraging Open Source development, and this acquisition
accelerates our move into that services business.
As many of you may know, Andover.Net owns and operates a large, complementary
network of Web sites devoted to the development and the advancement of the Linux
operating system and Open Source Software (OSS).
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We believe that Andover.Net is essential to our strategy of being a center of
Linux and Open Source development. The combination of the Andover properties
with the VA Linux properties creates the leading Internet destination for Linux
and Open Source developers. In effect, it creates a "Yahoo for developers."
Specifically, Andover.Net owns and operates two key Linux and Open Source Web
properties: Slashdot and Freshmeat. Slashdot is the leading destination for
developers on the Internet. Slashdot is effectively the "town hall" of the Open
Source community providing news, commentary, information, and reviews on a wide
range of topics. Freshmeat is the leading site for the announcement of Open
Source projects with over 7,000 listed projects and over 500,000 registered
active developers.
VA Linux owns and operates three leading Linux and Open Source Web properties:
Linux.com, Themes, and SourceForge. SouceForge is a development and hosting
center, home to more than 1500 key Open Source projects, estimated to be greater
than 20% of the Open Source world.
Combining SourceForge with Freshmeat creates the leading site offering developer
resources on the Internet. Again, the combination creates a "Yahoo for
developers" with tremendous revenue opportunities that exceed what either
company could generate independently. The combined
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companies also create revenue opportunities for VA's other businesses (systems,
software and services). I'll just highlight three of the opportunities that we
will pursue in the near term:
1. The first, and probably least significant in the overall scheme of things,
is advertising. The combined companies would have over 70 million page
views per month placing it easily in the top-100 in terms of Web site
traffic. For comparison, recognized sites like buy.com, akamai.net,
playboy.com, sony.com, and barnesandnoble.com fall in the 65 million to 80
million page view range. Our combined, substantial page view numbers can be
leveraged into direct revenues through advertising sales.
2. The second stream we will pursue aggressively is Open Source services
consulting. As companies move software from proprietary to Open Source,
they need help in building communities around their software and in
developing a process for moving to Open Source. Companies will pay for this
kind of business consulting service. The combined Internet sites give us
the credibility to execute on this process better than anyone else. For
example, last week Hewlett-Packard signed up for this service.
3. Third, we've articulated before that our professional services strategy is
to leverage the Open Source development model by running Open source
projects that fulfill professional services contracts. It's critical that
we be able to do this more effectively and efficiently than anyone. The
combination of these properties enables that.
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With the creation of this "Yahoo for developers" we see many other exciting
opportunities that will arise as we help grow the Open Source community. The
Internet is revolutionizing the Open Source movement by changing the way
software is built. We're leading a movement in software development where
thousands of programmers working cooperatively across the Internet are better
than a handful of programmers working within a closed company.
Execution is obviously always a risk in mergers and acquisitions, so let me say
a few words now about how we will integrate the two companies. Our intent is to
continue to operate Andover.Net as an independent business unit.
The VA Linux and Andover.Net engineering teams have worked cooperatively within
the Linux community over several years, so from a cultural standpoint we believe
the combination is a good fit. Additionally, the existing organizations fit
together relatively easily. The two companies are fairly young, and each has
limited infrastructure in the other's core areas of expertise. Our Web group can
easily integrate with Andover's existing organizational structure.
Because the majority of development on the Web sites is already done remotely,
location is not an overriding factor in the integration plan. Andover has a
sales and operations management group in Massachusetts. We expect to leave those
functions there. The location actually lets us draw on a talented developer pool
in the Boston area.
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In conclusion, we're really excited about the powerful combination of VA Linux
and Andover.Net. We believe that we will have an opportunity to create the
leading online network for Open Source Software, information and technical
tools. This network will be a key enabler of our other businesses and
accelerates our professional services strategy. The revenue opportunities of VA
Linux and Andover combined far exceed what either company could generate
independently.
With that, I'd now like to open the call to questions.
VA Linux Systems, Inc., its officers and directors may be deemed to be
participants in the solicitation of proxies from Andover.Net shareholders with
respect to the transactions contemplated by the merger agreement. Information
regarding such officers and directors is included in VA Linux's S-1 Registration
Statement filed with the SEC on December 9, 1999. This document is available
free of charge at the SEC Website at www.sec.gov and from the VA Linux contact
listed below.
Andover.Net, Inc., its officers and directors may be deemed to be participants
in the solicitation of proxies from Andover.Net shareholders with respect to the
transactions contemplated by the merger agreement. Information regarding such
officers and directors is included in Andover.Net's S-1 Registration Statement
filed with the SEC on December 3, 1999. This document is available free of
charge at the SEC Website at www.sec.gov and from the Andover.Net contact listed
below. In addition, fifty percent of the unvested options held by employee
officers and directors of Andover.Net will vest as a result of this transaction.
It is also anticipated that Andover.Net's officers and employee directors will
enter into employment/non-competition agreements with VA Linux. These agreements
have been neither negotiated nor executed as of the date of this filing.
SHAREHOLDERS OF ANDOVER.NET AND OTHER INVESTORS ARE URGED TO READ THE PROXY
STATEMENT-PROSPECTUS WHICH WILL BE INCLUDED IN THE REGISTRATION STATEMENT ON
FORM S-4 TO BE FILED BY VA LINUX SYSTEMS, INC. IN CONNECTION WITH THE MERGER
BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. AFTER SUCH DOCUMENT IS FILED, IT
WILL BE AVAILABLE FREE OF CHARGE ON THE SEC WEBSITE AT WWW.SEC.GOV AND FROM VA
LINUX AND ANDOVER.NET THROUGH THE CONTACTS LISTED BELOW.
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Investor Inquiries:
VA Linux Systems
Joyce Chowla, 408/542-5718
[email protected]
Andover.Net
Janet Holian, 978/635-5300
[email protected]
or
Media Inquiries:
Eureka Endo
VA Linux Systems, 408/542-5754
[email protected]
