-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UaO6M8hWjfPA5eKLNaUh8A/e0se3xHBfM+G7zB/BD0PGhINg4exSO3qt4n004hMJ K9uc6eH9P31pM+z4s/Nr3g== 0001012870-01-500713.txt : 20010514 0001012870-01-500713.hdr.sgml : 20010514 ACCESSION NUMBER: 0001012870-01-500713 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20010511 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TUT SYSTEMS INC CENTRAL INDEX KEY: 0000878436 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942958543 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: SEC FILE NUMBER: 005-58093 FILM NUMBER: 1629350 BUSINESS ADDRESS: STREET 1: 5964 W LAS POSITAS CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 9256826510 MAIL ADDRESS: STREET 1: 5964 W LAS POSITAS CITY: PLEASANTON STATE: CA ZIP: 94588 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TUT SYSTEMS INC CENTRAL INDEX KEY: 0000878436 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942958543 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 5964 W LAS POSITAS CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 9256826510 MAIL ADDRESS: STREET 1: 5964 W LAS POSITAS CITY: PLEASANTON STATE: CA ZIP: 94588 SC TO-I 1 dsctoi.txt SCHEDULE TO-I - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- SCHEDULE TO (Rule 13e-4) Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 ---------------------- TUT SYSTEMS, INC. (Name of Subject Company (Issuer) and Filing Person (Offeror) ---------------------- Options to Purchase Common Stock, Par Value $0.001 Per Share (Title of Class of Securities) ---------------------- 901103101 (CUSIP Number of Class of Securities of Underlying Common Stock) ---------------------- Salvatore D'Auria President and Chief Executive Officer Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, California 94588 (925) 460-3900 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing person) ---------------------- Copies to: Steven E. Bochner, Esq. Jill L. Nissen, Esq. Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 (650) 493-9300 CALCULATION OF FILING FEE ================================================================================ Transaction Valuation* Amount of Filing Fee - -------------------------------------------------------------------------------- $4,387,417 $877 ================================================================================ * Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 1,456,114 shares of common stock of Tut Systems, Inc. having an aggregate value of $4,387,417 as of May 10, 2001 will be exchanged and/or cancelled pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction. [_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing party: Not applicable. Date filed: Not applicable. [_] Check box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [_] third party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [_] going-private transaction subject to Rule 13e-3. [_] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [_] ================================================================================ Item 1. Summary Term Sheet. The information set forth under the caption "Summary Term Sheet" in the Offer to Exchange, dated May 11, 2001 ("Offer to Exchange"), a copy of which is attached hereto as Exhibit (a)(1), is incorporated herein by reference. Item 2. Subject Company Information. (a) Name and Address. ----------------- The name of the issuer is Tut Systems, Inc., a Delaware corporation ("Tut" or the "Company"), the address of its principal executive office is 5964 West Las Positas Blvd., Pleasanton, California 94588 and the telephone number at that address is (925) 460-3900. The information set forth in the Offer to Exchange under the caption "The Offer - Information Concerning Tut " is incorporated herein by reference. (b) Securities. ----------- This Tender Offer Statement on Schedule TO relates to an offer by the Company to exchange all options outstanding under the Company's 1992 Stock Plan, 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan to purchase approximately 1,456,114 shares of the Company's Common Stock, par value $0.001 per share ("Option Shares"), held by eligible employees for new options that will be granted under the Company's 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan (the "New Options"), upon the terms and subject to the conditions set forth under "The Offer" in the Offer to Exchange. An "eligible employee" refers to all employees of Tut Systems, Inc. and its U.S. subsidiaries who are employees at the time the New Options are granted, except all executive officers, vice-presidents, members of the Board of Directors and employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act pay are not eligible to participate in the offer. The number of shares of Common Stock subject to the New Options will be equal to the number of shares of Common Stock subject to the unexercised options tendered by such eligible employees and accepted for exchange and cancelled. The information set forth in the Offer to Exchange under the captions "Summary Term Sheet", "Introduction", and the sections under the caption "the Offer" entitled "Number of Options; Expiration Date", "Acceptance of Options for Exchange and Issuance of New Options", "Source and Amount of Consideration", and Terms of New Options" is incorporated herein by reference. (c) Trading Market and Price. ------------------------- The information set forth in the Offer to Exchange under the caption "the Offer - Price Range of Shares Underlying the Options" is incorporated herein by reference. Item 3. Identity and Background of Filing Person. (a) Name and Address. ----------------- The filing person is the issuer. The information set forth under Item 2(a) above is incorporated by reference. 2 Item 4. Terms of the Transaction. (a) Material Terms. --------------- The information set forth in the Offer to Exchange under the captions "Summary Term Sheet," "Introduction," and the sections under the caption "The Offer" entitled "Eligibility", "Number of Options; Expiration Date", "Procedures for Tendering Options", "Withdrawal Rights and Change of Election", "Acceptance of Options for Exchange and Issuance of New Options", "Conditions of the Offer", "Source and Amount of Consideration; Terms of New Options", "Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer", "Legal Matters; Regulatory Approvals", "Material U.S. Federal Income Tax Consequences", and "Extension of Offer; Termination; Amendment" is incorporated herein by reference. (b) Purchases. ---------- The information set forth in the Offer to Exchange under the caption "The Offer - Interests of Directors and Officers; Transactions and Arrangements Concerning the Options" is incorporated herein by reference. Item 5. Past Contacts, Transactions, Negotiations and Arrangements. (e) Agreements Involving the Subject Company's Securities. ------------------------------------------------------ The information set forth in the Offer to Exchange under the caption "The Offer - Interests of Directors and Officers; Transactions and Arrangements Concerning the Options" is incorporated herein by reference. The eligible option plans and option agreements attached hereto as Exhibit (d)(1), Exhibit (d)(2) and Exhibit (d)(3) contain information regarding the subject securities. Item 6. Purposes of the Transaction and Plans or Proposals. (a) Purposes. --------- The information set forth in the Offer to Exchange under the caption "The Offer - Purpose of the Offer" is incorporated herein by reference. (b) Use of Securities Acquired. --------------------------- The information set forth in the Offer to Exchange under the captions "The Offer - Acceptance of Options for Exchange and Issuance of New Options" and "The Offer - Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer" are incorporated herein by reference. (c) Plans. ------ The information set forth in the Offer to Exchange under the caption "The Offer - Purpose of the Offer" is incorporated herein by reference. 3 Item 7. Source and Amount of Funds or Other Consideration. (a) Source of Funds. ---------------- The information set forth in the Offer to Exchange under the caption "The Offer - Source and Amount of Consideration," and "Terms of New Options" is incorporated herein by reference. (b) Conditions. ----------- Not applicable. (d) Borrowed Funds. --------------- Not applicable. Item 8. Interest in Securities of the Subject Company. (a) Securities Ownership. --------------------- The information set forth in the Offer to Exchange under the caption "The Offer-Interests of Directors and Officers; Transactions and Arrangements Concerning the Option" is incorporated herein by reference. (b) Securities Transactions. ------------------------ The information set forth in the Offer to Exchange under the caption "The Offer - Interests of Directors and Officers; Transactions and Arrangements Concerning the Options" is incorporated herein by reference. Item 9. Person/Assets, Retained, Employed, Compensated or Used. (a) Solicitations or Recommendations. --------------------------------- Not applicable. Item 10. Financial Statements. (a) Financial Information. ---------------------- The information set forth in the Offer to Exchange under the captions "The Offer - Financial Information" and "The Offer - Additional Information" and on pages 37 through 60 of Tut's Annual Report on Form 10-K for its fiscal year ended December 31, 2000 and on pages 3 through 11 of Tut's Quarterly Report on From 10-Q for its fiscal quarter ended March 31, 2001 are incorporated herein by reference. A copy of the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q will be distributed with the material required under Rule 13c-4(d)(1) to all potential participants of this Offer. The Annual Report on Form 10-K and Quarterly Report on Form 10-Q can also be accessed electronically on the Commission's website at http://www.sec.gov. (b) Pro Forma Information. --------------------- Not applicable. 4 Item 11. Additional Information. (a) Agreements, Regulatory Requirements and Legal Proceedings. ---------------------------------------------------------- The information set forth in the Offer to Exchange under the caption "The Offer - Legal Matters; Regulatory Approvals" is incorporated herein by reference. (b) Other Material Information. --------------------------- Not applicable. Item 12. Exhibits. (a) (1) Offer to Exchange, dated May 11, 2001. (2) Memorandum from Janice Ramsey to Tut's employees dated May 11, 2001. (3) Election Form. (4) Notice to Change Election from Accept to Reject. (5) Form of Promise to Grant New Stock Option. (6) Tut Systems, Inc. Quarterly Report on Form 10-Q for its quarter ended March 31, 2001, filed with the Securities and Exchange Commission on May 11, 2001 and incorporated herein by reference. (7) Tut Systems, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001 and incorporated herein by reference. (b) Not applicable. (d) (1) Tut Systems, Inc. 1992 Stock Plan and form of agreement thereunder filed as Exhibit 10.1, to the Company's Registration Statement on Form S-1 declared effective on January 28, 1999 and incorporated herein by reference. (2) Tut Systems, Inc. 1998 Stock Plan and form of agreement thereunder filed as Exhibit 10.2, to the Company's Registration Statement on Form S-1 declared effective on January 28, 1999 and incorporated herein by reference. (3) Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan and form of agreement thereunder filed. (4) Tut Systems, Inc. 1998 Stock Plan Prospectus. (5) Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan Prospectus. (g) Not applicable. (h) Not applicable. 5 Item 13. Information Required by Schedule 13E-3. (a) Not applicable. 6 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. TUT SYSTEMS, INC. /s/ Nelson Caldwell ---------------------------- Nelson Caldwell Chief Financial Officer Date: May 11, 2001 INDEX TO EXHIBITS Exhibit Number Description - ------------- --------------------------------------------------------------- (a)(1) Offer to Exchange all Outstanding Options for New Options dated May 11, 2001. (a)(2) Memorandum from Janice Ramsey to Tut's employees dated May 11, 2001. (a)(3) Election Form. (a)(4) Notice to Change Election from Accept to Reject. (a)(5) Form of Promise to Grant New Stock Option. (a)(6) Tut Systems, Inc. Quarterly Report on Form 10-Q for its quarter ended March 31, 2001, filed with the Securities and Exchange Commission on May 11, 2001 and incorporated herein by reference. (a)(7) Tut Systems, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001 and incorporated herein by reference. (d)(1) Tut Systems, Inc. 1992 Stock Plan and form of agreement thereunder filed as Exhibit 10.1, to the Company's Registration Statement on Form S-1 declared effective on January 28, 1999 and incorporated herein by reference. (d)(2) Tut Systems, Inc. 1998 Stock Plan and form of agreement thereunder filed as Exhibit 10.2, to the Company's Registration Statement on Form S-1 declared effective on January 28, 1999 and incorporated herein by reference. (d)(3) Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan and form of agreement thereunder. (d)(4) Tut Systems, Inc. 1998 Stock Plan Prospectus. (d)(5) Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan Prospectus. EX-99.(A)(1) 2 dex99a1.txt OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS EXHIBIT (a)(1) ================================================================================ -------------------- OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS (THE "OFFER TO EXCHANGE") -------------------- This document constitutes part of a prospectus relating to the Tut Systems, Inc. 1998 Stock Plan and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan covering securities that have been registered under the Securities Act of 1933. May 11, 2001 ================================================================================ TUT SYSTEMS, INC. Offer to Exchange All Outstanding Options under the Tut Systems, Inc. 1992 Stock Plan, the Tut Systems, Inc. 1998 Stock Plan and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan Held by Certain Option Holders for New Options to be Granted Under either the Tut Systems, Inc. 1998 Stock Plan or the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan (the "Offer to Exchange") The offer and withdrawal rights expire at 12:00 midnight, New York City Time, on June 8, 2001 unless the offer is extended. Tut Systems, Inc. ("Tut", "we" or "us") is offering eligible employees the opportunity to exchange all outstanding options to purchase shares of Tut common stock granted under the Tut Systems, Inc. 1992 Stock Plan ("1992 Stock Plan"), the Tut Systems, Inc. 1998 Stock Plan ("1998 Stock Plan") and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan ("1999 Nonstatutory Stock Option Plan") for new options which we will grant under the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan. An "eligible employee" refers to all employees of Tut or one of our U.S. subsidiaries, who are employees as of the date the offer commences and as of the date the tendered options are cancelled, except all executive officers, vice-presidents, members of the Board of Directors and employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act pay are not eligible to participate in the exchange offer. We are making the offer upon the terms and conditions described in this Offer to Exchange, the related memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election from Accept to Reject and the Promise to Grant New Option (which together, as they may be amended from time to time, constitute the "offer" or "program"). The number of shares subject to the new options to be granted to each eligible employee will be equal to the number of shares subject to the unexercised options tendered by the eligible employee and accepted for exchange. Subject to the terms and conditions of this offer, we will grant the new options on or about the first business day which is at least six months and two days after the date we cancel the options accepted for exchange. You may only tender options for all or none of the outstanding, unexercised shares subject to an individual option grant. All tendered options accepted by us through the offer will be cancelled as promptly as practicable after 12:00 midnight New York City Time on the date the offer ends. The offer is currently scheduled to expire on June 8, 2001 (the "Expiration Date") and we expect to cancel options on June 11, 2001, or as soon as possible thereafter (the "Cancellation Date"). If you tender any option grant for exchange, you will be required to also tender all option grants that you received during the six month period prior to the Cancellation Date. Since we currently expect to cancel all tendered options on June 11, 2001, this means that if you participate in the offer, you will be required to tender all options granted to you since December 11, 2000. The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. The offer is subject to conditions that we describe in Section 7 of this Offer to Exchange. If you tender options for exchange as described in the offer, and we accept your tendered options, then, subject to the terms of this offer, we will grant you new options under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion. In order to receive a new option pursuant to this offer, you must continue to be an employee as of the date on which the new options are granted, which will be at least six months and two days after the Cancellation Date. The exercise price per share of the new options will be 100% of the fair market value on the date of grant, as determined by the closing price of our common stock reported by the Nasdaq National Market for the last market trading day prior to the date of grant. Each new option will be exercisable for the same number of shares as remained outstanding under the tendered options. Each new option granted will vest in accordance with the vesting schedule of the cancelled options. Each new option granted will vest as follows: . all shares equal to the number of shares that were fully vested under the cancelled option on the Expiration Date will be fully vested; . all shares equal to the number of unvested shares under the cancelled option on the Expiration Date that would have been fully vested on the date the new option is granted (at least six months and two days from the Cancellation Date) will be fully vested; and . all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. Although our Board of Directors has approved the offer, neither we nor our Board of Directors makes any recommendation as to whether you should tender or not tender your options for exchange. You must make your own decision whether or not to tender your options. Shares of Tut common stock are traded on the Nasdaq National Market under the symbol "TUTS." On May 10, 2001, the closing price of our common stock reported on the Nasdaq National Market was $3.20 per share. We recommend that you evaluate current market quotes for our common stock, among other factors, before deciding whether or not to tender your options. This Offer to Exchange has not been approved or disapproved by the Securities and Exchange Commission (the SEC) or any State Securities Commission nor has the SEC or any State Securities Commission passed upon the accuracy or adequacy of the information contained in this Offer to Exchange. Any representation to the contrary is a criminal offense. You should direct questions about the offer or requests for assistance or for additional copies of this Offer to Exchange, the memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election From Accept to Reject and the Promise to Grant New Option to Shareholder Services, Attention: Bill Radtke at Tut Systems, Inc., 5964 West Las Positas Blvd., Pleasanton, California, 94588 (telephone: (925) 201-4212). IMPORTANT If you wish to tender your options for exchange, you must complete and sign the Election Form in accordance with its instructions, and fax or hand deliver it and any other required documents to Shareholder Services, Attention Bill Radtke, Tut Systems, Inc. at fax number (925) 201-4427. We are not making the offer to, and we will not accept any tender of options from or on behalf of, option holders in any jurisdiction in which the offer or the acceptance of any tender of options would not be in compliance with the laws of that jurisdiction. However, we may, at our discretion, take any actions necessary for us to make the offer to option holders in any of these jurisdictions. We have not authorized any person to make any recommendation on our behalf as to whether you should tender or not tender your options through the offer. You should rely only on the information in this document or to which we have referred you. We have not authorized anyone to give you any information or to make any representation in connection with the offer other than the information and representations contained in this document and in the related memorandum from Janice Ramsey dated May 11, 2001, Election Form, Notice to Change Election from Accept to Reject and Promise to Grant New Option. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. TABLE OF CONTENTS
Page SUMMARY TERM SHEET.............................................................................. 1 CERTAIN RISKS OF PARTICIPATING IN THE OFFER..................................................... 9 INTRODUCTION.................................................................................... 12 THE OFFER....................................................................................... 14 1. Eligibility................................................................................ 14 2. Number of options; Expiration date......................................................... 14 3. Purpose of the offer....................................................................... 15 4. Procedures for tendering options........................................................... 17 5. Withdrawal Rights and Change of Election................................................... 18 6. Acceptance of options for exchange and issuance of new options............................. 19 7. Conditions of the offer.................................................................... 20 8. Source and amount of consideration......................................................... 21 9. Effect of a Change of Control Prior to the Granting of New Options......................... 21 10. Terms of New Options....................................................................... 22 11. Information concerning Tut................................................................. 26 12. Financial Information...................................................................... 26 13. Price range of shares underlying the options............................................... 27 14. Interests of directors and officers; transactions and arrangements concerning the options.. 27 15. Status of options acquired by us in the offer; accounting consequences of the offer........ 28 16. Legal matters; regulatory approvals........................................................ 29 17. Material U.S. Federal Income Tax Consequences.............................................. 30 18. Extension of offer; termination; amendment................................................. 32 19. Fees and expenses.......................................................................... 33 20. Additional information..................................................................... 33 21. Miscellaneous.............................................................................. 34 SCHEDULE A Information Concerning the Directors and Executive Officers of Tut Systems, Inc..... A-1
-i- - -------------------------------------------------------------------------------- SUMMARY TERM SHEET The following are answers to some of the questions that you may have about the offer. We urge you to read carefully the remainder of this Offer to Exchange, the accompanying memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election From Accept to Reject and the Promise to Grant New Option because the information in this summary is not complete, and additional important information is contained in the remainder of this Offer to Exchange, the memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election From Accept to Reject and the Promise to Grant New Option. We have included page references to the remainder of this Offer to Exchange where you can find a more complete description of the topics in this summary. Q: What securities are we offering to exchange? A: We are offering to exchange all outstanding, unexercised options to purchase shares of common stock of Tut granted under the 1992 Stock Plan, the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan held by eligible employees for new options we will grant under either the 1998 Stock Plan or 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion. (Page 14) Q. Who is eligible to participate? A. Employees are eligible to participate if they are employees of Tut Systems, Inc. ("Tut") or one of our U.S. subsidiaries as of the date the offer commences and the date on which the tendered options are cancelled. However, members of the Board of Directors, all executive officers and vice-presidents of Tut and employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act pay are not eligible to participate. --- In order to receive a new option, you must remain an employee as of the date the new options are granted, which will be at least six months and two days after the Cancellation Date. If Tut does not extend the offer, the new options will be granted on December 13, 2001. (Page 14) Q. Are employees outside the United States eligible to participate? A. No, employees of our non-U.S. subsidiaries are not eligible to participate. (Page 14) Q. Why are we making the offer? A. We believe that granting stock options motivates high levels of performance and provides an effective means of recognizing employee contributions to the success of our company. The offer provides an opportunity for us to offer eligible employees a valuable incentive to stay with our company. Some of our outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our shares. By making this offer to exchange outstanding options for new options that will have an exercise price equal to the market value of the shares on the grant date, we intend to provide our eligible employees with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives for eligible employees and thereby maximize stockholder value. (Page 15) - -------------------------------------------------------------------------------- -1- - -------------------------------------------------------------------------------- Q. What are the conditions to the offer? A. The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. The conditions are described in Section 7 of this Offer to Exchange. (Page 20) Q. Are there any eligibility requirements that you must satisfy after the expiration date of the offer to receive the new options? A. To receive a grant of new options through the offer and under the terms of either the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan you must be employed by Tut or one of our U.S. subsidiaries as of the date the new options are granted. As discussed below, subject to the terms of this offer, we will not grant the new options until on or about the first business day which is at least six months and two days after the Cancellation Date. If, for any reason, you do not remain an employee of Tut or one of our U.S. subsidiaries through the date we grant the new options, you will not receive any new options or other compensation in exchange for your tendered options that have been accepted for exchange and cancelled. (Page 14) Q. How many new options will you receive in exchange for your tendered options? A. If you meet the eligibility requirements and subject to the terms of this offer, we will grant you new options to purchase the number of shares equal to the number of shares subject to the unexercised options you tender. New options will be granted under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion, unless prevented by law or applicable regulations. All new options will be subject to a new option agreement between you and us. You must execute the new option agreement before receiving new options. (Page 14) Q. When will you receive your new options? A. We will not grant the new options until on or about the first business day which is at least six months and two days after the Cancellation Date. Our Board of Directors will select the actual grant date for the new options. If we cancel tendered options on June 11, 2001, which is the scheduled date for the cancellation of the options (the first business day following the Expiration Date), the new options will not be granted until December 13, 2001. (Page 19) Q. Why won't you receive your new options immediately after the expiration date of the offer? A. If we were to grant the new options on any date which is earlier than six months and two days after the date we cancel the options accepted for exchange, we would be subject to onerous accounting charges. We would be required for financial reporting purposes to treat the new options as variable awards. This means that we would be required to record the non- cash accounting impact of decreases and increases in the company's share price as a compensation expense for the new options issued under this offer. We would have to continue this variable accounting for these new options until they were exercised, forfeited or terminated. The higher the market value of our shares, the greater the compensation expense - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- we would have to record. By deferring the grant of the new options for at least six months and two days, we believe we will not have to treat the new options as variable awards. (Page 29) Q. If you tender options in the offer, will you be eligible to receive other option grants before you receive your new options? A. No. If we accept options you tender in the offer, you will not receive any other option grants before the grant date for your new options, such as annual, bonus or promotional options, for which you may otherwise be eligible before the new option grant date in order for us to avoid incurring compensation expenses against our earnings because of accounting rules that could apply to these interim option grants as a result of the offer. (Page 19) Q. Will you be required to give up all your rights to the cancelled options? A. Yes. Once we have accepted options tendered by you, your options will be cancelled and you will no longer have any rights under those options. We currently expect to accept all properly tendered options promptly following the expiration of the offer. You have the right to change your election regarding particular tendered options at any time before the expiration of the offer. The offer is scheduled to expire at 12:00 midnight, New York City Time, on June 8, 2001 unless we extend it. Thus, if for any reason, you do not remain an employee of Tut or one of our U.S. subsidiaries through the date we grant the new options, you will not receive any new options or other compensation in exchange for your tendered options that have been accepted for exchange and cancelled. (Page 19) Q. What will the exercise price of the new options be? A. The exercise price per share of the new options will be 100% of the fair market value of our common stock on the date of grant, as determined by the closing price reported by the Nasdaq National