Exihibit 10.4
TUT SYSTEMS INC.
1998 STOCK PLAN
INLAND REVENUE APPROVED RULES FOR UK EMPLOYEES
("THE SUB-PLAN")
Adopted by the Company on: January 28, 2000
Approved by the Inland Revenue on:
Inland Revenue reference no:
PricewaterhouseCoopers
9 Greyfriars Road
Reading
Berkshire RG1 1JG
Tel: 0118 959 7111
Fax: 0118 960 7700
Ref: RFM/NJD/4751
SCHEDULE
TUT SYSTEMS INC. 1998 STOCK PLAN
INLAND REVENUE APPROVED RULES FOR UK EMPLOYEES
("THE SUB-PLAN")
1. General
This schedule to the Tut Systems Inc. 1998 Stock Plan ("the Plan") sets out
the Inland Revenue Approved Rules for UK Employees ("the Sub-Plan").
2. Establishment of Sub-Plan
Tut Systems Inc. ("the Company") has established the Sub-Plan under section
4(b)(ix) of the Plan, which authorises the Company to establish sub-plans
to the Plan(1).
3. Purpose of Sub-Plan
The purpose of the Sub-Plan is to enable the grant to, and subsequent
exercise by, employees and directors in the United Kingdom, on a tax
favoured basis, of options to acquire shares in the Company under the
Plan.
4. Inland Revenue approval of Sub-Plan
The Sub-Plan is intended to be approved by the Inland Revenue under
Schedule 9 to ICTA 1988.
5. Rules of Sub-Plan
The rules of the Plan, in their present form and as amended from time to
time, shall, with the modifications set out in this schedule, form the
rules of the Sub-Plan. In the event of any conflict between the rules of
the Plan and this schedule, the schedule shall prevail.
6 Relationship of Sub-Plan to Plan
The Sub-Plan shall form part of the Plan and not a separate and independent
plan.
7. Interpretation
In the Sub-Plan, unless the context otherwise requires, the following words
and expressions have the following meanings:
1
Acquiring Company a company which obtains Control of the Company in the
circumstances referred to in rule 26;
Approval Date the date on which the Sub-Plan is approved by the
Inland Revenue under Schedule 9 to ICTA 1988;
Associated Company The meaning given to that expression by section 187(2)
of ICTA 1988;(2)
Close Company The meaning given to that expression by section 414(1)
of, and paragraph 8 of Schedule 9 to, ICTA 1988;(3)
Consortium the meaning given to that word by section 187(7) of
ICTA 1988;(4)
Control the meaning given to that word by section 840 of ICTA
1988 and "Controlled" shall be construed
accordingly;(5)
Date of Grant the date on which an Option is granted to an Eligible
Employee determined in accordance with section 14 of
the Plan;
Eligible Employee An Employee who is:
(a) An employee (other than a director) of the Company
or a company participating in the Sub-Plan; or
(b) a director (other than a non-executive director)
of the Company or a company participating in the
Sub-Plan who is contracted to work at least 25
hours per week for the Company and its
subsidiaries or any of them (exclusive of meal
breaks)
and who, in either case, does not have at the Date of
Grant of an Option, and has not had during the
preceding twelve months, a Material Interest in a Close
Company which is the Company or a company which has
Control of the Company or a member of a Consortium
which owns the Company;
ICTA 1988 the Income and Corporation Taxes Act 1988;
2
Market Value Notwithstanding section 2(m) of the Plan,
(a) in the case of an Option granted under the Sub
Plan:
(i) if at the relevant time the Shares are
listed on the London or New York Stock
Exchange, the market value as defined in
section 2(m)(i) of the Plan;
(ii) if paragraph (i) does not apply, the market
value of a Share as determined in accordance
with Part VIII of the Taxation of Chargeable
Gains Act 1992 and agreed in advance with
the Inland Revenue Shares Valuation Division
on the Date of Grant of the Option or such
earlier date or dates as may be agreed with
the Board of Inland Revenue;
(b) in the case of an option granted under any other
share option scheme, the market value of an
ordinary share in the capital of the Company
determined under the rules of such scheme for the
purpose of the grant of the option;
Material Interest The meaning given to that expression by section 187(3)
of ICTA 1988;(6)
New Option an option granted by way of exchange under rule 26.1;
New Shares the shares subject to a New Option referred to in rule
26.1;
Option a subsisting right to acquire Shares granted under the
Sub-Plan;
Optionee an individual who holds an Option or, where the context
permits, his legal personal representatives;
Ordinary Share Capital the meaning given to that expression by section 832(1)
of ICTA 1988; and
In this schedule, unless the context otherwise requires:
3
words and expressions not defined above have the same meanings as are
given to them in the Plan;
the rule headings are inserted for ease of reference only and do not
affect their interpretation;
a reference to a rule is a reference to a rule in this schedule;
the singular includes the plural and vice-versa and the masculine
includes the feminine; and
a reference to a statutory provision is a reference to a United
Kingdom statutory provision and includes any statutory modification,
amendment or re-enactment thereof.