Market for the last market trading day prior to the date of grant. (Page 23) Accordingly, we cannot predict the exercise price of the new options. Because we will not grant new options until on or about the first business day that is at least six months and two days after the Cancellation Date, the new options may have a higher exercise price than some or all of your current options. We recommend that you evaluate current market quotes for our shares, among other factors, before deciding whether or not to tender your options. (Page 9) Q. When will the new options vest? A. The vesting of the newly issued options will be in accordance with the vesting schedule of the cancelled options, however, the vesting schedule will be shortened by approximately twelve (12) months. You will receive credit for vesting accrued prior to the cancellation of the tendered options and you will receive credit for the period between the cancellation of the tendered options and the grant of the new options. - -------------------------------------------------------------------------------- -3- - -------------------------------------------------------------------------------- Each new option granted will vest as follows: . all shares equal to the number of shares that were fully vested under the cancelled option on the Expiration Date will be fully vested; . all shares equal to the number of unvested shares under the cancelled option on the Expiration Date that would have been fully vested on the date the new option is granted (at least six months and two days from the Cancellation Date) will be fully vested; and . all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. The following is an example: Old option (cancelled): ---------------------- Total number of shares: 1,000 Grant date: 5/13/99 Vesting start date: 5/13/99 Vesting schedule: 1/4 at 1 year, 1/48 monthly thereafter Total number of shares vested at Expiration Date: 500 Total number of shares unvested at Expiration Date: 500 Scheduled full vesting date: 5/13/03 New Option: ---------- Total number of shares: 1,000 Vesting start date: 12/13/01 Grant date: 12/13/01 Total number of shares vested on grant date: 625 500 (portion of cancelled option that was vested on the Expiration Date) +125 (portion of cancelled option that would have been fully vested on the date the new options are granted) = 625 Total number of shares unvested on grant date: 375 Vesting schedule for unvested shares: 1/5 of remaining shares for 5 months (17 months remaining until scheduled full vesting date for cancelled option shortened by twelve months). Fully vested: 5/13/02. (Page 23) Q. What if we enter into a merger or other similar transaction? A. It is possible that, prior to the grant of new options, we might effect or enter into an agreement such as a merger or other similar transaction. The Promise to Grant Stock New Option which we will give you is a binding commitment, and any successor to our company will be legally obligated by that commitment. (Page 21) You should be aware that these types of transactions could have substantial effects on our share price, including potentially substantial appreciation in the price of our shares. Depending on the structure of this type of transaction, tendering option holders might be - -------------------------------------------------------------------------------- -4- - -------------------------------------------------------------------------------- deprived of any further price appreciation in the shares associated with the new options. For example, if our shares were acquired in a cash merger, the fair market value of our shares, and hence the price at which we grant the new options, would likely be a price at or near the cash price being paid for the shares in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering option holders might receive options to purchase shares of a different issuer. (Page 16) Q. Are there circumstances where you would not be granted new options? A. Yes. Even if we accept your tendered options, we will not grant new options to you if we are prohibited by applicable law or regulations from doing so. Such a prohibition could result from changes in SEC rules, regulations or policies or Nasdaq listing requirements. We will use reasonable efforts to avoid the prohibition, but if it is applicable throughout the period from the first business day that is at least six months and two days after the Cancellation Date, you will not be granted a new option. We do not anticipate any such prohibitions and are referring to the possibility in an abundance of caution. (Page 29) Also, if you are no longer an employee on the date we grant new options, you will not receive any new options. (Page 14) Q. If you choose to tender an option which is eligible for exchange, do you have to tender all the shares in that option? Yes. We are not accepting partial tenders of options. However, you may tender the remaining portion of an option which you have partially exercised. Accordingly, you may tender one or more of your option grants, but you may only tender all of the unexercised shares subject to each option or none of those shares. For example and except as otherwise described below, if you hold (i) an option to purchase 1,000 shares at $10.00 per share, 700 of which you have already exercised, (ii) an option to purchase 1,000 shares at an exercise price of $20.00 per share and (iii) an option to purchase 2,000 shares at an exercise price of $40.00 per share, you may tender: . none of your options, . options with respect to the 300 remaining unexercised shares under the first option grant, . options with respect to all 1,000 shares under the second option grant, . options with respect to all 2,000 shares under the third option grant, . options with respect to two of the three option grants, or . all options under all three of the option grants. In this example, the above describes your only choices. For example, you may not tender options with respect to only 150 shares (or any other partial amount) under the first option grant or less than all of the shares under the second and third option grants. (Page 14) - -------------------------------------------------------------------------------- -5- - -------------------------------------------------------------------------------- Also, if you decide to tender any of your options, then you must tender all of your options that were granted to you during the six month period prior to the cancellation of any tendered options. For example, if you received an option grant in June 2000 and a grant in February 2001 and you want to tender your June 2000 option grant, you would also be required to tender your February 2001 option grant. (Page 14) Q. What happens to options that you choose not to tender or that are not accepted for exchange? A. Options that you choose not to tender for exchange or that we do not accept for exchange retain their current exercise price and current vesting schedule and remain outstanding until you exercise them or they expire by their terms. You should note that there is a risk that any incentive stock options you hold may be affected, even if you do not participate in the exchange. We believe that you will not be subject to current U.S. federal income tax if you do not elect to participate in the option exchange program. We also believe that the option exchange program will not change the U.S. federal income tax treatment of subsequent grants and exercises of your incentive stock options (and sales of shares acquired upon exercise of such options) if you do not participate in the option exchange program. However, the IRS may characterize the option exchange program as a "modification" of those incentive stock options, even if you decline to participate. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of the incentive stock option that could be exchanged. This does not necessarily mean that our offer to exchange options will be viewed the same way. Private letter rulings issued by the IRS contain the IRS's opinion regarding only the specific facts presented by a specific person or company. The person or company receiving the letter may rely on it, but no other person or company may rely on the letter ruling or assume the same opinion would apply to their situation, even if the facts at issue are similar. While such letters do not provide certainty, they may indicate how the IRS will view a similar situation. We therefore do not know if the IRS will assert the position that our offer constitutes a "modification" of incentive stock options that can be tendered. A successful assertion by the IRS of this position could extend the options' holding period to qualify for favorable tax treatment. Accordingly, to the extent you dispose of your incentive stock option shares prior to the lapse of the new extended holding period, your incentive stock option could be taxed similarly to a nonstatutory stock option. (Page 31) Q. Will you have to pay taxes if you exchange your options in the offer? A. If you exchange your current options for new options, you should not be required under current law to recognize income for U.S. federal income tax purposes at the time of the exchange. Further, at the grant date of the new options, you will not be required under current law to recognize income for U.S. federal income tax purposes. We recommend that you consult with your own tax advisor to determine the tax consequences of tendering options through the offer. (Page 30) - -------------------------------------------------------------------------------- -6- - -------------------------------------------------------------------------------- Q. If your current options are incentive stock options, will your new options be incentive stock options? A. If your current options are incentive stock options, your new options will be granted as incentive stock options to the maximum extent they qualify as incentive stock options under the tax laws on the date of the grant. One requirement for options to qualify as incentive stock options under the current U.S. tax laws is that the value of shares subject to options that first become exercisable by the option holder in any calendar year cannot exceed $100,000, as determined using the option exercise price. The excess value is deemed to be a non-statutory stock option, which is an option that is not qualified to be an incentive stock option under the current U.S. tax laws. (Page 31) Q. When will your new options expire? A. Your new options will expire ten years from the date of grant, or earlier if your employment with Tut terminates. (Page 22) Q. When does the offer expire? Can the offer be extended, and if so, how will you be notified if it is extended? A. The offer expires on June 8, 2001, at 12:00 midnight, New York City Time, unless we extend it. We may, in our discretion, extend the offer at any time, but we cannot assure you that the offer will be extended or, if extended, for how long. If the offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., New York City Time, on the next business day following the previously scheduled expiration of the offer period. (Page 14) Q. How do you tender your options? A. If you decide to tender your options, you must deliver, before 12:00 midnight, New York City Time, on June 8, 2001 (or such later date and time as we may extend the expiration of the offer), a properly completed and executed Election Form and any other documents required by the Election Form via fax (fax # (925) 201-4427) or hand delivery to Shareholder Services, Attention: Bill Radtke. This is a one-time offer, and we will strictly enforce the tender offer period. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept all properly tendered options promptly after the expiration of the offer. Tut will e-mail a confirmation of receipt within 48 hours of receiving your Election Form. This receipt does not constitute acceptance of the options for exchange. We will be sending a Promise to Grant New Option to each option holder from whom we accept properly tendered options. (Page 17 and 20) Q. During what period of time may you withdraw previously tendered options? A. You may withdraw your tendered options at any time before the offer expires at 12:00 midnight, New York City Time, on June 8, 2001. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. In addition, although we currently intend to accept validly tendered options promptly - -------------------------------------------------------------------------------- -7- - -------------------------------------------------------------------------------- after the expiration of this offer, if we have not accepted your tendered options by July 9, 2001, you may withdraw your tendered options at any time after July 9, 2001. To withdraw tendered options, you must deliver to us via fax (fax # (925) 201-4427) or hand delivery to Shareholder Services, Attention: Bill Radtke a signed Notice to Change Election From Accept to Reject, with the required information while you still have the right to withdraw the tendered options. Once you have withdrawn options, you may re- tender options only by again following the delivery procedures described above prior to the expiration of the offer. (Page 18) Q. Can you change your election regarding particular tendered options? A. Yes, you may change your election regarding particular tendered options at any time before the offer expires at 12:00 midnight, New York City Time, on June 8, 2001. If we extend the offer beyond that time, you may change your election regarding particular tendered options at any time until the extended expiration of the offer. In order to change your election, you must deliver to us via (fax # (925) 201-4427) or hand delivery to Shareholder Services, Attention: Bill Radtke a new Election Form, which includes the information regarding your new election, and is clearly dated after your original Election Form. (Page 18) Q. Do we and the Board of Directors recommend that you take the offer? A. Although our Board of Directors has approved the offer, neither we nor our Board of Directors makes any recommendation as to whether you should tender or not tender your options. You must make your own decision whether or not to tender options. For questions regarding tax implications or other investment-related questions, you should talk to your own legal counsel, accountant and/or financial advisor. (Page 17) Q. Who can you talk to if you have questions about the offer? A. For additional information or assistance, you should contact: Bill Radtke Shareholder Services Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, California 94588 (925) 201-4212 - -------------------------------------------------------------------------------- -8- CERTAIN RISKS OF PARTICIPATING IN THE OFFER Participation in the offer involves a number of potential risks, including those described below. This list and the risk factors, beginning on page 23 in Tut's Annual Report on Form 10-K filed on April 2, 2001 and on page 19 in Tut's Quarterly Report on Form 10-Q filed on May 11, 2001, highlight the material risks of participating in this offer. Eligible participants should carefully consider these risks and are encouraged to speak with an investment and tax advisor as necessary before deciding to participate in the offer. In addition, we strongly urge you to read the rest of this Offer to Exchange, along with the memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election from Accept to Reject, and the Promise to Grant New Option for a fuller discussion of the risks which may apply to you, before deciding to participate in this exchange offer. ECONOMIC RISKS -------------- Participation in the offer will make you ineligible to receive new options until December 13, 2001 at the earliest. Employees are generally eligible to receive option grants at any time that the Board of Directors or Compensation Committee chooses to make them. However, if you participate in the offer, you will not be eligible to receive any new options until December 13, 2001 at the earliest. If the stock price increases after the date your tendered options are cancelled, your cancelled options might have been worth more than the new options that you have received in exchange for them. We cannot predict the exercise price of the new options. Because we will not grant new options until on or after the first business day that is at least six months and two days after the Cancellation Date, the new options may have a higher exercise price than some or all of your current options. For example, if you cancel options with a $35 strike price, and Tut's stock appreciates to $50 when the new option grants are made, your new option will have a higher strike price than the cancelled option. If your employment terminates prior to the grant of the new option, you will receive neither a new option nor the return of your cancelled option. Once your option is cancelled, it is gone for good. Accordingly, if your employment terminates for any reason prior to the grant of the new option, you will have the benefit of neither the cancelled option nor the new option. If we are prohibited by applicable law or regulations from granting new options, you will receive neither a new option nor the return of your cancelled option. We will not grant new options to you if we are prohibited by applicable law or regulations from doing so. Such a prohibition could result from changes in SEC rules, regulations or policies or -9- Nasdaq listing requirements. We are unaware of such prohibition at this time, and we will use reasonable efforts to effect the grant, but if the grant is prohibited as of the date of grant we will not grant you any new options and you will not get any other compensation for the options you tendered. We do not anticipate any such prohibitions and are referring to the possibility in an abundance of caution. TAX-RELATED RISKS FOR U.S. RESIDENTS ------------------------------------ Your new option may be a nonstatutory stock option, whereas your cancelled option may have been an incentive stock option. If your cancelled option was an incentive stock option, your new option will be an incentive stock option, but only to the extent that it qualifies under the Internal Revenue Code of 1986, as amended. One requirement for options to qualify as incentive stock options is that the value of shares subject to options that first become exercisable by the option holder in any calendar year cannot exceed $100,000, as determined using the option exercise price. It is possible that by participating in this exchange, your options will exceed this limit and will be treated as nonstatutory stock options. In general, nonstatutory stock options are less favorable to you from a tax perspective. For more detailed information, please read the rest of the Offer to Exchange, and see the tax disclosure set forth in the prospectuses for the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan. Even if you elect not to participate in the option exchange program, your incentive stock options may be affected. We believe that you will not be subject to current U.S. federal income tax if you do not elect to participate in the option exchange program. We also believe that the option exchange program will not change the U.S. federal income tax treatment of subsequent grants and exercises of your incentive stock options (and sales of shares acquired upon exercises of such options) if you do not participate in the option exchange program. However, the IRS may characterize the option exchange program as a "modification" of those incentive stock options, even if you decline to participate. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of the incentive stock options that could be exchanged. This does not necessarily mean that our offer to exchange options will be viewed the same way. Private letter rulings issued by the IRS contain the IRS's opinion regarding only the specific facts presented by a specific person or company. The person or company receiving the letter may rely on it, but no other person or company may rely on the letter ruling or assume the same opinion would apply to their situation, even if the facts at issue are similar to those in the letter. While such letters do not provide certainty, they may indicate how the IRS will view a similar situation. We therefore do not know if the IRS will assert the position that our offer constitutes a "modification" of incentive stock options that can be tendered. A successful assertion by the IRS of this position could extend the options' holding period to qualify for favorable tax treatment. Accordingly, to the extent you dispose of your incentive stock option shares prior to the lapse of the new extended holding period, your incentive stock option could be taxed similarly to a nonstatutory stock option. -10- BUSINESS-RELATED RISKS ---------------------- For a description of risks related to Tut's business, please see Section 21 of this Offer to Exchange. -11- INTRODUCTION Tut Systems, Inc. ("Tut", "we" or "us") is offering eligible employees the opportunity to exchange all outstanding options to purchase shares of Tut common stock granted under the Tut Systems, Inc. 1992 Stock Plan (the "1992 Stock Plan") the Tut Systems, Inc. 1998 Stock Plan (the "1998 Stock Plan") and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan ("1999 Nonstatutory Stock Option Plan") for new options we will grant under either the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion. An "eligible employee" refers to all employees of Tut or one of our U.S. subsidiaries, who are employees as of the date the offer commences and as of the date the tendered options are cancelled, except executive officers, vice-presidents, members of the Board of Directors and employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act pay are not eligible to participate in the exchange offer. We are making the offer upon the terms and the conditions described in this Offer to Exchange, the related memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election from Accept to Reject and the Promise to Grant New Option (which together, as they may be amended from time to time, constitute the "offer" or "program"). The number of shares subject to the new options to be granted to each eligible employee will be equal to the number of shares subject to the unexercised options tendered by the eligible employee and accepted for exchange. Subject to the terms and conditions of this offer, we will grant the new options on or about the first business day which is at least six months and two days after the date we cancel the options accepted for exchange. The grant date for the new options will be December 13, 2001, unless the offer is extended, in which case the grant date of the new options will be at least six months and two days after the cancellation of the options accepted for exchange. You may only tender options for all or none of the unexercised shares subject to an individual option grant. All tendered options accepted by us through the offer will be cancelled as promptly as practicable after 12:00 midnight New York City Time on the date the offer ends. The offer is currently scheduled to expire on June 8, 2001 (the "Expiration Date") and we expect to cancel options on June 11, 2001, or as soon as possible thereafter (the "Cancellation Date"). If you tender any option grant for exchange, you will be required to also tender all option grants that you received during the six month period prior to the Cancellation Date. Since we currently expect to cancel all tendered options on June 11, 2001, this means that if you participate in the offer, you will be required to tender all options granted to you since December 11, 2000. The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. The offer is subject to conditions that we describe in Section 7 of this Offer to Exchange. If you tender options for exchange as described in the offer, and we accept your tendered options, then, subject to the terms of this offer, we will grant you new options under either the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan. In order to receive a new option pursuant to this offer, you must continue to be an employee as of the date on which the new options are granted, which will be at least six months and two days after the Cancellation Date. The exercise price per share of the new options will be 100% of the fair market value on the date of grant, as determined by the closing price of our common stock reported by the Nasdaq National Market for the last market trading day prior to the date of grant. -12- Each new option will be exercisable for the same number of shares as remained outstanding under the tendered options. Each new option granted will vest in accordance with the vesting schedule of the cancelled options. Each new option granted will vest as follows: . all shares equal to the number of shares that were fully vested under the cancelled option on the Expiration Date will be fully vested; . all shares equal to the number of unvested shares under the cancelled option on the Expiration Date that would have been fully vested on the date the new option is granted (at least six months and two days from the Cancellation Date) will be fully vested; and . all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. As of May 10, 2001, options to purchase 2,864,530 of our shares were issued and outstanding, of which options to purchase approximately 1,456,114 of our shares, constituting approximately 50.8%, were held by eligible employees. -13- THE OFFER 1. Eligibility. ----------- Employees are "eligible employees" if they are employees of Tut Systems, Inc. ("Tut", "we" or "us") or one of our U.S. subsidiaries as of the date the offer commences and the date on which the tendered options are cancelled, except members of the Board of Directors, all executive officers and vice-presidents and employees receiving WARN Act pay are not eligible to participate in the --- offer. These executive officers and Board of Directors are listed in Schedule A to this Offer to Exchange. In order to receive a new option, you must remain an employee as of the date the new options are granted, which will be at least six months and two days after the date we cancel the options accepted for exchange. Thus, subject to the terms and conditions of this offer, if Tut does not extend the offer and your options are properly tendered by June 8, 2001 you will be granted new options on or about December 13, 2001. 2. Number of options; Expiration date. ---------------------------------- Subject to the terms and conditions of the offer, we will exchange all outstanding, unexercised options held by eligible employees that are properly tendered and not validly withdrawn in accordance with Section 5 before the "expiration date," as defined below, in return for new options. We will not accept partial tenders of options for any portion of the shares subject to an individual option grant. Therefore, you may tender options for all or none of the shares subject to each of your eligible options. In addition, if you tender any option grant for exchange, you will be required to also tender all option grants that you received during the six month period prior to the date the tendered option was cancelled. We currently expect to cancel all tendered options on June 11, 2001, which means that if you participate in the offer, you will be required to tender all options granted to you since December 11, 2000. If your options are properly tendered and accepted for exchange, the options will be cancelled and, subject to the terms of this offer, you will be entitled to receive one or more new options to purchase the number of shares of common stock equal to the number of shares subject to the options tendered by you and accepted for exchange, subject to adjustments for any stock splits, stock dividends and similar events. All new options will be subject to the terms of the plan under which the particular new option is granted (either our 1998 Stock Plan or our 1999 Nonstatutory Stock Option Plan, at the discretion of our Board of Directors), and to a new option agreement between you and us. If, for any reason, you do not remain an employee of Tut or one of our U.S. subsidiaries through the date we grant the new options, you will not receive any new options or other compensation in exchange for your tendered options that have been accepted for exchange. This means that if you resign, with or without a good reason, or die or we terminate your employment, with or without cause, prior to the date we grant the new options, you will not receive anything for the options that you tendered and we cancelled. The term "expiration date" means 12:00 midnight, New York City Time, on June 8, 2001, unless and until we, in our discretion, have extended the period of time during which the offer will remain open, in which event the term "expiration date" refers to the latest time and date at which the -14- offer, as so extended, expires. See Section 18 of this Offer to Exchange for a description of our rights to extend, delay, terminate and amend the offer. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of such action: . we increase or decrease the amount of compensation offered for the options, . we decrease the number of options eligible to be tendered in the offer, or . we increase the number of options eligible to be tendered in the offer by an amount that exceeds 2% of the shares issuable upon exercise of the options that are subject to the offer immediately prior to the increase. If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of the increase or decrease is first published, sent or given in the manner specified in Section 18 of this Offer to Exchange, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. We will also notify you of any other material change in the information contained in this Offer to Exchange. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City Time. 3. Purpose of the offer. -------------------- We issued the options outstanding under our 1992 Stock Plan, 1998 Stock Plan and 1999 Nonstatutory Stock Option Plan to: . attract and retain the best available personnel for positions of substantial responsibility, and . provide our eligible employees with additional incentive and to promote the success of our business. One of the keys to our continued growth and success is the retention of our most valuable asset, our employees. The offer provides an opportunity for us to offer our eligible employees a valuable incentive to stay with Tut. Some of our outstanding options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our shares. By making this offer to exchange outstanding options for new options that will have an exercise price equal to the market value of the shares on the grant date, we intend to provide our eligible employees with the benefit of owning options that over time may have a greater potential to increase in value, create better performance incentives for employees and thereby maximize stockholder value. Because we will not grant new options until at least six months and two days after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of our current outstanding options. -15- From time to time we engage in strategic transactions with business partners, customers and other third parties. We may engage in transactions in the future with these or other companies which could significantly change our structure, ownership, organization or management or the make-up of our Board of Directors, and which could significantly affect the price of our shares. If we engage in such a transaction or transactions before the date we grant the new options, our shares could increase (or decrease) in value, and the exercise price of the new options could be higher (or lower) than the exercise price of options you elect to have cancelled as part of this offer. For example, if our common stock was acquired in a cash merger, the fair market value of our common stock, and hence the price at which we grant the new options, would likely be at a price at or near the cash price being paid for our common stock in the transaction, yielding limited or no financial benefit to a recipient of the new options for that transaction. In addition, in the event of an acquisition of our company for stock, tendering option holders might receive options to purchase shares of a different issuer. As is outlined in Section 10, the exercise price of any new options granted to you in return for your tendered options will be the fair market value of the underlying shares on the date of grant, as determined by the closing price of our common stock reported by the Nasdaq National Market for the last market trading day prior to the date of grant. You will be at risk of any such increase in our share price before the grant date of the new options for these or any other reasons. Subject to the above, and except as otherwise disclosed in this offer to exchange or in our filings with the SEC, we presently have no plans or proposals that relate to or would result in: . an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving our company, . any purchase, sale or transfer of a material amount of our assets or any of our subsidiaries, . any material change in our present dividend rate or policy, or our indebtedness or capitalization, . any change in our present Board of Directors or management, including a change in the number or term of directors or to fill any existing board vacancies or to change any executive officer's material terms of employment, . any other material change in our corporate structure or business, . our common stock being delisted from a national securities exchange or not being authorized for quotation in an automated quotation system operated by a national securities association, . our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act, . the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act, or . the acquisition by any person of an amount of our securities or the disposition of an amount of any of our securities, or -16- . any change in charter or bylaws, or any actions which may impede the acquisition of control of us by any person. Neither we nor our Board of Directors makes any recommendation as to whether you should tender or not tender your options, nor have we authorized any person to make any such recommendation. You are urged to evaluate carefully all of the information in this Offer to Exchange and to consult your own investment and tax advisors. You must make your own decision whether or not to tender your options for exchange. 4. Procedures for tendering options. -------------------------------- Proper Tender of Options. ------------------------ To validly tender your options through the offer, you must, in accordance with the terms of the Election Form, properly complete, execute and deliver the Election Form to us via fax (fax # (925) 201-4427) or hand delivery to Shareholder Services, Attention: Bill Radtke along with any other required documents. Bill Radtke must receive all of the required documents before the expiration date. The expiration date is 12:00 midnight New York City Time on June 8, 2001. The delivery of all documents, including Election Forms and any Notices to Change Election From Accept to Reject and any other required documents, is at your risk. If delivery is by mail, we recommend that you use registered mail with return receipt requested. In all cases, you should allow sufficient time to ensure timely delivery. Determination of Validity; Rejection of Options; Waiver of Defects; No ---------------------------------------------------------------------- Obligation to Give Notice of Defects. - ------------------------------------ We will determine, in our discretion, all questions as to the form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we will accept properly and timely tendered options that are not validly withdrawn. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender of any particular options or for any particular option holder. No tender of options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering option holder or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders, nor will anyone incur any liability for failure to give any notice. This is a one-time offer, and we will strictly enforce the offer period, subject only to an extension which we may grant in our sole discretion. Our Acceptance Constitutes an Agreement. --------------------------------------- Your tender of options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of the offer. Our acceptance for exchange of your options tendered by you through the offer will constitute a binding agreement between us and you upon the terms and subject to the conditions of the offer. -17- Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered options that have not been validly withdrawn. 5. Withdrawal Rights and Change of Election. ---------------------------------------- You may only withdraw your tendered options or change your election in accordance with the provisions of this Section. You may withdraw your tendered options at any time before 12:00 midnight, New York City Time, on June 8, 2001. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. In addition, if we have not accepted your tendered options for exchange by 12:00 midnight, New York City Time, on July 9, 2001, you may withdraw your tendered options at any time after July 9, 2001. To validly withdraw tendered options, you must deliver to Shareholder Services, Attention: Bill Radtke via fax (fax # (925) 201-4427) or hand delivery, in accordance with the procedures listed in Section 4 above, a signed and dated Notice to Change Election From Accept to Reject, with the required information, while you still have the right to withdraw the tendered options. To validly change your election regarding the tender of particular options, you must deliver a new Election Form to Shareholder Services, Attention: Bill Radtke via fax (fax # (925) 201-4427) or hand delivery, in accordance with the procedures listed in Section 4 above. If you deliver a new Election Form that is properly signed and dated, it will replace any previously submitted Election Form, which will be disregarded. The new Election Form must be signed and dated and must specify: . the name of the option holder who tendered the options, . the grant number of all options to be tendered, . the grant date of all options to be tendered, . the exercise price of all options to be tendered, and . the total number of unexercised option shares subject to each option to be tendered. Except as described in the following sentence, the Notice to Change Election From Accept to Reject and any new or amended Election Form must be executed by the option holder who tendered the options to be withdrawn exactly as the option holder's name appears on the option agreement or agreements evidencing such options. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in that capacity must be indicated on the Notice to Change Election From Accept to Reject or any new or amended Election Form. You may not rescind any withdrawal, and any options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options before the expiration date by following the procedures described in Section 4. -18- Neither we nor any other person is obligated to give notice of any defects or irregularities in any Notice to Change Election From Accept to Reject or any new or amended Election Form, nor will anyone incur any liability for failure to give any notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of Notices to Change Election From Accept to Reject and new or amended Election Forms. Our determination of these matters will be final and binding. 6. Acceptance of options for exchange and issuance of new options. -------------------------------------------------------------- Upon the terms and conditions of the offer and as promptly as practicable following the expiration date, we will accept for exchange and cancel options properly tendered and not validly withdrawn before the expiration date. Once the options are cancelled, you will no longer have any rights with respect to those options. Subject to the terms and conditions of this offer, if your options are properly tendered and accepted for exchange, these options will be cancelled as of the date of our acceptance, which we anticipate to be June 11, 2001, and you will be granted new options on or about the first business day that is at least six months and two days after the date we cancel the options accepted for exchange. Our Board of Directors will select the actual grant date for the new options. Thus, subject to the terms and conditions of this offer, if your options are properly tendered by June 8, 2001, the scheduled expiration date of the offer, and accepted for exchange and cancelled on June 11, 2001 you will be granted new options on or about December 13, 2001. If we accept and cancel options properly tendered for exchange after June 11, 2001, the period in which the new options will be granted will be similarly delayed. As promptly as practicable after we accept and cancel options tendered for exchange, we will issue to you a Promise to Grant New Option, by which we will commit to grant stock options to you on a date no earlier than December 13, 2001 covering the same number of shares as the options cancelled pursuant to this offer, provided that you remain an eligible employee on the date on which the grant is to be made. If we accept options you tender in the offer, you will not receive any other option grants before the grant date for your new options, such as annual, bonus or promotional options, for which you may otherwise be eligible before the new option grant date in order for us to avoid incurring compensation expenses against our earnings because of accounting rules that could apply to these interim option grants as a result of the offer. Your new options will entitle you to purchase the number of shares which is equal to the number of shares subject to the options you tender, as adjusted for any stock splits, stock dividends and similar events. If, for any reason, you are not an employee of Tut or one of our U.S. subsidiaries through the date we grant the new options, you will not receive any new options or other compensation in exchange for your tendered options which have been cancelled pursuant to this offer. We will not accept partial tenders of your eligible option grants. However, you may tender the remaining portion of an option which you have partially exercised. Accordingly, you may tender one or more of your option grants, but you may only tender all of the unexercised shares subject to that option or none of those shares. In addition, if you tender any option grant for exchange, you will be required to also tender all option grants that you received during the six month period prior to the cancellation of your tendered options. We currently expect to cancel all tendered options on June 11, 2001, which means that if you participate in the offer, you will be required to tender all options granted to you since December 11, 2000. -19- Within forty-eight (48) hours of the receipt of your Election Form or your Notice to Change Election From Accept to Reject, Tut will e-mail you a confirmation of receipt. However, this is not by itself an acceptance of the options for exchange. For purposes of the offer, we will be deemed to have accepted options for exchange that are validly tendered and not properly withdrawn as of the time when we give oral or written notice to Shareholder Services or Bill Radtke, or to the option holders of our acceptance for exchange of such options, which notice may be made by press release. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered options that are not validly withdrawn. We will send a Promise to Grant New Option to each option holder from whom we accept properly tendered options. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City Time. 7. Conditions of the offer. ----------------------- Notwithstanding any other provision of the offer, we will not be required to accept any options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act, if at any time on or after May 11, 2001, and prior to the expiration date, any of the following events has occurred, or has been determined by us to have occurred, and, in our reasonable judgment in any case and regardless of the circumstances giving rise to the event, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with such acceptance and cancellation of options tendered for exchange: . there shall have been threatened or instituted or be pending any action or proceeding by any governmental, regulatory or administrative agency or authority that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, or the issuance of new options, or otherwise relates in any manner to the offer, or that, in our reasonable judgment, could materially and adversely affect our business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Tut; . there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be eligible to the offer or Tut, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (1) make the acceptance for exchange of, or issuance of new options for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or that otherwise relates in any manner to the offer; (2) delay or restrict our ability, or render us unable, to accept for exchange, or issue new options for, some or all of the tendered options; (3) materially impair the contemplated benefits of the offer to Tut; or -20- (4) materially and adversely affect Tut's business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Tut; . there shall have occurred any change, development, clarification or position taken in generally accepted accounting standards that could or would require us to record compensation expense against our earnings in connection with the offer for financial reporting purposes; . a tender or exchange offer for some or all of our shares, or a merger or acquisition proposal for Tut, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed; or . any change or changes shall have occurred in Tut's business, condition, assets, income, operations, prospects or stock ownership that, in our reasonable judgment, is or may be material to Tut or may materially impair the contemplated benefits of the offer to Tut. The conditions to the offer are for Tut's benefit. We may assert them in our discretion regardless of the circumstances giving rise to them before the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this Section 7 will be final and binding upon all persons. 8. Source and amount of consideration. ---------------------------------- We will issue new options to purchase shares of common stock under either our 1998 Stock Plan or our 1999 Nonstatutory Stock Option Plan, as determined by our Board of Directors in their sole discretion, in exchange for the outstanding options properly tendered and accepted for exchange by us which will be cancelled. The number of shares subject to the new options to be granted to each option holder will be equal to the number of shares subject to the options tendered by the option holder and accepted for exchange and cancelled by us, as adjusted for any stock splits, reverse stock splits, stock dividends and similar events. If we receive and accept tenders of all outstanding options from eligible employees, subject to the terms and conditions of this offer we will grant new options to purchase a total of approximately 1,456,114 shares of common stock. The shares issuable upon exercise of these new options would equal approximately 8.9% of the total shares of our common stock outstanding as of March 31, 2001. 9. Effect of a Change of Control Prior to the Granting of New Options. ------------------------------------------------------------------ If we are acquired or involved in a similar transaction before the new options are granted, we would require the surviving corporation to inherit our obligation to grant new options. The new options would still be granted on the new grant date, but they would be options to purchase the shares of the surviving corporation. The exercise price would be equal to the fair market value of the surviving company's stock on the date of grant. For example, if we were acquired by means of a merger, the number of shares that you would have received, multiplied by the exchange ratio that was used in the merger. -21- 10. Terms of New Options. -------------------- The new options will be granted under either our 1998 Stock Plan or our 1999 Nonstatutory Stock Option Plan (together the "Plans"), as determined by our Board of Directors in their sole discretion. A new option agreement will be entered into between Tut and each option holder who has tendered options in the offer for every new option granted. The terms and conditions of the new options may vary from the terms and conditions of the options tendered for exchange, but generally will not substantially and adversely affect the rights of option holders. Because we will not grant new options until at least six months and two days after the date we cancel the options accepted for exchange, the new options may have a higher exercise price than some or all of the options, including as a result of a significant corporate event. The following description summarizes the material terms of our 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan and the options granted under each of the Plans. General. ------- 1998 Stock Plan The maximum number of shares currently reserved for issuance through the exercise of options granted under our 1998 Stock Plan is 1,733,218, plus an annual increase added on the first day of each fiscal year equal to the lesser of 375,000 shares or 3% of our outstanding shares on the first day of our fiscal year or a lesser number of shares determined by our Board of Directors. As of May 10, 2001, 687,867 shares are available for grant under our 1998 Stock Plan. Our 1998 Stock Plan permits the granting of options intended to qualify as incentive stock options under the Internal Revenue Code and options that do not qualify as incentive stock options, referred to as nonstatutory stock options. 1999 Non Statutory Stock Option Plan The maximum number of shares reserved for issuance through the exercise of options granted under our 1999 Nonstatutory Stock Option Plan is 1,825,000 shares. As of May 10, 2001 413 shares are available for grant under our 1999 Nonstatutory Plan. Our 1999 Nonstatutory Stock Option Plan permits only the granting of options that do not qualify as incentive stock options, referred to as nonstatutory stock options. Administration. -------------- The Plans are administered by the Board of Directors or a committee appointed by the Board of Directors (the "Administrator"). Subject to the other provisions of the Plans, the Administrator has the power to determine the terms and conditions of the options granted, including the exercise price, the number of shares subject to the option and the exercisability of the options. Term. ---- Options generally have a term of ten (10) years. Incentive stock options granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting rights of all classes of stock of Tut or a subsidiary have a term of no more than five (5) years. -22- Termination. ----------- Except as your option agreement otherwise provides, your options will terminate following the termination of your employment, unless the options are exercised, to the extent that they were exercisable immediately before such termination, within the time frame permitted by your stock option agreement or, if no time period is specified in your option agreement, within three (3) months following your termination. In the event that the termination of your employment is by reason of permanent or total disability or death, you, or your executors, administrators, legatees or distributees of your estate, may exercise any option held by you at the date of your employment termination, to the extent that it was exercisable immediately before such termination, within the time frame specified in your option agreement or, if no time is specified, for twelve (12) months following such termination. The termination of your option under the circumstances specified in this section will result in the termination of your interests in our Plans. In addition, your option may terminate, together with our stock option plans and all other outstanding options issued to other employees, following the occurrence of certain corporate events, as described below. Exercise Price. -------------- The Administrator determines the exercise price at the time the option is granted. For all eligible employees, the exercise price per share of the new options will be 100% of the fair market value on the date of grant, as determined by the closing price of our common stock reported by the Nasdaq National Market for the last market trading day prior to the date of grant. However, the exercise price may not be less than 110% of the closing price per share reported by the Nasdaq National Market on the date of grant for options intended to qualify as incentive stock options, granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting rights of all classes of stock of Tut or a subsidiary. Vesting and Exercise. -------------------- Each stock option agreement specifies the term of the option and the date when the option becomes exercisable. The terms of vesting are determined by the Administrator. Options granted by us generally vest at a rate of 25% of the shares subject to the option after twelve months, and then 1/48(th) of the shares subject to the option vest each month thereafter, provided the employee remains continuously employed by us. Each new option granted will vest as follows: . all shares equal to the number of shares that were fully vested under the cancelled option on the Expiration Date will be fully vested; . all shares equal to the number of unvested shares under the cancelled option on the Expiration Date that would have been fully vested on the date the new option is granted (at least six months and two days from the Cancellation Date) will be fully vested; and -23- . all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. The following is an example: Old option (cancelled): ---------------------- Total number of shares: 1,000 Grant date: 5/13/99 Vesting start date: 5/13/99 Vesting schedule: 1/4 at 1 year, 1/48 monthly thereafter Total number of shares vested at Expiration Date: 500 Total number of shares unvested at Expiration Date: 500 Scheduled full vesting date: 5/13/03 New Option: ---------- Total number of shares: 1,000 Vesting start date: 12/13/01 Grant date: 12/13/01 Total number of shares vested on grant date: 625 500 (portion of cancelled option that was vested on the Expiration Date) +125 (portion of cancelled option that would have been fully vested on the date the new options are granted) = 625 Total number of shares unvested on grant date: 375 Vesting schedule for unvested shares: 1/5 of remaining shares for 5 months (17 months remaining until scheduled full vesting date for cancelled option shortened by twelve months). Fully vested: 5/13/02. Payment of Exercise Price. ------------------------- You may exercise your options, in whole or in part, by delivery of a written notice to us together with a share subscription or purchase form which is accompanied by payment in full of the eligible exercise price. The permissible methods of payment of the option exercise price are determined by the Administrator and may include the following: . cash, . check, . promissory note, . certain other shares of our common stock, . consideration received by Tut under a cashless exercise program implemented by Tut in connection with the Plans, . a reduction in the amount of any Company liability to the optionee, -24- . a combination of the foregoing methods, or . such other consideration to the extent permitted by applicable laws. Adjustments Upon Certain Events. ------------------------------- If there is a change in our capitalization, such as a stock split, reverse stock split, stock dividend or other similar event, and the change results in an increase or decrease in the number of issued shares without receipt of consideration by us, an appropriate adjustment will be made to the price of each option and the number of shares subject to each option. In the event there is a sale of all or substantially all of our assets, or we merge with another corporation, your options will be assumed or replaced with new options of the successor corporation. If the successor corporation does not assume or substitute your options, they will automatically become fully vested and exercisable for a period of fifteen (15) days from the date we provide you with notice of the accelerated vesting and the option will terminate at the end of the fifteen (15) days. In the event there is a liquidation or dissolution of Tut, your outstanding options will terminate immediately prior to the consummation of the liquidation or dissolution. The Administrator may, however, provide for the exercisability of any option. Termination of Employment. ------------------------- If, for any reason, you are not an employee of Tut or one of our U.S. subsidiaries from the date you tender options through the date we grant the new options, you will not receive any new options or any other compensation in exchange for your tendered options that have been accepted for exchange. This means that if you resign, with or without good reason, or die, we terminate your employment, with or without cause, or you transfer employment to a non-U.S. subsidiary before the date we grant the new options, you will not receive anything for the options that you tendered and, because we will have cancelled the options that you tendered, we will not be able to return your old options to you. Transferability of Options. -------------------------- New options, whether incentive stock options or non-qualified stock options, may not be transferred, other than by will or the laws of descent and distribution. In the event of your death, options may be exercised by a person who acquires the right to exercise the option by bequest or inheritance. Registration of Option Shares. ----------------------------- 1,000,000 shares of common stock issuable upon exercise of options under our 1998 Stock Plan and 1,000,000 shares issuable upon exercise of options under our 1999 Nonstatutory Stock Option Plan have been registered under the Securities Act on registration statements on Form S-8 filed with the SEC. All the shares issuable upon exercise of all new options to be granted pursuant to the offer will be registered under the Securities Act. Unless you are one of our affiliates, you will be able to sell your option shares free of any transfer restrictions under applicable U.S. securities laws. -25- U.S. Federal Income Tax Consequences. ------------------------------------ You should refer to Section 17 of this Offer to Exchange for a discussion of the U.S. federal income tax consequences of the new options and the options tendered for exchange, as well as the consequences of accepting or rejecting the new options under this offer to exchange. We also recommend that you consult with your own tax advisor to determine the tax and social insurance consequences of this transaction that apply to your individual circumstances. Our statements in this Offer to Exchange concerning our 1998 Stock Plan and 1999 Nonstatutory Stock Option Plan and the new options are merely summaries and do not purport to be complete. The statements are subject to, and are qualified in their entirety by reference to, all provisions of our 1998 Stock Plan and 1999 Nonstatutory Stock Option Plan and the forms of option agreement thereunder. Please contact us at Tut Systems, Inc., 5964 West Las Positas Blvd., Pleasanton, California, 94588 (telephone: (925) 460-3900), to receive a copy of our 1998 Stock Plan, 1999 Nonstatutory Stock Option Plan and the form of option agreements thereunder. We will promptly furnish you copies of these documents at our expense. 11. Information concerning Tut. -------------------------- Our principal executive offices are located at 5964 West Las Positas Blvd., Pleasanton, California, 94588, and our telephone number (925) 460-3900. We were incorporated in California in August 1983, began operations in August 1991, and reincorporated in Delaware in September 1998. We design, develop and market advanced communications products which enable high-speed data access over the copper infrastructure of telephone companies, as well as the copper telephone wires in residential and commercial multi-tenant buildings. Our products incorporate high-bandwidth access multiplexers, associated modems and routers, ethernet extension products and integrated network management software. We use our proprietary FastCopper technologies to deliver cost-effective, scalable and easy to deploy solutions that exploit the underutilized bandwidth of copper telephone wires within these buildings. Our products also provide service providers with enhanced capabilities such as subscriber management, bandwidth management, plug and play installation, portal redirection, internet protocol address management, or IP address management, service authorization and network address translation. In addition, we recently introduced our IntelliPOP(TM) product which utilizes our proprietary Signature Switch(TM) technology and is designed to allow service providers to manage and guarantee bandwidth and service performance across applications such as IP telephony, virtual private networking, or VPN networking, videoconferencing, video-on-demand, file transfer and Internet access and to efficiently configure IntelliPOP for the delivery of these services according to the unique market requirements of multi-tenant building owners and end-user subscribers on an individual or collective basis. Our systems and related services are designed with the specific requirements of the multi-tenant unit, or MTU, market in mind and enable service providers in this market to increase their revenue by providing additional services and increase customer retention through bundled service offerings. 12. Financial Information. --------------------- The financial information set forth on pages 37 through 60 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and on pages 3 through 11 of our Quarterly Report on Form 10-Q for the quarter ending March 31, 2001 are incorporated herein by reference. -26- Copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 will be distributed with this Offer to Exchange. See "Additional Information" beginning on page 32 for instructions on how you can obtain additional copies of these and of other Tut SEC filings, including filings that contain our financial statements. 13. Price range of shares underlying the options. -------------------------------------------- The shares underlying your options are currently traded on the Nasdaq National Market under the symbol "TUTS". The following table shows, for the periods indicated, the high and low sales prices per share of our common stock as reported by the Nasdaq National Market, as adjusted for stock dividends and stock splits.