8. Companies participating in Sub-Plan
The companies participating in the Sub-Plan shall be the Company and any
company Controlled by the Company which has been nominated by the Company
to participate in the Sub-Plan.
9. Shares used in Sub-Plan
The Shares shall form part of the Ordinary Share Capital of the Company
and shall at all times comply with the requirements of paragraphs 10 to 14
of Schedule 9 to ICTA 1988.(7)
10. Grant of Options
An option granted under the Sub-Plan shall be granted under and subject to
the rules of the Plan as modified by this schedule.
11. Identification of Options
An Option Agreement issued in respect of an Option shall expressly state
that it is issued in respect of an Option. An option which is not so
identified shall not constitute an Option.
12. Contents of Option Agreement
An Option Agreement issued in respect of an Option shall state:
that it is issued in respect of an Option;
the date of grant of the Option;
the number of Shares subject to the Option;
the exercise price under the Option;
4
any performance target or other condition imposed on the exercise of
the Option;
the date(s) on which the Option will ordinarily become exercisable;
and
the period during which an Option may be exercised by an Optionee who
ceases to be an Eligible Employee..
13. Earliest date for grant of Options
An Option may not be granted earlier than the Approval Date.
14. Persons to whom Options may be granted
An Option may not be granted to an individual who is not an Eligible
Employee at the Date of Grant.
For the avoidance of doubt, Options may not be granted under the Sub-Plan
to Consultants.
15. Options non transferable
An Option shall be personal to the Eligible Employee to whom it is
granted and, subject to rule 25, shall not be capable of being transferred,
charged or otherwise alienated and shall lapse immediately if the Optionee
purports to transfer, charge or otherwise alienate the Option.
Section 12 of the Plan shall be construed accordingly.
16. Limit on number of Shares placed under Option under Sub-Plan
For the avoidance of doubt, Shares placed under Option under the Sub-Plan
shall be taken into account for the purpose of section 3 of the Plan.
17. Inland Revenue limit ((Pounds)30,000)
Notwithstanding section 6(c) of the Plan, an Option may not be granted to
an Eligible Employee if the result of granting the Option would be that the
aggregate Market Value of the shares subject to all outstanding options
granted to him under the Sub-Plan or any other share option scheme
established by the Company or an Associated Company and approved by the
Board of Inland Revenue under Schedule 9 to ICTA 1988 (other than a savings
related share option scheme) would exceed sterling (Pounds)30,000 or such
other limit as may from time to time be specified in paragraph 28 of
Schedule 9 to ICTA 1988(8). For this purpose, the United Kingdom sterling
equivalent of the market value of a share on any day shall be determined by
taking the spot sterling/dollar exchange rate for that as shown in the
Financial Times.
5
18. Exercise price under Options
Notwithstanding section 9(a)(ii) and (iii) of the Plan, the amount payable
per Share on the exercise of an Option shall not be less than the Market
Value of a Share on the Date of Grant and shall be stated on the Date of
Grant.