High Low ------- ------ Fiscal Year 2001 Quarter ended March 31, 2001.................................... $ 8.03 $ 2.94 Fiscal Year 2000 Quarter ended December 31, 2000................................. $ 79.25 $ 6.16 Quarter ended September 30, 2000................................ $115.50 $55.44 Quarter ended June 30, 2000..................................... $ 63.13 $31.38 Quarter ended March 31, 2000.................................... $ 72.38 $39.00 Fiscal Year 1999 Quarter ended December 31,1999.................................. $ 56.50 $24.94 Quarter ended September 30, 1999................................ $ 47.25 $22.44 Quarter ended June 30, 1999..................................... $ 70.19 $38.00 Quarter ended March 31, 1999.................................... $ 76.13 $39.75
As of May 10, 2001, the last reported sale price during regular trading hours of our common stock, as reported by the Nasdaq National Market was $3.20 per share. We recommend that you evaluate current market quotes for our common stock, among other factors, before deciding whether or not to tender your options. 14. Interests of directors and officers; transactions and arrangements ------------------------------------------------------------------ concerning the options. ---------------------- A list of our directors and executive officers is attached to this Offer to Exchange as Schedule A. As of May 10, 2001, our executive officers and non- employee directors (fourteen (14) persons) as a group owned options outstanding under our 1992 Stock Plan to purchase a total of 152,198 of our shares, which represented approximately 59.1% of the shares subject to all options outstanding under that plan as of that date. Directors and executive officers as a group owned options outstanding under our 1998 Stock Plan to purchase a total of 639,837 of our shares, which represented approximately 67.5% of the shares subject to all options outstanding under that plan as of that date. Directors and executive officers as a group owned options outstanding under our 1999 Nonstatutory Stock Option Plan to purchase a total of 124,000 of our shares, which represented approximately 7.1% of the shares subject to all options outstanding under that plan as of that date. Directors and executive officers, as a group owned options outstanding under all of our stock plans to purchase a total of 916,035 of our shares, which represented approximately 31.0% of the shares -27- subject to all options outstanding under the plans as of that date. These options to purchase our shares owned by directors and executive officers are not eligible to be tendered in the offer. In the sixty (60) days prior to and including May 10, 2001, the executive officers and directors of Tut had the following transactions involving options to purchase our common stock or in our common stock: . On March 19, 2001, Mark Carpenter was granted two options to purchase a total of 90,000 shares at $3.75 per share. . On March 19, 2001, Ian Moir was granted two options to purchase a total of 50,000 shares at $3.75 per share. . On March 19, 2001, Craig Bender was granted an option to purchase 25,000 shares at $3.75 per share. . On March 19, 2001, Nelson Caldwell was granted an option to purchase 75,000 shares at $3.75 per share. . On March 19, 2001, Marilyn Lobel was granted an option to purchase 30,000 shares at $3.75 per share. . On March 19, 2001, Alida Rincon was granted an option to purchase 30,000 shares at $3.75 per share. . On April 30, 2001, Craig Bender purchased 1,223 shares at $2.125 pursuant to our 1998 Employee Stock Purchase Plan. . On April 30, 2001, Avi Caspi purchased 1,089 shares at $2.125 pursuant to our 1998 Employee Stock Purchase Plan. . On April 30, 2001, Sal D'Auria purchased 738 shares at $2.125 pursuant to our 1998 Employee Stock Purchase Plan. . On April 30, 2001, Marilyn Lobel purchased 738 shares at $2.125 pursuant to our 1998 Employee Stock Purchase Plan. Except as otherwise described above, there have been no transactions in options to purchase our shares or in our shares which were effected during the 60 days prior to and including May 10, 2001 by Tut or, to our knowledge, by any executive officer or director of Tut. 15. Status of options acquired by us in the offer; accounting --------------------------------------------------------- consequences of the offer. ------------------------- Options we acquire through the offer will be cancelled and the shares subject to those options will be returned to the pool of shares (other than those acquired from our 1992 Stock Plan) available for grants of new options under the plans pursuant to which they were originally granted. To the extent these shares are not fully reserved for issuance upon exercise of the new options to be granted in connection with the offer, the shares will be available for future awards to employees and other eligible plan participants without further stockholder action, except as required by applicable law or -28- the rules of the Nasdaq National Market or any other securities quotation system or any stock exchange on which our shares are then quoted or listed. We believe that we will not incur any compensation expense solely as a result of the transactions contemplated by the offer because: . we will not grant any new options until a business day that is at least six months and two days after the date that we accept and cancel options tendered for exchange, and . the exercise price of all new options will equal the market value of the shares of common stock on the date we grant the new options. If we were to grant the new options on any date which is earlier than six months and two days after the date we cancel the options accepted for exchange, we would be subject to onerous accounting charges. We would be required for financial reporting purposes to treat the new options as variable awards. This means that we would be required to record the non-cash accounting impact of decreases and increases in the company's share price as a compensation expense for the new options issued under this offer. We would have to continue this variable accounting for these new options until they were exercised, forfeited or terminated. The higher the market value of our shares, the greater the compensation expense we would have to record. By deferring the grant of the new options for at least six months and two days, we believe we will not have to treat the new options as variable awards. 16. Legal matters; regulatory approvals. ----------------------------------- We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of options and issuance of new options as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein. Should any such approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept tendered options for exchange and to issue new options for tendered options is subject to the conditions described in Section 7. If we are prohibited by applicable laws or regulations from granting new options during the period beginning immediately after the day that is six months and two days from the date that we cancel the options accepted for exchange, in which period we currently expect to grant the new options, we will not grant any new options. Such a prohibition could result from changes in SEC rules, regulations or policies or Nasdaq listing requirements. We are unaware of any such prohibition at this time, and we will use reasonable efforts to effect the grant, but if the grant is prohibited throughout the period we will not grant any new options and you will not get any other compensation for the options you tendered. We do not anticipate any such prohibitions and are referring to the possibility in an abundance of caution. -29- 17. Material U.S. Federal Income Tax Consequences. ---------------------------------------------- The following is a general summary of the material U.S. federal income tax consequences of the exchange of options pursuant to the offer. This discussion is based on the Internal Revenue Code, its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof as of the date of the offer, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of option holders. Option holders who exchange outstanding options for new options should not be required to recognize income for federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. We advise all option holders considering exchanging their options to meet with their own tax advisors with respect to the federal, state, and local tax consequences of participating in the offer. Incentive Stock Options ----------------------- Under current law, an option holder will not realize taxable income upon the grant of an incentive stock option under our 1998 Stock Plan. In addition, an option holder generally will not realize taxable income upon the exercise of an incentive stock option. However, an option holder's alternative minimum taxable income will be increased by the amount that the aggregate fair market value of the shares underlying the option, which is generally determined as of the date of exercise, exceeds the aggregate exercise price of the option. Except in the case of an option holder's death or disability, if an option is exercised more than three months after the option holder's termination of employment, the option ceases to be treated as an incentive stock option and is subject to taxation under the rules that apply to nonstatutory stock options. If an option holder sells the option shares acquired upon exercise of an incentive stock option, the tax consequences of the disposition depend upon whether the disposition is qualifying or disqualifying. The disposition of the option shares is qualifying if it is made: . more than two years after the date the incentive stock option was granted, and . more than one year after the date the incentive stock option was exercised. If the disposition of the option shares is qualifying, any excess of the sale price of the option shares, over the exercise price of the option will be treated as long-term capital gain taxable to the option holder at the time of the sale. Any such capital gain will be taxed at the long-term capital gain rate in effect at the time of sale. If the disposition is not qualifying, which we refer to as a "disqualifying disposition," the excess of the fair market value of the option shares on the date the option was exercised, over the exercise price will be taxable income to the option holder at the time of the disposition. Of that income, the amount up to the excess of the fair market value of the shares at the time the option was exercised over the exercise price will be ordinary income for income tax purposes and the balance, if any, will be long-term or short-term capital gain, depending upon whether or not the shares were sold more than one year after the option was exercised. -30- Unless an option holder engages in a disqualifying disposition, we will not be entitled to a deduction with respect to an incentive stock option. If an option holder engages in a disqualifying disposition, we will be entitled to a deduction equal to the amount of compensation income taxable to the option holder. If you tender incentive stock options and those options are accepted for exchange, the new options will be granted as incentive stock options to the maximum extent they qualify. One requirement for options to qualify as incentive stock options is that the value of shares subject to options that first become exercisable in any calendar year cannot exceed $100,000, as determined using the option exercise price. The excess value is deemed to be a nonstatutory stock option. You should note that there is a risk that any incentive stock options you hold may be affected, even if you do not participate in the exchange. We believe that you will not be subject to current U.S. federal income tax if you do not elect to participate in the option exchange program. We also believe that the option exchange program will not change the U.S. federal income tax treatment of subsequent grants and exercises of your incentive stock options (and sales of shares acquired upon exercise of such options) if you do not participate in the option exchange program. However, the IRS may characterize the option exchange program as a "modification" of those incentive stock options, even if you decline to participate. In 1991, the IRS issued a private letter ruling in which another company's option exchange program was characterized as a "modification" of the incentive stock option that could be exchanged. This does not necessarily mean that our offer to exchange options will be viewed the same way. Private letter rulings issued by the IRS contain the IRS's opinion regarding only the specific facts presented by a specific person or company. The person or company receiving the letter may rely on it, but no other person or company may rely on the letter ruling or assume the same opinion would apply to their situation, even if the facts at issue are similar. While such letters do not provide certainty, they may indicate how the IRS will view a similar situation. We therefore do not know if the IRS will assert the position that our offer constitutes a "modification" of incentive stock options that can be tendered. A successful assertion by the IRS of this position could extend the options' holding period to qualify for favorable tax treatment. Accordingly, to the extent you dispose of your incentive stock option shares prior to the lapse of the new extended holding period, your incentive stock option could be taxed similarly to a nonstatutory stock option. Nonstatutory Stock Options. -------------------------- Under current law, an option holder will not realize taxable income upon the grant of an option which is not qualified as an incentive stock option, also referred to as a nonstatutory stock option. However, when an option holder exercises the option, the difference between the exercise price of the option, and the fair market value of the shares subject to the option on the date of exercise will be compensation income taxable to the option holder. We will be entitled to a deduction equal to the amount of compensation income taxable to the option holder if we comply with eligible reporting requirements. We recommend that you consult your own tax advisor with respect to the federal, state and local tax consequences of participating in the offer. -31- 18. Extension of offer; termination; amendment. ------------------------------------------ We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event listed in Section 7 has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any options by giving oral or written notice of such extension to the option holders or making a public announcement thereof. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange, regardless of whether any event listed in Section 7 has occurred or is deemed by us to have occurred, by giving oral or written notice of such termination or postponement to you or by making a public announcement thereof. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act, which requires that we must pay the compensation offered or return the options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event listed in Section 7 has occurred or is deemed by us to have occurred, to amend the offer in any respect, including, without limitation, by decreasing or increasing the compensation offered in the offer to option holders or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by public announcement of the amendment. In the case of an extension, the amendment must be issued no later than 9:00 a.m., New York City Time, on the next business day after the last previously scheduled or announced expiration date. Any public announcement made through the offer will be disseminated promptly to option holders in a manner reasonably designated to inform option holders of the change. Without limiting the manner in which we may choose to make a public announcement, except as required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a press release to the Dow Jones News Service. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of these actions: . we increase or decrease the amount of compensation offered for the options, . we decrease the number of options eligible to be tendered in the offer, or -32- . we increase the number of options eligible to be tendered in the offer by an amount that exceeds 2% of the shares issuable upon exercise of the options that are subject to the offer immediately prior to the increase. If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in this Section, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City Time. 19. Fees and expenses. ----------------- We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of options pursuant to this Offer to Exchange. 20. Additional information. ---------------------- This Offer to Exchange is part of a Tender Offer Statement on Schedule TO that we have filed with the SEC. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC before making a decision on whether to tender your options: 1. Tut's annual report on Form 10-K for our fiscal year ended December 31, 2000, filed with the SEC on April 2, 2001; 2. The description of our common stock contained in our Registration Statement on Form 8-A, filed with the SEC on January 22, 1999 and 3. Tut's definitive proxy statement on Schedule 14A filed with the SEC on April 3, 2001. 4. Tut's quarterly report on Form 10-Q for the quarter ended March 31, 2001, filed with the SEC on May 11, 2001. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the following SEC public reference rooms: 450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street Room 1024 Suite 1300 Suite 1400 Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661 You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. -33- Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market under the symbol "TUTS" and our SEC filings can be read at the following Nasdaq address: Nasdaq Operations 1735 K Street, N.W. Washington, D.C. 20006 Each person to whom a copy of this Offer to Exchange is delivered may obtain a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents) at no cost, by writing to us at Tut Systems, Inc., 5964 West Las Positas Blvd., Pleasanton, California, 94588, or telephoning us at (925) 460-3900. As you read the foregoing documents, you may find some inconsistencies in information from one document to another. If you find inconsistencies between the documents, or between a document and this Offer to Exchange, you should rely on the statements made in the most recent document. The information contained in this Offer to Exchange about Tut should be read together with the information contained in the documents to which we have referred you. 21. Miscellaneous. ------------- This Offer to Exchange and our SEC reports referred to above include "forward-looking statements." When used in this Offer to Exchange, the words "anticipate," "believe," "estimate," "expect," "intend" and "plan" as they relate to Tut or our management are intended to identify these forward-looking statements. All statements by us regarding our expected future financial position and operating results, our business strategy, our financing plans and expected capital requirements, forecasted trends relating to our services or the markets in which we operate and similar matters are forward-looking statements. The documents we filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and our Quarterly Report on Form 10- Q for the quarter ended March 31, 2001, discuss some of the risks that could cause our actual results to differ from those contained or implied in the forward-looking statements. These risks include, but are not limited to: . our history of losses which we expect to continue in the future; . our ability to attract and retain our personnel may be negatively impacted by the drop in our stock price; . our quarterly operating results being subject to fluctuations, which may affect our stock price; . the dramatic decrease in purchases by past customers and our need to establish a new base of customers; -34- . our substantial risks in launching our new IntellPOP product and the continued acceptance of our Expresso products; . the loss of any key personnel, or any inability to attract and retain additional personnel, could affect our ability to successfully grow our business; . the market in which we sell our products and services may not grow as we anticipate and our revenues may be harmed; . our need to reduce our accumulation of inventory; . our difficulty in forecasting product sales could negatively impact our business; . our revenues may be harmed if general economic conditions continue to worsen; . our reliance upon third parties to test substantially all of our products and any failure to adequately quality control them could harm our business; . our stock price is susceptible to our operating results and to stock market fluctuations; . our market is subject to rapid technological change and if we do not address these changes, our products will become obsolete, harming our business and ability to compete; . our markets are highly competitive and competition could harm our ability to sell products and services and reduce our market share; . our success depends on our ability to continually introduce new products that achieve broad market acceptance; . failure to effectively manage operations in light of our changing revenue base will adversely affect our business; . if we fail to protect our intellectual property, or if others use our proprietary technology without authorization, our competitive position may suffer; and . we depend on international sales for a significant portion of our revenue, which could subject our business to a number of risks. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will tenders be accepted from or on behalf of, the option holders residing in such jurisdiction. We have not authorized any person to make any recommendation on our behalf as to whether you should tender or not tender your options through the offer. You should rely only on the information in this document or documents to which we have referred you. We have not authorized anyone to give you any information or to make any representations in connection with the offer other than the information and representations contained in this document, the -35- memorandum from Janice Ramsey dated May 11, 2001, the Election Form, the Notice to Change Election from Accept to Reject and the Promise to Grant New Option. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. May 11, 2001 Tut Systems, Inc. -36- SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF TUT SYSTEMS, INC. The directors and executive officers of Tut Systems, Inc. and their positions and offices as of May 10, 2001, are set forth in the following table:
Name Position and Offices Held --------------------- ---------------------------------------------------------------- Salvatore D'Auria President, Chief Executive Officer and Chairman of the Board Nelson Caldwell Vice President of Finance, Chief Financial Officer and Secretary Craig Bender Vice President of Marketing Development Mark Carpenter Executive Vice President, Products Avi Caspi Vice President of Operations Ian Moir Vice President of Technology Marilyn Lobel Vice President and Controller Alida Rincon Vice President and General Counsel Roger Moore Director Saul Rosenzweig Director Clifford H. Higgerson Director David Spreng Director Neal Douglas Director George Middlemas Director
The address of each director and executive officer is: c/o Tut Systems, Inc., 5964 West Las Positas Blvd., Pleasanton, California, 94588. A-1 EX-99.(A)(2) 3 dex99a2.txt MEMORANDUM FROM JANICE RAMSEY Exhibit (a)(2) FROM: Janice Ramsey, Vice President of Human Resources SUBJECT: OFFER TO EXCHANGE OPTIONS DATE: May 11, 2001 IMPORTANT NEWS -- Please read immediately! I am pleased to announce that the Board of Directors of Tut Systems, Inc. ("Tut") has decided to offer all eligible employees who hold stock options outstanding under the Tut Systems, Inc. 1992 Stock Plan (the "1992 Stock Plan"), the Tut Systems, Inc. 1998 Stock Plan (the "1998 Stock Plan") and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan (the "1999 Nonstatutory Stock Option Plan") the opportunity to exchange their outstanding stock options ("Old Options") for the promise to grant new options ("New Option(s)") to be granted in the future under the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan. Participation by each eligible option holder is, of course, voluntary. We are making the offer upon the terms and conditions described in the enclosed Offer to Exchange, this memorandum, the Election Form, the Notice to Change Election From Accept to Reject and the Promise to Grant New Option. Please read these documents carefully before you make any decisions regarding the offer. We also strongly encourage you to consult your tax and financial advisors before making any decision about the offer. If you elect to participate in this exchange, you must make your election by completing and returning the enclosed Election Form during the period beginning on May 11, 2001 and ending at 12:00 midnight, New York City time, June 8, 2001, unless extended by us (the "Expiration Date"). If you turn in the Election Form after this date, it will not be accepted, or if you fail to turn it in, you will be deemed to have elected not to accept the offer. Tut will e-mail a --- confirmation of receipt within 48 hours of receiving your Election Form (this receipt does not constitute acceptance of the options for exchange). The main features of the offer include the following: . You are eligible to participate in this exchange if you are an employee of Tut or one of our U.S. subsidiaries through the Expiration Date. However, members of the Board of Directors, executive officers and vice-presidents of Tut and employees receiving Workers' Adjustment and Retraining Notification (WARN) Act pay are not eligible to participate. --- . If you elect to cancel an Old Option, it must be cancelled in its entirety. Also, if you elect to cancel an Old Option, all Old Options granted since December 11, 2000 must also be cancelled. All cancelled grants will be replaced with a Promise to Grant New Option to be granted at least six months and two days from the date the Old Options are cancelled (a "Promise to Grant New Option"). We expect to grant the New Options on December 13, 2001, unless the offer is extended by us, in which case the New Options will be granted on the first business day that is at least six months and two days from the date that we cancel the Old Options accepted for exchange. . Employees electing to cancel Old Options pursuant to this offer will not be eligible for any option grants until December 13, 2001 at the earliest. . Once your Old Options are cancelled, you will not be able to exercise your Old Options, even if you terminate employment and do not receive a New Option. . The New Option will be for the same number of shares (split-adjusted) as your Old Option, less any exercised shares. . All New Options will be the same type of options as your Old Options, to the extent allowed by law. . The New Options will be granted under the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion. . The exercise price of the New Option will be equal to the fair market value on the day we grant the New Option, expected to be December 13, 2001. "Fair market value" is the closing price of Tut's common stock on Nasdaq for the last market trading day prior to the date of grant (expected to be December 12, 2001). This price may be higher, or lower, or the same as the exercise price of your option to be cancelled. There is a possibility that the exercise price of the New Options could be higher than the exercise price of the Old Options. . The New Options will be subject to vesting as follows: (a) all shares equal to the number of shares that were fully vested under the cancelled option on the Expiration Date will be fully vested, (b) all shares equal to the number of unvested shares under the cancelled option on the Expiration Date that would have been fully vested on the date the New Options are granted (at least six months and two days from the date the options are cancelled) will be fully vested, and (c) all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. . If your employment with Tut or one of our U.S. subsidiaries terminates voluntarily OR involuntarily prior to the date the New Options are granted (expected to be December 13, 2001), you will not receive a New Option. . The terms of each New Option will be subject to the plan from which new option is granted (the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan) and a new option agreement between Tut and you. If you have any questions concerning the offer to exchange, please don't hesitate to call Bill Radtke at (925) 201-4212 or Human Resources at (925) 201- 4507. This offer is not a guarantee of employment for any period. Your employment with Tut and our subsidiaries remains "at will" and may be terminated at any time by either you or Tut (or one of Tut's subsidiaries, as applicable), with or without cause or notice, subject to the provisions of local law. EX-99.(A)(3) 4 dex99a3.txt ELECTION FROM EXHIBIT (A)(3) [LOGO] OFFER TO EXCHANGE OPTIONS ELECTION FORM To: ((name)) Employee Number: ((ssn)) ((address)) ((address1)), ((address2)) ((address3)) Listed on the following page are all stock options (the "Old Options") that you currently have outstanding under the Tut Systems, Inc. 1992 Stock Plan (the "1992 Stock Plan"), the Tut Systems, Inc. 1998 Stock Plan (the "1998 Stock Plan") and the Tut Systems, Inc. 1999 Nonstatutory Stock Plan (the "1999 Nonstatutory Stock Option Plan"). Under the Offer to Exchange, you may elect to cancel any or all of your unexercised shares by completing page 6 and returning this form during the period beginning May 11, 2001 and ending at 12:00 midnight, New York City time, June 8, 2001, unless extended by us.* If you turn in this form after this date, it will not be accepted, or if you fail to turn it in, you will be deemed to have elected not to accept the offer. Tut will e-mail a --- confirmation of receipt within 48 hours of receiving your Election Form. However, this is not by itself acceptance of the options for exchange. Listed on page three are all options which you may receive ("New Options") on or about December 13, 2001 in exchange for the Old Options cancelled. Please indicate on page 6 which Old Options you would like to cancel. For each Old Option cancelled, Tut agrees to promise to grant you an option on or about December 13, 2001 with the terms in this Election Form and as described in the Offer to Exchange, the memorandum from Janice Ramsey dated May 11, 2001, the Notice to Change Election Form From Accept to Reject and the Promise to Grant New Option (together, as they may be amended from time to time, constituting the "Offer"). Please refer to the Field Key on page 4 for a description of the fields noted below. You may revoke your election to tender options for exchange by submitting a Notice to Change Election From Accept to Reject to revoke the tender of all your tendered Old Options or a new Election Form (to revoke the tender of some of your Old Options) prior to the cutoff time of 12:00 midnight, New York City Time, June 8, 2001. * Note: If you opt to cancel any Old Options granted to you by Tut, you must cancel all options granted to you by Tut between December 11, 2000 and June 11, 2001. ELECTION FORM DUE TO SHAREHOLDER SERVICES, ATTENTION BILL RADTKE, NO LATER THAN 12:00 MIDNIGHT, NEW YORK CITY TIME, JUNE 8, 2001. 1 OLD OPTIONS: - ------------
Unexercised Grant Grant Total # of Strike Expiration Unexercised Vested Number Plan Type Date Shares Issued Price Date Shares Shares - ------- ------ ------ ------- -------------- ------- ---------- ----------- ----------- ((grant)) (plan)) ((type)) ((gdate)) ((shares)) ((price)) ((xdate)) ((outs)) ((unxvested)) Unvested Date Fully Issued by TUT Shares Vested In the Last 6 Mo? - ---------- ------------ ------------------ ((unvested)) ((dvested)) ((six))
2 PROPOSED NEW OPTIONS: - --------------------- NEW OPTIONS TO BE ISSUED ON OR ABOUT DECEMBER 13, 2001 IF YOU CANCEL THE OLD OPTIONS WITH THE CORRESPONDING GRANT NUMBER(S):
Total # of Grant Proposed ------------- Strike Expiration Vested Unvested Date Fully Number Plan* Type** Grant Date Shares Issued Price*** Date Shares**** Shares**** Vested**** - ----- ------- ------- ---------- ------------- -------- ---------- ---------- ----------- ---------- ((grant1)) ((plan1)) ((type1)) ((gdate1)) ((outs)) ((price1)) ((xdate1)) ((vested1)) ((unvested1)) ((dvested1))
* Will be determined at the time of grant depending on availability of shares under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan. ** Will be the same type as the Old Option, to the maximum extent permitted by law. *** Will be equal to the closing price of Tut's common stock as listed on the Nasdaq National Market on December 12, 2001 (one day prior to grant of New Options). **** Will be subject to vesting as follows, subject to your continued employment with Tut: (a) all shares equal to the number of shares that were fully vested under the cancelled option on June 8, 2001 will be fully vested, (b) all shares equal to the number of unvested shares under the cancelled option on June 8, 2001 that would have been fully vested on the date the new option is granted (at least six months and two days from the date the options are cancelled) will be fully vested, and (c) all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. 3 Field Key - --------- Grant Number - Refers to the Grant Number of your Old Option or the corresponding New Option. Plan - Refers to the option plan under which your option is granted to you. Your option is subject to the terms and conditions of the option plan it is issued under. Type - Refers to whether the option is an incentive stock option or a nonstatutory stock option. Grant Date - The date of grant of the option. Total Number of Shares Issued - Refers to the total number of shares of Tut Systems, Inc. Common Stock underlying the option. Strike Price - This is the exercise price of the option. Expiration Date - This is the date this option expires, unless you are terminated, become disabled or are otherwise not an employee. The option plan under which your option was issued and your option agreement further explains other termination events and dates. Unexercised Shares - The total number of shares underlying the option minus any shares exercised by you and converted into stock. Note that only options which are unexercised are covered by the Offer to Exchange. Unexercised Vested Shares - Those shares which have vested and which you have the right to exercise and convert into stock. Unvested Shares - Those shares which have not vested and which you do not have the right to exercise and convert into stock. Date Fully Vested - The date on which all of the shares underlying the option become fully vested and you earn the right to exercise and convert these into stock. Issued in the Last 6 Months - Indicates whether a grant was issued by Tut Systems, Inc. from December 11, 2000 through June 11, 2001. 4 ELECTION TO CANCEL OPTIONS To Tut Systems, Inc. ("Tut"): By signing below, I understand and acknowledge that: (a) I have read, understand and agree to all of the terms and conditions of the Offer; (b) Tendering the Old Options by following the procedure described in the Offer to Exchange and in the instructions to this Election Form will constitute my acceptance of the terms and conditions of the Offer. Tut's acceptance for exchange of Old Options tendered in accordance with the Offer will constitute a binding agreement between Tut and me upon the terms and conditions of the Offer; (c) Upon Tut's acceptance of the Old Options for exchange, this Election Form will serve as an amendment to the option agreement(s) covering the Old Options that I am tendering; (d) All New Options will be subject to the terms of the Offer to Exchange, the plan from which the New Options are granted (the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors in their sole discretion) and a new option agreement between Tut and me, and all applicable laws and regulations; (e) For each option I elect to cancel, I lose my right to purchase all outstanding unexercised shares under that option after the date of cancellation; (f) The New Options I will receive will not be granted until at least December 13, 2001 or the first business day that is at least six months and two days from the date the Old Options I am tendering are accepted for exchange and cancelled. I understand that there is a possibility that the exercise price of the New Options could be higher than the exercise price of the Old Options. (g) I must be an employee of Tut or one of its U.S. subsidiaries and otherwise be eligible under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan on the date the New Options are granted in order to receive New Options. I understand the possible loss of my cancelled stock options if employment is terminated for any reason before December 13, 2001 or the date the new options are granted. (h) All the Old Options that I am tendering represent all of the common stock covered by each Old Option that I am tendering. I also understand that if I elect to cancel any Old Options, all Old Options granted in the six months prior to cancellation i.e., since December 11, 2000, will also be cancelled and replaced with New Options. (i) Under certain circumstances described in the Offer to Exchange, Tut may terminate or amend and postpone its acceptance and cancellation of any Old Options tendered for exchange. In this event, I understand that the Old Options delivered with this Election Form but not accepted will be returned to me at the address indicated below. (j) Tut has advised me to consult with my own advisors as to the consequences of participating or not participating in the Offer. 5 (k) Participation in the Offer will not be construed as a right to my continued employment with Tut or any of its subsidiaries for any period and my employment with Tut or any of its subsidiaries can be terminated at any time by me or Tut (or one of Tut's subsidiaries, as applicable), with or without cause or notice, subject to the provisions of local law. (l) All authority in this Election Form will survive my death or incapacity, and all of my obligations in this Election Form will be binding upon my heirs, personal representatives, successors and assigns. Subject to the above understandings and acknowledgements, I would like to participate in the Offer as indicated below. I have read and followed the instructions attached to this form. Yes, I wish to tender for exchange each of the options specified below, along with all options granted since December 11, 2000: GRANT NUMBER:____________________ GRANT NUMBER:____________________ GRANT NUMBER:____________________ GRANT NUMBER:____________________ GRANT NUMBER:____________________ GRANT NUMBER:____________________ I understand that all of these options will be irrevocably cancelled on or about June 11, 2001. Signed:______________________________________ (Signature) Name of Employee:____________________________ (Print Name) Address of Employee:____________________________ (Print Address) Date:________________________________________ ELECTION FORM DUE TO SHAREHOLDER SERVICES, ATTENTION BILL RADTKE, NO LATER THAN MIDNIGHT;NEW YORL CITY TIME, JUNE 8, 2001. 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Election Form. A properly completed and executed original of this Election Form (or a faxed copy of it), and any other documents required by this Election Form, must be received by Shareholder Services, Attention Bill Radtke either via hand delivery or fax (fax # (925) 201-4427) on or before 12:00 midnight, New York City Time on June 8, 2001 (the "Expiration Date"). The method by which you deliver any required documents is at your option and risk, and the delivery will be deemed made only when actually received by Tut. You may hand deliver your Election Form to Shareholder Services, Attention Bill Radtke at Tut, or you may fax it to Shareholder Services, Attention Bill Radtke (fax # (925) 201-4427). In all cases, you should allow sufficient time to ensure timely delivery. 2. Withdrawals of Tendered Options You may withdraw your tendered options at any time before the Expiration Date. If Tut extends the Offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the Offer. In addition, although Tut currently intends to accept your validly tendered options promptly after the expiration of the Offer, if we do not accept your tendered options before 12:00 midnight, New York City Time, on July 9, 2001, you may withdraw your tendered options at any time after July 9, 2001. To withdraw tendered options you must deliver a signed and dated Notice to Change Election From Accept to Reject (or a faxed copy of the notice) with the required information to Tut while you still have the right to withdraw the tendered options. You may not rescind a withdrawal and you will be deemed not to have tendered any Old Options you have withdrawn unless you properly re- tender them before the Expiration Date by delivery of a new Election Form following the procedures described in these Instructions. Tenders of options made through the offer may be changed at any time before the Expiration Date. If Tut extends the Offer beyond that time, you may change your election regarding particular tendered options at any time until the extended expiration of the Offer. To change your election regarding particular tendered options while continuing to elect to participate in the Offer, you must deliver a signed and dated new Election Form, with the required information, following the procedures described in these Instructions. Upon the receipt of such a new, properly signed and dated Election Form, any previously submitted Election Form will be disregarded and will be considered replaced in full by the new Election Form. Tut will not accept any alternative, conditional or contingent tenders. All tendering option holders, by signing this Election Form (or a faxed copy of it), waive any right to receive any notice of the acceptance of their tender, except as provided for in the Offer to Exchange. 3. Inadequate Space. If the space provided in this Election Form is inadequate, the information requested by the table on this Election Form regarding the options to be tendered should be provided on a separate schedule attached to this Election Form. Print your name on this schedule and sign it. The schedule should be delivered with the Election Form, and will thereby be considered part of this Election Form. 7 4. Tenders. If you intend to tender options through the Offer, you must complete the table on this Election Form by providing the grant number for each option that you intend to tender. Tut will not accept partial tenders of options. Accordingly, you may tender all or none of the unexercised shares subject to the options you decide to tender. Also, if you intend to tender any of the options that were granted to you, then you must tender all of your Old Options that were granted to you during the six month period prior to the Expiration Date. 5. Signatures on This Election Form. If this Election Form is signed by the holder of the Old Options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. If this Election Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to Tut of the authority of that person so to act must be submitted with this Election Form. 6. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Election Form may be directed to Shareholder Services, Attention Bill Radtke, at Tut Systems, Inc., 5964 W. Las Positas Blvd., Pleasanton, CA 94588, telephone number (925) 201-4212. Copies will be furnished promptly at Tut's expense. 7. Irregularities. All questions as to the number of option shares subject to options to be accepted for exchange, and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of options will be determined by Tut in its discretion. Tut's determinations shall be final and binding on all parties. Tut reserves the right to reject any or all tenders of options Tut determines not to be in proper form or the acceptance of which may, in the opinion of Tut's counsel, be unlawful. Tut also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular options, and Tut's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as Tut shall determine. Neither Tut nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. 8 8. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced in the Offer to Exchange, and the memorandum from Janice Ramsey dated May 11, 2001 before deciding to participate in the Offer. 9. Important Tax Information. You should refer to Section 17 of the Offer to Exchange, which contains important U.S. federal income tax information. 10. Miscellaneous. A. Data Privacy. By accepting the Offer, you hereby explicitly and ------------ unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, Tut Systems, Inc. and/or any affiliate for the exclusive purpose of implementing, administering and managing your participation in the Offer. You understand that Tut Systems, Inc. and/or any affiliate may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in Tut, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the stock option plan and this Offer ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Offer, that these recipients may be located in your country, or elsewhere, and that the recipient's country may have different data privacy laws and protections than in your country. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the your participation in the stock option plans and this Offer. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the stock option plans and this Offer. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or withdraw the consents herein by contacting in writing your local human resources representative. You understand that withdrawal of consent may affect your ability to participate in this Offer and exercise or realize benefits from the stock option plans. B. Acknowledgement and Waiver. By accepting this Offer, you acknowledge -------------------------- that: (i) your acceptance of the Offer is voluntary; (ii) your acceptance of the Offer shall not create a right to further employment with your employer and shall not interfere with the ability of your employer to terminate your employment relationship at any time with or without cause; and (iii) the Offer, the Old Options and the New Options are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. Important: The Election Form (or a faxed copy of it) together with all other required documents must be received by Tut, on or before the Expiration Date. 9 EX-99.(A)(4) 5 dex99a4.txt NOTICE TO CHANGE ELECTION [LOGO] Tut Systems, Inc. 5964 W. Las Positas Blvd. Pleasanton, CA 94588 EXHIBIT (a)(4) OFFER TO EXCHANGE OPTIONS NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT If you previously signed and returned the Election Form in which you elected to accept Tut Systems, Inc.'s ("Tut") offer to exchange (the "Offer") some or all of your options, you may change that election and reject Tut's Offer to exchange ------ by following the instructions to this form, completing the following page and returning this form during the period beginning May 11, 2001 and ending at 12:00 midnight, New York City time, June 8, 2001, unless the Offer is extended by us. If you turn in this form after this date, it will not be accepted, or if you fail to turn it in, your Election Form will remain in effect and you will be deemed to have elected to accept the Offer. Tut will e-mail a confirmation of receipt within 48 hours of receiving your Notice to Change Election From Accept to Reject. NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT DUE TO SHAREHOLDER SERVICES, ATTENTION BILL RADTKE, NO LATER THAN 12:00 MIDNIGHT, NEW YORK CITY TIME, JUNE 8, 2001. 1 NOTICE TO WITHDRAW TENDERED OPTIONS I previously received a copy of the Offer to Exchange, the memorandum from Janice Ramsey dated May 11, 2001 and an Election Form. I signed and returned the Election Form, in which I elected to accept Tut System, Inc.'s ("Tut") offer to exchange (the "Offer") some of or all of my options. I now wish to change that election and reject Tut's Offer to exchange my options. I understand that ------ by signing this Notice and delivering it to Shareholder Services, Attention Bill Radtke by 12:00 midnight, New York City Time on June 8, 2001, I will be able to withdraw my acceptance of the Offer and reject the Offer to exchange options instead. I have read and understand all the terms and conditions of the Offer to exchange options. I have read and understand the instructions attached to this Notice. I understand that in order to reject the Offer, I must sign, date and deliver this Notice via fax (fax # (925) 201-4427) or hand delivery to Shareholder Services, Attention Bill Radtke by 12:00 midnight, New York City Time on June 8, 2001. I understand that by rejecting the Offer to exchange options, I will not receive any New Options pursuant to the Offer and I will keep the Old Options that I have. These options will continue to be governed by the stock option plan under which they were granted and by the existing option agreements between Tut and me. I understand that I may change this election, and once again accept the Offer to exchange options, by submitting a new Election Form to Shareholder Services, Attention Bill Radtke via fax (fax # (925) 201-4427) or hand delivery by 12:00 midnight, New York City Time on June 8, 2001. I have signed this Notice and printed my name exactly as it appears on the Election Form. I do not accept the Offer to exchange any options. Signed:____________________________________________ (Signature) Name of Employee:__________________________________ (Print Name) Date and Time:_____________________________________ NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT DUE TO SHAREHOLDER SERVICES, ATTENTION BILL RADTKE, NO LATER THAN 12:00 MIDNIGHT, NEW YORK CITY TIME, JUNE 8, 2001. 2 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Notice to Change Election From Accept to Reject. A properly completed and executed original of this Notice to Change Election From Accept to Reject (or a faxed copy of it), and any other documents required by this Notice to Change Election From Accept to Reject, must be received by Shareholder Services, Attention Bill Radtke either via hand delivery or via fax (fax # (925) 201-4427) on or before 12:00 midnight New York City Time on June 8, 2001 (the "Expiration Date"). The method by which you deliver any required documents is at your option and risk, and the delivery will be deemed made only when actually received by Tut. You may hand deliver your Notice to Change Election From Accept to Reject to Shareholder Services, Attention Bill Radtke at Tut, or you may fax it to him (fax # (925) 201-4427). In all cases, you should allow sufficient time to ensure timely delivery. Although by submitting a Notice to Change Election From Accept to Reject you have withdrawn your tendered options from the Offer, you may change your mind and re-accept the Offer until the expiration of the Offer. Tenders of options made through the Offer may be made at any time before the Expiration Date. If the Offer is extended by Tut beyond that time, you may tender your options at any time until the extended expiration of the Offer. To change your mind and elect to participate in the Offer, you must deliver a new signed and dated Election Form (or a faxed copy of the Election Form) with the required information to Tut, while you still have the right to participate in the Offer. Your options will not be properly tendered for purposes of the Offer unless the withdrawn options are properly re-tendered before the Expiration Date by delivery of the new Election Form following the procedures described in the Instructions to the Election Form. If you do not wish to withdraw all your tendered options from the Offer, you should not fill out this Notice to Change Election From Accept to Reject. If you wish to change your election with respect only to particular options, you should submit a new Election Form instead. To change your election regarding particular tendered options while continuing to elect to participate in the Offer, you must deliver a signed and dated new Election Form, with the required information, following the procedures described in the Instructions to the Election Form before the Expiration Date or, if the Offer is extended, before the extended expiration of the Offer. Upon the receipt of such a new, properly signed and dated Election Form, any previously submitted Election Form or Notice to Change Election From Accept to Reject will be disregarded and will be considered replaced in full by the new Election Form. By signing this Notice to Change Election From Accept to Reject (or a faxed copy of it), you waive any right to receive any notice of the withdrawal of the tender of your options, except as provided for in the Offer to Exchange. 2. Signatures on This Notice to Change Election From Accept to Reject. If this Notice to Change Election From Accept to Reject is signed by the holder of the Eligible Options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. 3 If this Notice to Change Election From Accept to Reject is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to Tut of the authority of that person so to act must be submitted with this Notice to Change Election From Accept to Reject. 3. Other Information on This Notice to Change Election From Accept to Reject. In addition to signing this Notice to Change Election From Accept to Reject, you must print your name and indicate the date and time at which you signed. 4. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Notice to Change Election From Accept to Reject may be directed to Shareholder Services, Attention Bill Radtke at Tut Systems, Inc., 5964 W. Las Positas Blvd., Pleasanton, CA 94588, telephone number (925) 201-4212. Copies will be furnished promptly at Tut's expense. 5. Irregularities. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of this withdrawal from the Offer will be determined by Tut in its discretion. Tut's determinations shall be final and binding on all parties. Tut reserves the right to reject any or all Notices to Change Election From Accept to Reject that Tut determines not to be in proper form or the acceptance of which may, in the opinion of Tut's counsel, be unlawful. Tut also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the Notice to Change Election From Accept to Reject, and Tut's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No Notice to Change Election From Accept to Reject will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with Notices to Change Election From Accept to Reject must be cured within the time as Tut shall determine. Neither Tut nor any other person is or will be obligated to give notice of any defects or irregularities in Notices to Change Election From Accept to Reject, and no person will incur any liability for failure to give any such notice. 6. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced in the Offer to Exchange, and the memorandum from Janice Ramsey dated May 11, 2001 before deciding to participate in the Offer. 7. Important Tax Information. You should refer to Section 17 of the Offer to Exchange, which contains important U.S. federal income tax information. Important: The Notice to Change Election From Accept to Reject (or a faxed copy of it) together with all other required documents must be received by Tut, on or before the Expiration Date. 4 EX-99.(A)(5) 6 dex99a5.txt FORM OF PROMISE TO GRANT NEW STOCK OPTION EXHIBIT (A)(5) [LOGO] OFFER TO EXCHANGE OPTIONS PROMISE TO GRANT NEW OPTION To: ((name)) Employee Number: ((ssn)) ((address)) ((address1)) ((address2)) ((address3)) Thank you for your participation in the Offer to Exchange. In exchange for your agreement to cancel the stock option(s) listed on the following page (the "Old Option(s)"), Tut Systems, Inc. ("Tut") hereby promises to grant you a stock option or option(s), as applicable, on December 13, 2001 (unless prohibited by applicable law or regulations) covering the same number of shares of Tut's common stock as covered by your Old Option(s). Each New Option will be granted from the Tut Systems, Inc. 1998 Stock Plan (the "1998 Stock Plan") or the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan (the "1999 Nonstatutory Stock Option Plan"), as determined by Tut's Board of Directors in their sole discretion and will otherwise be subject to the standard terms and conditions under the Plan from which it was granted and a new option agreement between Tut and you. In order to receive the New Option(s), you must be employed by Tut or one of our U.S. subsidiaries as of December 13, 2001. This Promise does not constitute a guarantee of employment with Tut or any of its subsidiaries for any period. Your employment with Tut or any of our subsidiaries remains "at-will" and can be terminated by either you or Tut at any time, with or without cause or notice, subject to the provisions of local law. If you voluntarily terminate your employment with Tut or any of our U.S. subsidiaries or if your employment is terminated by Tut or any of our U.S. subsidiaries for any reason before December 13, 2001, you will lose all rights you have to receive any New Options. This Promise is subject to the terms and conditions of the Offer to Exchange dated May 11, 2001, the memorandum from Janice Ramsey dated May 11, 2001, and the Election Form you previously completed and submitted to Tut, all of which are incorporated herein by reference. These documents reflect the entire agreement between you and Tut with respect to this transaction. Please call Bill Radtke at (925) 201-4212 with any questions you may have. 1 OLD OPTION(S): - -------------- THE FOLLOWING OLD OPTION(S) WERE CANCELLED ON JUNE 11, 2001.
Grant Grant Total # of Strike Expiration Unexercised Number Plan Type Date Shares Price Date Shares - ---------- ------ ------ ------- ---------- ------- ---------- ----------- ((grarant)) ((plan)) ((type)) ((gdate)) ((shares)) ((price)) ((xdate)) ((outs)) Unexercised Vested Unvested Date Fully Issued by TUT Shares Shares Vested In the Last6Mo? - ----------- ---------- ---------------- ------------------- ((unxvested)) ((unvested)) ((dvested)) ((six))
2 NEW OPTION(S): - -------------- TUT PROMISES TO GRANT YOU THE FOLLOWING NEW OPTIONS ON DECEMBER 13, 2001 IN EXCHANGE FOR THE OLD OPTIONS WITH THE CORRESPONDING GRANT NUMBER(S):
Total # of Grant Proposed Strike Expiration Vested Unvested Date Fully Number Plan* Type** Grant Dat Shares Issued Price*** Date Shares**** Shares**** Vested**** - ------ ------- ------- --------- ------------- -------- ---------- ---------- ----------- ---------- ((grant1)) ((plan1)) ((type1)) ((gdate1)) ((outs)) ((price1)) ((xdate1)) ((vested1)) ((unvested1)) ((dvested1
* Will be determined at the time of issuance depending on availability of shares under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan. ** Will be the same type as the Old Option, to the maximum extent permitted by law. *** Will be equal to the closing price of Tut's common stock as listed on the Nasdaq National Market on December 12, 2001 (one day prior to grant of New Options). **** Will be subject to vesting as follows, subject to your continued employment with Tut: (a) all shares equal to the number of shares that were fully vested under the cancelled option on June 8, 2001 will be fully vested, (b) all shares equal to the number of unvested shares under the cancelled option on June 8, 2001 that would have been fully vested on the date the new option is granted (at least six months and two days from the date the options are cancelled) will be fully vested, and (c) all remaining unvested shares will vest ratably each month, beginning on the date the new option is granted and ending on the date that is at least twelve months prior to the date that the cancelled option would have been fully vested. In other words, the vesting schedule for each new option will be shortened by approximately twelve months. 3 Field Key - --------- Grant Number - Refers to the Grant Number of your Old Option or the corresponding New Option. Plan - Refers to the option plan under which your option is granted to you. Your option is subject to the terms and conditions of the option plan it is issued under. Type - Refers to whether the option is an incentive stock option or a nonstatutory stock option. Grant Date - The date of grant of the option. Total Number of Shares - Refers to the total number of shares of Tut Systems, Inc. Common Stock underlying the option. Strike Price - This is the exercise price of the option. Expiration Date - This is the date this option expires, unless you are terminated, become disabled or are otherwise not an employee. The option plan under which your option was issued and your option agreement further explains other termination events and dates. Unexercised Shares - The total number of shares underlying the option minus any shares exercised by you and converted into stock. Note that only options which are unexercised are covered by the Offer to Exchange. Unexercised Vested Shares - Those shares which have vested and which you have the right to exercise and convert into stock. Unvested Shares - Those shares which have not vested and which you do not have the right to exercise and convert into stock. Date Fully Vested - The date on which all of the shares underlying the option become fully vested and you earn the right to exercise and convert these into stock. Granted in the Last 6 Months - Indicates whether an option was granted by Tut Systems, Inc. from December 11, 2000 through June 11, 2001. 4 EX-99.(D)(3) 7 dex99d3.txt 1999 NONSTATUTORY STOCK OPTION PLAN EXHIBIT (D)(3) TUT SYSTEMS, INC. 1999 NONSTATUTORY STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this 1999 Nonstatutory Stock -------------------- Option Plan are: . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to Employees, Directors and Consultants, and . to promote the success of the Company's business. Options granted under the Plan will be Nonstatutory Stock Options. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as shall ------------- be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a committee of Directors appointed by the Board --------- in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. ------------ (g) "Company" means Tut Systems, Inc., a Delaware corporation. ------- (h) "Consultant" means any person, including an advisor, engaged by ---------- the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. -------- (j) "Disability" means total and permanent disability as defined in ---------- Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers, employed by the -------- Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (m) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (n) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (o) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (p) "Notice of Grant" means a written or electronic notice evidencing --------------- certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a nonstatutory stock option granted pursuant to ------ the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (s) "Option Agreement" means an agreement between the Company and an ---------------- Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. -2- (t) "Option Exchange Program" means a program whereby outstanding ----------------------- Options are surrendered in exchange for Options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an Option or -------------- Stock Purchase Right. (v) "Optionee" means the holder of an outstanding Option or Stock -------- Purchase Right granted under the Plan. (w) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 1999 Nonstatutory Stock Option Plan. ---- (y) "Restricted Stock" means shares of Common Stock acquired pursuant ---------------- to a grant of Stock Purchase Rights under Section 11 of the Plan. (z) "Restricted Stock Purchase Agreement" means a written agreement ----------------------------------- between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "Service Provider" means an Employee, including an Officer, ---------------- Director or Consultant. (bb) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 13 of the Plan. (cc) "Stock Purchase Right" means the right to purchase Common Stock -------------------- pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (dd) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 13 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is one million eight hundred twenty-five thousand (1,825,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). 4. Administration of the Plan. -------------------------- -3- (a) Administration. The Plan shall be administered by (i) the Board -------------- or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (viii) to institute an Option Exchange Program; (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (x) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (xi) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; -4- (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to determine the terms and restrictions applicable to Options or Stock Purchase Rights; (xiv) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xv) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's ---------------------------------- decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Options and Stock Purchase Rights may be granted to ----------- Service Providers; provided, however, that notwithstanding anything to the contrary contained in the Plan, Options may not be granted to Officers and Directors. 6. Limitations. Neither the Plan nor any Option or Stock Purchase Right ----------- shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. 7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall ------------ become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option -------------- Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per share exercise price for the Shares to -------------- be issued pursuant to exercise of an Option shall be determined by the Administrator. (b) Waiting Period and Exercise Dates. At the time an Option is --------------------------------- granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. -5- (c) Form of Consideration. The Administrator shall determine the --------------------- acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of : (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a -6- dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ------------------------------------------------- ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, ----------------- the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. -7- (e) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Reacquisition Option. Unless the Administrator determines -------------------- otherwise, the Restricted Stock Purchase Agreement shall grant the Company a reacquisition option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price, if any, for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be determined by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The reacquisition option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. Non-Transferability of Options and Stock Purchase Rights. Unless -------------------------------------------------------- determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and -8- Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the -9- transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. Date of Grant. The date of grant of an Option or Stock Purchase Right ------------- shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend or terminate the Plan. (b) Effect of Amendment or Termination. No amendment, alteration, ---------------------------------- suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant to the ---------------- exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an -------------------------- Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. Inability to Obtain Authority. The inability of the Company to obtain ----------------------------- authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. -10- 18. Reservation of Shares. The Company, during the term of this Plan, will --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -11- 1999 NONSTATUTORY STOCK OPTION PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number_________________________ Date of Grant_________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $_________________________ Type of Option: ___ Nonstatutory Stock Option Term/Expiration Date: __________________________ Vesting Schedule: ---------------- This Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: ------------------ This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. Grant of Option. The Plan Administrator of the Company hereby grants to --------------- the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an ------------------ exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to [Title] of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be by ----------------- any of the following, or a combination thereof, at the election of the Optionee: (a) cash; or (b) check; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or -2- (e) with the Administrator's consent, delivery of Optionee's promissory note (the "Note") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement. 4. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences relating to ---------------- this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. The Optionee may incur regular federal --------------------- income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (b) Disposition of Shares. If the Optionee holds NSO Shares for at --------------------- least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by ------------------------------- reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. -3- 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES --------------------------------- THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: TUT SYSTEMS, INC. _______________________________ _______________________________ Signature By _______________________________ _______________________________ Print Name Title _______________________________ Residence Address _______________________________ -4- CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. _____________________________________ Spouse of Optionee -5- EXHIBIT A --------- TUT SYSTEMS, INC. EXERCISE NOTICE Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 Attention: [Title] 1. Exercise of Option. Effective as of today, ________________, 200__, the ------------------ undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Tut Systems, Inc. (the "Company") under and pursuant to the 1999 Nonstatutory Stock Option Plan (the "Plan") and the Stock Option Agreement dated, 20___ (the "Option Agreement"). The purchase price for the Shares shall be $, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the ------------------- full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has ---------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the --------------------- appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer ---------------- adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are ------------------------------- incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: TUT SYSTEMS, INC. ________________________________ ________________________________ Signature By ________________________________ ________________________________ Print Name Its Address: Address: - ------- ------- ________________________________ 5964 West Las Positas Blvd. ________________________________ Pleasanton, CA 94588 ________________________________ Date Received -2- EXHIBIT B --------- SECURITY AGREEMENT This Security Agreement is made as of __________, 19___ between Tut Systems, Inc., a Delaware corporation ("Pledgee"), and _________________________ ("Pledgor"). Recitals -------- Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated ________ (the "Option"), between Pledgor and Pledgee under Pledgee's 1999 Nonstatutory Stock Option Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit C to the Option. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the --------------------------------------------- transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter --------------------------------------- into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. The Shares are free of all other encumbrances, ------------ defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is ------------------ now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all ------------- payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any ----------------- stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, ------------------ subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of ------- this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial -2- number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of ---- all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency ---------- proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, ---------------------- Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that ----------------------------------- the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms --------------------- of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and ------------- governed under the internal substantive laws, but not the choice of law rules, of California. -3- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PLEDGOR _________________________________ Signature _________________________________ Print Name Address: _________________________________ _________________________________ PLEDGEE Tut Systems, Inc. a Delaware corporation ________________________________ Signature ________________________________ Print Name ________________________________ Title PLEDGEHOLDER ________________________________ Secretary of Tut Systems, Inc. -4- 1999 NONSTATUTORY STOCK OPTION PLAN NOTICE OF GRANT OF STOCK PURCHASE RIGHT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. [Grantee's Name and Address] You have been granted the right to purchase Common Stock of the Company, subject to the Company's Repurchase Option and your ongoing status as a Service Provider (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows: Grant Number _________________________ Date of Grant _________________________ Price Per Share $________________________ Total Number of Shares Subject _________________________ to This Stock Purchase Right Expiration Date: _________________________ YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 1999 Nonstatutory Stock Option Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right. GRANTEE: TUT SYSTEMS, INC. _________________________ _____________________________ Signature By _________________________ _____________________________ Print Name Title -2- EXHIBIT A-1 ----------- 1999 NONSTATUTORY STOCK OPTION PLAN RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement. WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a Service Provider, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth; and WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the "Agreement"). NOW THEREFORE, the parties agree as follows: 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and ------------- the Purchaser hereby agrees to purchase shares of the Company's Common Stock (the "Shares"), at the per Share purchase price and as otherwise described in the Notice of Grant. 2. Payment of Purchase Price. The purchase price for the Shares may be ------------------------- paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof. 3. Section 83(b) Election. The Purchaser hereby agrees to file a Section ---------------------- 83(b) election, attached hereto as Exhibit A-5, within thirty (30) days from the date of purchase, which will serve as an election to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the Shares hereunder. 4. Reacquisition Option. -------------------- (a) In the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before all of the Shares are released from the Company's Reacquisition Option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option (the " Reacquisition Option") for a period of sixty (60) days from such date to reacquire up to that number of shares which constitute the Unreleased Shares (as defined in Section 4) at no charge. The Reacquisition Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder). Upon delivery of such notice, the Company shall become the legal and beneficial owner of the Shares being reacquired and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being reacquired by the Company. (b) Whenever the Company shall have the right to reacquire Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's reacquisition rights under this Agreement and reacquire all or a part of such Shares. [Each such designee or assignee shall pay the Company cash equal to the difference between the Fair Market Value of the Shares to be reacquired on the date of such designation or assignment.] 5. Release of Shares From Reacquisition Option. ------------------------------------------- (a) 25% of the Shares shall be released from the Company's Reacquisition Option six (6) months after the Date of Grant, 30% of the Shares shall be released from the Company's Reacquisition Option twelve (12) months after the Date of Grant, and 45% of the Shares shall be released from the Company's Reacquisition Option eighteen (18) months after the Date of Grant, provided that the Purchaser does not cease to be a Service Provider prior to the date of any such release. Notwithstanding anything to the contrary in this Agreement, in the event the Purchaser ceases to be a Service Provider due to death or Disability within six (6) months from the Date of Grant, 25% of the Shares shall be released from the Company's Reacquisition Option. (b) Any of the Shares that have not yet been released from the Reacquisition Option are referred to herein as "Unreleased Shares." (c) The Shares that have been released from the Reacquisition Option shall be delivered to the Purchaser at the Purchaser's request (see Section 6). 6. Restriction on Transfer. Except for the escrow described in Section 6 ----------------------- or the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company's Reacquisition Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution. 7. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon reacquisition by the Company pursuant to the Reacquisition Option, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A- 2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company's Reacquisition Option expires. As a further condition to the Company's obligations under this -2- Agreement, the Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises the Reacquisition Option hereunder, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Reacquisition Option has been exercised or expires unexercised or a portion of the Shares has been released from the Reacquisition Option, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the released Shares and shall deliver the certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Reacquisition Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Reacquisition Option. 8. Legends. The share certificate evidencing the Shares, if any, issued ------- hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REACQUISITION AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 9. Adjustment for Stock Split. All references to the number of Shares and -------------------------- the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 10. Tax Consequences. The Purchaser has reviewed with the Purchaser's own ---------------- tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that -3- the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to reacquire the Shares pursuant to the Reacquisition Option. The Purchaser understands that the Purchaser must elect to be taxed at the time the Shares are purchased rather than when and as the Reacquisition Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-5 hereto. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 11. General Provisions. ------------------ (a) This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party hereto. (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (d) Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are -4- cumulative and shall not constitute a waiver of either party's right to assert any other legal remedy available to it. (e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant. DATED: _____________________ PURCHASER: TUT SYSTEMS, INC. _________________________________ _________________________________ Signature By _________________________________ _________________________________ Print Name Title -5- EXHIBIT A-2 ----------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto ______________________________ (__________) shares of the Common Stock of Tut Systems, Inc. standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint ________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the "Agreement") between Tut Systems, Inc. and the undersigned dated ______________, 20__. Dated: _______________, 20__ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise the Reacquisition Option, as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. EXHIBIT A-3 ----------- JOINT ESCROW INSTRUCTIONS ------------------------- _________, 20__ Corporate Secretary Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 Dear _____________: As Escrow Agent for both Tut Systems, Inc., a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively as the "Company") exercises the Company's Reacquisition Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be reacquired and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee for the number of shares of stock being reacquired pursuant to the exercise of the Company's Reacquisition Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's Reacquisition Option has been exercised, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's Reacquisition Option. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not reacquired by the Company or its assignees pursuant to exercise of the Company's Reacquisition Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. -2- 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto. COMPANY: Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 PURCHASER: _______________________________ _______________________________ _______________________________ ESCROW AGENT: Corporate Secretary Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. -3- 18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of California. Very truly yours, TUT SYSTEMS, INC. _____________________________________ By _____________________________________ Title PURCHASER: _____________________________________ Signature _____________________________________ Print Name ESCROW AGENT: _____________________________________ Corporate Secretary -4- EXHIBIT A-4 ----------- CONSENT OF SPOUSE ----------------- I, ____________________, spouse of ___________________, have read and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In consideration of the Company's grant to my spouse of the right to purchase shares of Tut Systems, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________, 20__ ___________________________________ Signature of Spouse EXHIBIT A-5 ----------- ELECTION UNDER SECTION 83(b) ---------------------------- OF THE INTERNAL REVENUE CODE OF 1986 ------------------------------------ The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: TAXPAYER: SPOUSE: ADDRESS: IDENTIFICATION NO.: TAXPAYER: SPOUSE: TAXABLE YEAR: 2. The property with respect to which the election is made is described as follows:__________ shares (the "Shares") of the Common Stock of Tut Systems, Inc. (the "Company"). 3. The date on which the property was transferred is:______________20__. 4. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property is: $_______________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked - -------------------------------------------------------------------------- except with the consent of the Commissioner. - ------------------------------------------- Dated:_____________, 20__ ______________________________________________________________ Taxpayer The undersigned spouse of taxpayer joins in this election. Dated:___________________, 20__ ______________________________________________________________ Spouse of Taxpayer
EX-99.(D)(4) 8 dex99d4.txt 1998 STOCK PLAN PROSPECTUS Exhibit (d)(4) Tut Systems, Inc. 1998 Stock Plan Prospectus The date of this prospectus is May 11, 2001 This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. TABLE OF CONTENTS
Page ---- INTRODUCTION.......................................................................................................... 1 1. What is the Plan?................................................................................... 1 2. What is the purpose of the Plan?.................................................................... 1 3. How many Shares are available under the Plan?....................................................... 1 4. What should I know about this prospectus?........................................................... 2 ADMINISTRATION AND ELIGIBILITY........................................................................................ 2 5. Who administers the Plan?........................................................................... 2 6. Who is eligible to participate in the Plan?......................................................... 2 7. Does participation in the Plan affect my employment or service with Tut?............................ 2 STOCK OPTIONS......................................................................................................... 2 8. What is an option and how do I benefit from it?..................................................... 2 9. Are there different types of options?............................................................... 3 10. How will I know the terms of my option?............................................................. 3 11. Is there a limit on the number of Shares that I may purchase?....................................... 3 12. What is the exercise price of my option?............................................................ 4 13. When can I exercise my option?...................................................................... 4 14. How can I exercise my option?....................................................................... 4 15. How do I pay the exercise price?.................................................................... 4 16. When does my option expire?......................................................................... 5 17. Can the Administrator buy out my option?............................................................ 5 STOCK PURCHASE RIGHTS................................................................................................. 5 18. What are stock purchase rights?..................................................................... 5 U.S TAX AND ERISA INFORMATION......................................................................................... 5 19. What are the tax effects of NSOs?................................................................... 6 20. What are the tax effects of ISOs?................................................................... 6 21. What about ISOs and the alternative minimum tax?.................................................... 7 22. What are the tax effects of stock purchase rights?.................................................. 7 23. What are the tax effects for Tut?................................................................... 7 24. Is the Plan subject to ERISA?....................................................................... 8 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................... 8 ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS.................................................................. 8 25. How do I pay tax withholding?....................................................................... 8 26. Can Tut change or terminate the Plan?............................................................... 9 27. Will I receive shareholder reports?................................................................. 9
-i- TABLE OF CONTENTS (continued) Page ---- 28. Does the Plan limit a participant's ability to resell Shares acquired under the Plan?............ 9 29. Are Awards transferable?......................................................................... 9 30. What happens if Tut dissolves or is liquidated?.................................................. 9 31. What happens if Tut is acquired?................................................................. 10 32. What if I need more information?................................................................. 10 33. What else should I know about this prospectus?................................................... 10
-ii- INTRODUCTION The following questions and answers give a summary of the main features of the Tut Systems, Inc. 1998 Stock Plan (the "Plan"). Please read this prospectus carefully. 1. What is the Plan? The Plan permits Tut Systems, Inc. ("Tut") to issue shares of our common stock ("Shares") to eligible employees, directors, and consultants of Tut and its subsidiaries. Shares are issuable through awards ("Awards"), including: . stock options, and . stock purchase rights. An individual who has received one or more Awards is referred to in this prospectus as a "participant". 2. What is the purpose of the Plan? The purposes of the Plan are: . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to employees, directors and consultants, and . to promote the success of Tut's business. 3. How many Shares are available under the Plan? There are 1,733,218 Shares reserved for issuance under the Plan, plus an annual increase to be added on the first day of each of Tut's fiscal years beginning in January 2002 equal to the lesser of: . 375,000 shares, or . 3% of the number of outstanding Shares on that date or a lesser amount determined by the Board of Directors of Tut (the "Board"). Such Shares may be authorized but unissued Shares or reacquired Shares. If an Award expires or becomes unexercisable without having been fully exercised, the unpurchased Shares that were subject to the Award generally again will be available for grant or sale under the Plan. If Tut experiences a stock split, stock dividend, reclassification, or other similar change to its capital structure, the Board will adjust the number of Shares available for issuance under the Plan, the per-person numerical limits on Awards and any outstanding Awards. 4. What should I know about this prospectus? This prospectus describes the main features of the Plan as of May __, 2001. However, this prospectus does not contain all of the terms and conditions of the official Plan document. Accordingly, if there is any difference between the terms and conditions of the Plan as described in this prospectus and the provisions of the Plan document, the Plan document will govern. ADMINISTRATION AND ELIGIBILITY 5. Who administers the Plan? The Board or a committee appointed by the Board (as applicable, the "Administrator") administers the Plan. Subject to the terms of the Plan, the Administrator has all discretion and authority to administer the Plan and to control its operation including, for example, the power to: . select which employees, directors and consultants will be granted Awards, . determine the terms and conditions of each Award (which need not be the same), and . interpret the terms of the Plan and the outstanding Awards. The Administrator may make whatever rules it considers appropriate for the administration and interpretation of the Plan. All decisions made by the Administrator are final and binding on all persons. 6. Who is eligible to participate in the Plan? Employees, directors and consultants of Tut and its subsidiaries are eligible to receive one or more Awards. For purposes of the Plan, a "subsidiary" generally is a subsidiary of Tut if Tut directly or indirectly owns at least 50% of the corporation's voting stock. The Administrator has complete authority to determine which employees, directors and consultants will be selected for participation in the Plan. 7. Does participation in the Plan affect my employment or service with Tut? No, the grant of an Award under the Plan does not affect the terms and conditions of your employment or service. Tut and its subsidiaries reserve the right to terminate your employment or service at any time, with or without cause, subject to the provisions of local law. The grant of your option does not entitle you to any future award, compensation or severance pay. STOCK OPTIONS 8. What is an option and how do I benefit from it? An option gives you the right to purchase a specified number of Shares for a fixed price (the "exercise price") during a prescribed period of time. If the value of the Shares increases above your exercise price during its term, you will be able to buy the Shares at a "discount." If the value of the -2- Shares does not increase above your exercise price, you will not recognize a benefit from your option. The principal benefit of your option is the potential to profit from any increase in the value of the Shares during the period in which the option is exercisable, without risking any of your money. Please note that the grant and exercise of your option are subject to any United States and local laws, including, but not limited to, laws relating to securities and foreign currency, as well as any Tut policies that may apply to you. By accepting and exercising your option, Tut deems that you have authorized and directed Tut or any subsidiary of Tut to disclose to Tut or any of its subsidiaries any information regarding your employment, the nature and amount of your compensation and the details of your participation in the Plan as Tut or the subsidiary finds necessary to facilitate the administration of the Plan. 9. Are there different types of options? The Plan permits Tut to grant either incentive stock options (which are entitled to favorable federal tax treatment) ("ISOs") or nonqualified stock options (that is, options that are not ISOs) ("NSOs"). Tut may grant ISOs only to persons who are employees of Tut or a subsidiary at the time of grant. After Tut grants an option, the principal differences to the participant between an ISO and a NSO relate to federal income tax consequences. 10. How will I know the terms of my option? If Tut awards you an option under the Plan, Tut will send you a written agreement (an "option agreement"). The option agreement will show the following, all of which the Administrator determines in its discretion: . the exercise price of the option, . the expiration date of the option, . the maximum number of Shares that may be purchased with the option, . any conditions to exercise of the option, and . any other terms and conditions of the option. The option agreement also will specify whether the option is intended to be an ISO or a NSO. The total fair market value of the Shares (as of the time of grant) with respect to which ISOs are exercisable for the first time by any participant during any calendar year (under all plans of Tut and its affiliates) may not exceed $100,000. 11. Is there a limit on the number of Shares that I may purchase? The Administrator has the discretion to determine the number of Shares subject to each option, except that you may not receive options covering more than a total of 2,500,000 Shares during any -3- fiscal year of Tut. However, in connection with a participant's initial employment or service, the Administrator may grant the participant options to purchase up to an additional 550,000 Shares, which will not count against the 2,500,000 limit described above. 12. What is the exercise price of my option? The exercise price is the price at which you may purchase a Share by exercising an option. The Administrator generally has the discretion to determine the exercise price of each option, except that the exercise price of an ISO or an NSO that is intended to qualify as "performance based compensation" within the meaning of Section 162(m) of the Internal Revenue Code (the "Code") may not be less than 100% of the fair market value of the Shares subject to the option on the date of grant. (In rare circumstances, the exercise price of an ISO must be at least 110% of the fair market value of the Shares subject to the option at the time of grant.) However, options may be granted with a per Share exercise price of less than 100% of the fair market value of the Shares subject to the option on the date of grant pursuant to a merger or other corporate transaction. For purposes of the Plan, "fair market value" generally means the closing sales price of the Shares as quoted on the Nasdaq National Market for the last market trading day prior to the day in question, as reported by The Wall Street Journal. 13. When can I exercise my option? You generally cannot immediately exercise an option granted under the Plan. Instead, an option will become exercisable (that is, it will "vest") at the time or times shown in the option agreement, assuming that you have satisfied any conditions to vesting (for example, continued employment with Tut). The Administrator has full discretion to determine the vesting schedule for each option. Please note that, unless the Administrator determines otherwise, the vesting of options will be tolled during any unpaid leave of absence. 14. How can I exercise my option? To exercise your option, you must give written or electronic notice of exercise (in accordance with the terms of your option agreement) to Shareholder Services. With the exercise notice, you also must send full payment full payment of the exercise price and any applicable federal (including FICA), state and local withholding taxes. Your ability to purchase Shares through the exercise of an option is conditioned upon compliance with any laws and Tut policies that apply to you. 15. How do I pay the exercise price? The Administrator determines how you may pay the exercise price of an option. The Administrator's current policy is to permit payment of the exercise price: . in cash or by check, . by the tender of already-owned Shares which (a) have been held for at least 6 months, if acquired pursuant to an exercise of stock options, and (b) have a fair market value equal to the exercise price, or -4- . by an immediate sale of some or all of the Shares acquired upon exercise. An immediate sale is when the exercise price (and any required tax withholding) is paid by requesting a stockbroker to sell all or part of the Shares acquired upon exercise. That is, the stockbroker will forward part of the proceeds to Tut as necessary to pay the exercise price and tax withholding. The stockbroker will then send the remaining cash proceeds (less any commissions and fees) or Shares directly to you. 16. When does my option expire? The Administrator, in its discretion, determines all expiration provisions that apply to options. The expiration dates for your option will be shown in your option agreement. The expiration date is the date on which your option expires and after which you no longer may exercise the option. Expiration dates may vary for different options and in different circumstances. Therefore, it is important for you to read and understand your individual option agreement. After an option is granted, the Administrator may, in its discretion, extend the maximum term of the option, subject to the terms of the Plan. The term of certain ISOs may not exceed 5 years from the date of grant. 17. Can the Administrator buy out my option? The Administrator may at any time offer to buy out, for a payment in cash or Shares, any outstanding option, based on such terms and conditions as the Administrator establishes and communicates to you at the time the offer is made. STOCK PURCHASE RIGHTS 18. What are stock purchase rights? A stock purchase right is a right to buy Shares. The Administrator determines the terms and conditions under which Shares may be purchased pursuant to a stock purchase right granted under the Plan, including the number of Shares that may be purchased by a participant and the purchase price to be paid for the Shares. If you are granted a stock purchase right, Tut generally will retain the right to repurchase the Shares at their purchase price if your employment or service terminates for any reason. Shares which are subject to Tut's right to repurchase are often referred to as "restricted stock". The Administrator determines the rate at which Tut's repurchase option will lapse each year. U. S. TAX AND ERISA INFORMATION The following discussion is intended only as a summary of the general U.S. income tax laws that apply to Awards granted under the Plan and the sale of any Shares acquired through the Awards. However, the federal, state and local tax consequences to any particular taxpayer will depend upon his or her individual circumstances. Also, if you are not a U.S. taxpayer, the taxing jurisdiction or jurisdictions which apply to you will determine the tax effect of your participation in the Plan. Accordingly, Tut strongly advises you to seek the advice of a qualified tax adviser regarding your participation in the Plan. -5- The following discussion assumes that the per Share exercise price of an option is less than the fair market value of a Share on the date of exercise. 19. What are the tax effects of NSOs? If you are granted a NSO, you will not be required to include an amount in income at the time of grant. However, when you exercise the NSO, you will have ordinary income to the extent the value of the Shares on the date of exercise (and any cash) you receive is greater than the exercise price you pay. If you exercise a NSO through payment of the exercise price in Shares, or in a combination of Shares and cash, you will have ordinary income upon exercise to the extent that the value (on the date of exercise) of the Shares you purchase is greater than the value of the Shares you surrender, less the amount of any cash paid upon exercise. Any gain or loss you recognize upon the sale or exchange of Shares that you acquire generally will be treated as capital gain or loss and will be long-term or short-term depending on whether you held the Shares for more than one year. The holding period for the Shares will begin just after the time you recognize income. The amount of such gain or loss will be the difference between: . the amount you realize upon the sale or exchange of the Shares, and . the value ofthe Shares at the time you recognize income. 20. What are the tax effects of ISOs? ISOs are intended to qualify for the special treatment available under Section 422 of the Internal Revenue Code (the "Code"). You generally are not required to include any amount in income as a result of the grant or exercise of ISOs. Any gain generally will be taxed at long-term capital gain rates if you sell Shares that you purchased through the exercise of an ISO: . more than two years after the date of grant, and . more than one year after the date of exercise. However, if you sell Shares purchased through the exercise of an ISO within the two-year or one-year holding periods described above, generally any gain up to the difference between the value of the Shares on the date of exercise and the exercise price will be treated as ordinary income. Any additional gain generally will be taxable at long-term or short-term capital gain rates, depending on whether the holding period for the Shares is more than one year. If you sell Shares that you purchased through the exercise of an ISO within either of the above holding periods in a transaction in which you would not recognize a loss (if sustained) (for example, a gift), the excess of the value of the Shares on the exercise date over the exercise price will be treated as ordinary income. Any loss that you recognize upon disposition of Shares purchased through the exercise of an ISO, whether before or after expiration of the two-year and one-year holding periods, will be treated as a -6- capital loss. Such loss will be long-term or short-term depending on whether the holding period for the Shares is more than one year. If you pay the exercise price of an ISO wholly or partly in Shares purchased through the exercise of an ISO, the payment will be treated as a disposition of the Shares if the payment is made within the two-year or one-year holding periods described above. This type of a disposition generally means that you will have ordinary income with respect to the Shares disposed of, but you generally will not have additional capital gain or loss. To the extent that you pay the exercise price of an ISO with Shares other than those you purchased through an ISO, or with Shares you purchased through an ISO that have met the holding periods described above, such payment should not be treated as a taxable disposition of the Shares used as payment. If you use Shares in full payment of the exercise price of an ISO, in general that number of Shares you receive which equals the number of Shares you use as payment will have the same basis and holding period as the payment Shares, increased by any amounts treated as income on the exchange. Additional Shares that you receive will have a zero basis and a holding period that begins on the date of exercise. 21. What about ISOs and the alternative minimum tax? If you are subject to the alternative minimum tax, the rules that apply to ISOs described above do not apply. Instead, alternative minimum taxable income generally is computed under the rules that apply to NSOs. If you hold ISOs and are subject to the alternative minimum tax, you should be sure to consult your tax adviser before exercising any ISOs. 22. What are the tax effects of stock purchase rights? Generally, no income will be recognized by you in connection with the grant of a stock purchase right or the exercise of the right for unvested Shares, unless you file an election under Section 83(b) of the Code within thirty (30) days of the date of exercise of the stock purchase right. Otherwise, as Tut's repurchase right lapses, you will recognize ordinary income when (and if) the Shares vest and no longer can be forfeited. If you make a Section 83(b) election, you will recognize ordinary income at the time you exercise a stock purchase right. However, if you later forfeit the Shares, no tax deduction is allowed with respect to the forfeiture. In all cases, the amount of ordinary income that you recognize will equal: . the fair market value of the Shares at the time you recognize income, less . the amount (if any) you pay for the Shares. 23. What are the tax effects for Tut? Tut generally will receive a deduction for federal income tax purposes in connection with an Award equal to the ordinary income the participant realizes. Tut will be entitled to such deduction at the time that the participant recognizes the ordinary income. In addition, the Code contains special rules regarding the federal income tax deductibility of compensation paid to Tut's Chief Executive Officer and to each of the other four most highly compensated executive officers. In general, Tut may deduct annual compensation Tut pays to any of these specified executives only to the extent that it does not exceed $1 million. However, Tut can -7- preserve the deductibility found in the Code of compensation in excess of the $1 million limit if Tut complies with certain conditions. The Plan has been designed to permit the Administrator to grant Awards that will be fully deductible to Tut. 24. Is the Plan subject to ERISA? The Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows Tut to "incorporate by reference" the information it files with the SEC, which means that Tut can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. Tut incorporates by reference the documents listed below and any future filings Tut makes with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"). 1. Tut's latest annual report filed pursuant to Section 13(a) or 15(d) of the 1934 Act or the latest prospectus filed pursuant to Rule 424(a) under the Securities Act of 1933 (the "1933 Act") which contains, either directly or by incorporation by reference, audited financial statements for Tut's latest fiscal year for which such statements have been filed. 2. All other reports and proxy statements filed pursuant to Section 13(a) or 15(d) of the 1934 Act since the end of the fiscal year covered by the annual report or prospectus referred to in paragraph (1) above. 3. The description of Tut's common stock contained in Tut's Registration Statement on Form 8-A, as it may have been amended from time to time. All documents filed by Tut pursuant to Sections 13(a), 13(c), 14, and 15(d) of the 1934 Act after the date of this prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, will be deemed to be incorporated by reference in this prospectus and to be a part of this prospectus from the date of filing of such documents. ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS 25. How do I pay tax withholding? You must pay any taxes Tut is required to withhold in cash or through other means as required by the Administrator. -8- 26. Can Tut change or terminate the Plan? The Board of Directors generally may amend or terminate the Plan at any time and for any reason. However, no amendment, suspension or termination may adversely affect your outstanding Award without your consent. Also, certain amendments must be approved by Tut's shareholders. 27. Will I receive shareholder reports? As a participant in the Plan, you will receive the annual reports, proxy statements and other materials Tut sends to its shareholders generally. 28. Does the Plan limit a participant's ability to resell Shares acquired under the Plan? Except as described below, the Plan generally places no limitations upon your ability to sell Shares acquired under the Plan. Tut will not receive any part of the proceeds of any such sales. While you are in possession of "inside information" (that is, material information about Tut that is not yet public but that a reasonable investor would consider important in deciding whether to buy or sell Shares), you are prohibited by federal securities laws and Tut policy from trading Shares until the information has become public. Also, you may not resell under this prospectus any Shares acquired under the Plan if you are an "affiliate" of Tut (within the meaning of Rule 405 under the 1933 Act). Any such resales must be either described in a separate prospectus, or, in certain instances, registered in a separate registration statement, or sold in accordance with the requirements of Rule 144 under the 1933 Act or another exemption available under the 1933 Act. Also, Section 16(b) of the 1934 Act permits Tut to recover any profit realized by certain officers, directors, and principal stockholders of Tut through the sale and purchase, or purchase and sale (as defined), of Tut's common stock within any period of less than six months. 29. Are Awards transferable? You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Awards granted under the Plan, other than by will or the applicable laws of descent and distribution. All rights with respect to an Award granted to you will be available during your lifetime only to you. 30. What happens if Tut dissolves or is liquidated? In the event of Tut's proposed dissolution or liquidation, the Administrator will notify you as soon as practicable prior to the effective date of the proposed transaction. The Administrator may, in its discretion, provide that your option will become vested and exercisable as to all shares subject to your option, including shares as to which the option would not otherwise be vested or exercisable, until ten (10) days prior to the transaction. Also, the Administrator may provide that any Tut repurchase option that applies to any Shares purchased upon exercise of an option or stock purchase right will lapse as to all such Shares, provided that the proposed dissolution or liquidation takes place. The option or stock purchase right will terminate immediately before the consummation of the liquidation or dissolution. -9- 31. What happens if Tut is acquired? In the event of Tut's merger with or into another corporation, or the sale of all or substantially all of its assets, each outstanding option and stock purchase right may be assumed or substituted for by the successor corporation (or a parent or subsidiary or such successor corporation). If the successor corporation refuses to assume or substitute for the outstanding options or stock purchase rights, your option or Stock Purchase Right will become vested and exercisable as to all Shares subject to the option or Stock Purchase Right, including Shares as to which the option would not otherwise be vested or exercisable. In such a case, the Administrator will notify you that the option will be fully vested and exercisable for a period of fifteen (15) days from that notice. The option or stock purchase right will terminate upon the expiration of that fifteen-day period. 32. What if I need more information? Tut will provide you free of charge with a copy of any or all of the documents incorporated by reference in this prospectus and in the Registration Statement on Form S-8 filed with the SEC relating to the Plan (except for any exhibits to these documents), including Tut's annual report, and copies of other reports, proxy statements and communications distributed to Tut's stockholders. You should direct your requests to: Shareholder Services Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 Telephone: (925) 201-2045 Facsimile: (925) 201-4403 Copies of this prospectus, any supplements to the prospectus, and further information concerning the Plan and its administration also are available free of charge by calling or writing Shareholder Services at the numbers and/or address listed above. 33. What else should I know about this prospectus? Tut may update this prospectus in the future by furnishing to participants an appendix, memorandum, notice or replacement page containing updated information. Tut generally will not send you a new prospectus, except upon request. Accordingly, you should keep this prospectus for future reference. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. Tut has not authorized anyone to provide you with different or additional information. Tut is not making an offer to sell any stock in any state or country where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of this document. -10- EX-99.(D)(5) 9 dex99d5.txt 1999 NONSTATUTORY STOCK OPTION PLAN Exhibit(d)(5) Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan Prospectus The date of this prospectus is May 11, 2001 This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. TABLE OF CONTENTS
Page ---- INTRODUCTION...................................................................................................... 1 1. What is the Plan?............................................................................... 1 2. What are the purposes of the Plan?.............................................................. 1 3. How many Shares are available for issuance under the Plan?...................................... 1 4. What should I know about this prospectus?....................................................... 2 ADMINISTRATION AND ELIGIBILITY.................................................................................... 2 5. Who administers the Plan?....................................................................... 2 6. Who is eligible to participate in the Plan?..................................................... 2 7. Does participation in the Plan affect my employment or service with Tut?........................ 2 STOCK OPTIONS..................................................................................................... 3 8. What is an option and how do I benefit from it?................................................. 3 9. How will I know the terms of my option?......................................................... 3 10. What is the exercise price of my option?........................................................ 3 11. When can I exercise my option?.................................................................. 4 12. How can I exercise my option?................................................................... 4 13. How do I pay the exercise price of my option?................................................... 4 14. When does my option expire?..................................................................... 4 15. Can the Administrator buy out my option?........................................................ 5 STOCK PURCHASE RIGHTS............................................................................................. 5 16. What are stock purchase rights?................................................................. 5 U.S. TAX AND ERISA INFORMATION.................................................................................... 5 17. What are the tax effects of my option?.......................................................... 5 18. What are the tax effects of stock purchase rights?.............................................. 6 19. What are the tax effects for Tut?............................................................... 6 20. Is the Plan subject to ERISA?................................................................... 6 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................... 6 ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS.............................................................. 7 21. How do I pay tax withholding?................................................................... 7 22. Can the Plan be changed or terminated?.......................................................... 7 23. Will I receive shareholder reports?............................................................. 7 24. Does the Plan limit my ability to resell Shares acquired under the Plan?........................ 7 25. Are Awards transferable?........................................................................ 7 26. What happens if Tut dissolves or is liquidated?................................................. 8 27. What happens if Tut is acquired?................................................................ 8
-i- TABLE OF CONTENTS (continued) Page ---- 28. What if I need more information?................................................................ 8 29. What else should I know about this prospectus?.................................................. 8
-ii- INTRODUCTION The following questions and answers give a summary of the main features of the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan (the "Plan"). Please read this prospectus carefully. 1. What is the Plan? The Plan permits Tut Systems, Inc. ("Tut") to issue shares of our common stock ("Shares") to eligible employees and consultants of Tut and its subsidiaries. Shares are issuable through awards ("Awards"), including: . stock options, and . stock purchase rights. An individual who has received one or more Awards is referred to in this prospectus as a "participant". 2. What are the purposes of the Plan? The purposes of the Plan are: . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to employees and consultants, and . to promote the success of Tut's business 3. How many Shares are available for issuance under the Plan? There are 1,825,000 Shares available for issuance under the Plan. Such Shares may be authorized but unissued Shares or reacquired Shares. If an Award expires or becomes unexercisable without having been fully exercised, the unpurchased Shares that were subject to the Award generally again will be available for grant or sale under the Plan. If Tut experiences a stock split, stock dividend, reclassification, or other similar change to its capital structure, the Board of Directors of Tut (the "Board") will adjust (as appropriate) the number of Shares available for issuance under the Plan and any outstanding Awards. 4. What should I know about this prospectus? This prospectus describes the main features of the Plan as of May 11, 2001. However, this prospectus does not contain all of the terms and conditions of the official Plan document. Accordingly, if there is any difference between the terms and conditions of the Plan as described in this prospectus and the provisions of the official Plan document, the Plan document will govern. ADMINISTRATION AND ELIGIBILITY 5. Who administers the Plan? The Plan is administered by the Board or a committee of directors appointed by the Board (as applicable, the "Administrator"). The Administrator has all discretion and authority to administer the Plan and to control its operation. Subject to the terms of the Plan, the Administrator has the power to: . select which employees and consultants will be granted Awards, . determine the terms and conditions of each Award (which need not be the same), and . interpret the terms of the Plan and the outstanding Awards. The Administrator may make whatever rules it considers appropriate for the administration and interpretation of the Plan. All decisions made by the Administrator are final and binding on all persons. 6. Who is eligible to participate in the Plan? Awards may be granted to employees and consultants of Tut and its subsidiaries. However, no stock options may be granted to Tut's officers or directors. For purposes of the Plan, a corporation generally is a "subsidiary" of Tut if Tut directly or indirectly owns at least 50% of the corporation's voting stock. The Administrator has complete authority to determine which employees and consultants will be selected for participation in the Plan. 7. Does participation in the Plan affect my employment or service with Tut? No, the grant of an Award under the Plan does not affect the terms and conditions of your employment or service. Tut and its subsidiaries reserve the right to terminate your employment or service at any time, with or without cause, subject to the provisions of local law. The receipt of an Award does not entitle you to any future award, compensation or severance pay. -2- STOCK OPTIONS 8. What is an option and how do I benefit from it? An option gives you the right to purchase a specified number of Shares for a fixed price (the "exercise price") during a prescribed period of time. If the value of the Shares increases above your exercise price during its term, you will be able to buy the Shares at a "discount." If the value of the Shares does not increase above your exercise price, you will not recognize a benefit from your option. The principal benefit of your option is the potential to profit from any increase in the value of the Shares subject to the option during the period in which the option is exercisable, without risking any of your money. Please note that the grant and exercise of your option are subject to any United States and local laws, including, but not limited to, laws relating to securities and foreign currency, as well as any Tut policies that may apply to you. By accepting and exercising your option, Tut deems that you have authorized and directed Tut or any subsidiary of Tut to disclose to Tut or any of its subsidiaries any information regarding your employment or service, the nature and amount of your compensation and the details of your participation in the Plan as Tut or the subsidiary finds necessary to facilitate the administration of the Plan. 9. How will I know the terms of my option? Each option granted under the Plan is evidenced by a written agreement (an "option agreement") between Tut and you. The option agreement will show all of the following, all of which the Administrator determines in its discretion: . the exercise price of the option, . the expiration date of the option, . the maximum number of Shares that may be purchased with the option, . any conditions to exercise of the option, and . any other terms and conditions of the option. The option agreement also will specify that the option is intended to be a nonqualified stock option (that is, an option that is not an "incentive stock option" for federal income tax purposes). 10. What is the exercise price of my option? The exercise price is the price at which you may purchase a Share by exercising an option. The Administrator has the discretion to determine the exercise price of each option granted under the Plan. -3- For purposes of the Plan, "fair market value" generally means the closing sales price of the Shares as quoted on the Nasdaq National Market for the last market trading day prior to the day in question, as reported by The Wall Street Journal. 11. When can I exercise my option? You generally cannot immediately exercise an option granted under the Plan. Instead, an option will become exercisable (that is, it will "vest") at the time or times shown in the related option agreement, assuming that you have satisfied any conditions to vesting (for example, continued employment or service with Tut). The Administrator has the discretion to determine the vesting schedule for each option, including any conditions to vesting. Please note that, unless the Administrator determines otherwise, the vesting of options will be tolled during any unpaid leave of absence. 12. How can I exercise my option? To exercise your option, you must give written or electronic notice of exercise (in accordance with the terms of your option agreement) to Shareholder Services. With the exercise notice, you also must send full payment of the exercise price of the number of Shares in respect of which the option is being exercised and any applicable federal (including FICA), state and local withholding taxes. Note that your ability to purchase Shares through the exercise of an option is conditioned upon compliance with any laws and Tut policies that apply to you. 13. How do I pay the exercise price of my option? The Administrator determines how you may pay the exercise price of an option. The Administrator's current policy is to permit payment of the exercise price: . in cash or by check, . by the tender of already-owned Shares that have been held for at least six (6) months, if acquired pursuant to an exercise of stock options, and have a fair market value equal to the exercise price, or . by an immediate sale of some or all of the Shares acquired upon exercise. An immediate sale is when the exercise price (and any required tax withholding) is paid by requesting a stockbroker to sell all or part of the Shares acquired upon exercise. That is, the stockbroker will forward part of the proceeds to Tut as necessary to pay the exercise price and tax withholding. The stockbroker will then send the remaining cash proceeds (less any commissions and fees) or Shares directly to you. 14. When does my option expire? The Administrator has the discretion to determine the expiration provisions that apply to options. The expiration dates for any particular option will be shown in the related option agreement. The expiration date is the date on which your option expires and after which you no longer may exercise the option. Expiration dates may vary for different options and in different circumstances. Therefore, it is important for you to read and understand your individual option agreement. -4- After an option is granted, the Administrator may, in its discretion, extend the maximum term of the option, subject to the terms of the Plan. 15. Can the Administrator buy out my option? The Administrator may at any time offer to buy out, for a payment in cash or Shares, any outstanding option, based on such terms and conditions as the Administrator establishes and communicates to you at the time the offer is made. STOCK PURCHASE RIGHTS 16. What are stock purchase rights? A stock purchase right is a right to buy Shares. The Administrator determines the terms and conditions under which Shares may be purchased pursuant to a stock purchase right granted under the Plan, including the number of Shares that may be purchased by a participant and the purchase price to be paid for the Shares. If you are granted a stock purchase right, Tut generally will retain the right to repurchase the Shares at their purchase price if your employment or service terminates for any reason. Shares that are subject to Tut's right to repurchase are often referred to as "restricted stock". The Administrator determines the rate at which Tut's repurchase option will lapse each year. U. S. TAX AND ERISA INFORMATION The following discussion is intended only as a summary of the general U.S. income tax laws that apply to Awards granted under the Plan and the sale of any Shares acquired through the Awards. However, the federal, state and local tax consequences to any particular taxpayer will depend upon his or her individual circumstances. Also, if you are not a U.S. taxpayer, the taxing jurisdiction or jurisdictions that apply to you will determine the tax effect of your participation in the Plan. Accordingly, Tut strongly advises you to seek the advice of a qualified tax adviser regarding your participation in the Plan. The following discussion assumes that the per Share exercise price of an option is less than the fair market value of a Share on the date of exercise. 17. What are the tax effects of my option? You will not be required to include an amount in income when you are granted an option. However, when you exercise the option you will have ordinary income to the extent the value of the Shares (and any cash) you receive on the date of exercise is greater than the exercise price you pay. If you exercise an option through payment of the exercise price in Shares, or in a combination of Shares and cash, you will have ordinary income upon exercise to the extent that the value (on the date of exercise) of the Shares you purchase is greater than the value of the Shares you surrender, less the amount of any cash paid upon exercise. Any gain or loss you recognize upon the sale or exchange of Shares that you acquire generally will be treated as capital gain or loss and will be long-term or short-term depending on whether you held -5- the Shares for more than one year. The holding period for the Shares will begin just after the time you recognize income. The amount of such gain or loss will be the difference between: . the amount you realize upon the sale or exchange of the Shares, and . the value of the Shares at the time you recognize income. 18. What are the tax effects of stock purchase rights? Generally, no income will be recognized by you in connection with the grant of a stock purchase right or the exercise of the right for unvested Shares, unless you file an election under Section 83(b) of the Code within thirty (30) days of the date of exercise of the stock purchase right. Otherwise, as Tut's repurchase right lapses, you will recognize ordinary income when (and if) the Shares vest and no longer can be forfeited. If you make a Section 83(b) election, you will recognize ordinary income at the time you exercise a stock purchase right. However, if you later forfeit the Shares, no tax deduction is allowed with respect to the forfeiture. In all cases, the amount of ordinary income that you recognize will equal: . the fair market value of the Shares at the time you recognize income, less . the amount (if any) you pay for the Shares. 19. What are the tax effects for Tut? Tut generally will receive a deduction for federal income tax purposes in connection with an Award equal to the ordinary income you realize. Tut will be entitled to such deduction at the time that you recognize the ordinary income. 20. Is the Plan subject to ERISA? The Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), nor is it qualified under Section 401(a) of the Code. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows Tut to "incorporate by reference" the information it files with the SEC, which means that Tut can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. Tut incorporates by reference the documents listed below and any future filings Tut makes with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"). 1. Tut's latest annual report filed pursuant to Section 13(a) or 15(d) of the 1934 Act or the latest prospectus filed pursuant to Rule 424(a) under the Securities Act of 1933 (the "1933 Act") which contains, either directly or by incorporation by reference, audited financial statements for Tut's latest fiscal year for which such statements have been filed. -6- 2. All other reports and proxy statements filed pursuant to Section 13(a) or 15(d) of the 1934 Act since the end of the fiscal year covered by the annual report or prospectus referred to in paragraph (1) above. 3. The description of Tut's common stock contained in Tut's Registration Statement on Form 8-A, as it may have been amended from time to time. All documents filed by Tut pursuant to Sections 13(a), 13(c), 14, and 15(d) of the 1934 Act after the date of this prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, will be deemed to be incorporated by reference in this prospectus and to be a part of this prospectus from the date of filing of such documents. ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS 21. How do I pay tax withholding? You must pay any taxes that Tut is required to withhold upon exercise of an Award in cash or through other means as required by the Administrator. 22. Can Tut change or terminate the Plan? The Board may amend, suspend or terminate the Plan at any time and for any reason. However, no such amendment, suspension or termination may adversely affect your outstanding Award without your written consent. 23. Will I receive shareholder reports? As a participant in the Plan, you will receive the annual reports, proxy statements and other materials Tut sends to its shareholders generally. 24. Does the Plan limit my ability to resell Shares acquired under the Plan? Except as described below, the Plan generally places no limitations upon your ability to sell Shares acquired under the Plan. Tut will not receive any part of the proceeds of any such sales. While you are in possession of "inside information" (that is, material information about Tut that is not yet public but that a reasonable investor would consider important in deciding whether to buy or sell Shares), you are prohibited by federal securities laws and Tut policy from trading Shares until the information has become public. Also, you may not resell under this prospectus any Shares acquired under the Plan if you are an "affiliate" of Tut (within the meaning of Rule 405 under the 1933 Act). Any such resales must be either described in a separate prospectus, or, in certain instances, registered in a separate registration statement, or sold in accordance with the requirements of Rule 144 under the 1933 Act or another exemption available under the 1933 Act. 25. Are Awards transferable? -7- You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Awards granted under the Plan, other than by will or the applicable laws of descent and distribution. All rights with respect to an Award granted to you will be available during your lifetime only to you. 26. What happens if Tut dissolves or is liquidated? In the event of Tut's proposed dissolution or liquidation, the Administrator will notify you as soon as practicable prior to the effective date of the proposed transaction. The Administrator may, in its discretion, provide that your option will become vested and exercisable as to all shares subject to your option, including shares as to which the option would not otherwise be vested or exercisable, until ten (10) days prior to the transaction. Also, the Administrator may provide that any Tut repurchase option that applies to any Shares purchased upon exercise of an option or stock purchase right will lapse as to all such Shares, provided that the proposed dissolution or liquidation takes place. The option or stock purchase right will terminate immediately before the consummation of the liquidation or dissolution. 27. What happens if Tut is acquired? In the event of Tut's merger with or into another corporation, or the sale of all or substantially all of its assets, each outstanding option and stock purchase right may be assumed or substituted for by the successor corporation (or a parent or subsidiary or such successor corporation). If the successor corporation refuses to assume or substitute for the outstanding options or stock purchase rights, your option or Stock Purchase Right will become vested and exercisable as to all Shares subject to the option or Stock Purchase Right, including Shares as to which the option would not otherwise be vested or exercisable. In such a case, the Administrator will notify you that the option will be fully vested and exercisable for a period of fifteen (15) days from that notice. The option or stock purchase right will terminate upon the expiration of that fifteen-day period. 28. What if I need more information? Tut will provide you free of charge with a copy of any or all of the documents incorporated by reference in this prospectus and in the Registration Statement on Form S-8 filed with the SEC relating to the Plan (except for any exhibits to these documents), including Tut's annual report, and copies of other reports, proxy statements and communications distributed to Tut's stockholders generally. You should direct your requests to: Shareholder Services Tut Systems, Inc. 5964 West Las Positas Blvd. Pleasanton, CA 94588 Telephone: (925) 201-2045 Facsimile: (925) 201-4403 Copies of the Plan document, this prospectus, any supplements to the prospectus, and further information concerning the Plan and its administration also are available free of charge by calling or writing Shareholder Services at the numbers and/or address listed above. 29. What else should I know about this prospectus? -8- Tut may update this prospectus in the future by furnishing to you an appendix, memorandum, notice or replacement page containing updated information. Tut generally will not send you a new prospectus, except upon request. Accordingly, you should keep this prospectus for future reference. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. Tut has not authorized anyone to provide you with different or additional information. Tut is not making an offer to sell any stock in any state or country where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of this document. -9- -----END PRIVACY-ENHANCED MESSAGE-----