19. Performance target or other condition imposed on exercise of
Option
Any performance target or other condition imposed on the exercise of an
Option under sections 4(b)(v) and 9(b) of the Plan shall be:
19.1 objective;
19.2 such that, once satisfied, the exercise of the Option is not subject
to the discretion of any person; and
19.3 stated on the Date of Grant.
If an event occurs as a result of which the Plan Administrator considers
that a performance target or other condition imposed on the exercise of an
Option is no longer appropriate and substitutes, varies or waives under
section 4(b)(x) of the Plan the performance target or condition, such
substitution, variation or waiver shall:
19.4 be reasonable in the circumstances; and
19.5 produce a fairer measure of performance and be neither materially
more nor less difficult to satisfy.
20. Exercise of Options by leavers
If an Optionee ceases to be an Eligible Employee, the Option may be
exercised within the post termination period specified in the Option
Agreement or, in the absence of a specified period, the period specified in
the Plan. Reference in the Plan (section 4(b)(x)) to a discretionary
authority to extend the post-termination exercisability period, shall for
the purposes of the Sub-Plan be disregarded.
21. Latest date for exercise of Options
The period during which an Option shall be capable of being exercised shall
be stated in the Option Agreement and any Option not so exercised by that
time shall lapse immediately.
22. Material Interest
An Option may not be exercised if the Optionee then has, or has had within
the preceding twelve months, a Material Interest in a Close Company which
is the Company or which is a company which has Control of the Company or
which is a member of a Consortium which owns the Company.
6
23. Manner of payment for Shares on exercise of Options
The amount due on the exercise of an Option shall be paid in cash or by
cheque or banker's draft and may be paid out of funds provided to the
Optionee on loan by a bank, broker or other person. Notwithstanding section
9(c)(iv) of the Plan, the amount may not be paid by the transfer to the
Company of Shares or any other shares or securities. The date of exercise
of an Option shall be the date on which the Company receives the amount due
on the exercise of the Option.
24. Issue or transfer of Shares on exercise of Options
The Company shall, as soon as reasonably practicable and in any event not
later than thirty days after the date of exercise of an Option, issue or
transfer to the Optionee, or procure the issue or transfer to the Optionee
of, the number of Shares specified in the notice of exercise and shall
deliver to the Optionee, or procure the delivery to the Optionee of, a
Stock Certificate in respect of such Shares together with, in the case of
the partial exercise of an Option, an Option Agreement in respect of, or
the original Option Agreement endorsed to show, the unexercised part of the
Option, subject only to compliance by the Optionee with the rules of the
Sub-Plan and to any delay necessary to complete or obtain:
24.1 the listing of the Shares on any stock exchange on which Shares are
then listed;
24.2 such registration or other qualification of the Shares under any
applicable law, rule or regulation as the Company determines is
necessary or desirable; or
24.3 the making of provision for the payment or withholding of any taxes
required to be withheld in accordance with any applicable law in
respect of the exercise of the Option or the receipt of the Shares.
Sections 10(a) and 16 of the Plan shall be read accordingly.
25. Death of Optionee
If an Optionee dies before the tenth anniversary of the Date of Grant, his
personal representatives shall be entitled to exercise his Options in
accordance with the Plan. If not so exercised, the Options shall lapse
immediately. Reference in section 10(d) of the plan, to exercise by a
person who acquired the right be bequest or inheritance or under the
Optionee's will or the laws of descent and distribution shall be
disregarded for the purposes of the Sub-Plan.
26. Change in Control of Tut Systems Inc.
26.1 Exchange of Options
If a company ("Acquiring Company") obtains Control of the Company as a
result of making:
7
26.1.1 a general offer to acquire the whole of the issued ordinary share
capital of the Company which is made on a condition such that if it
is satisfied the person making the offer will have Control of the
Company; or
26.1.2 a general offer to acquire all the shares in the Company of the
same class as the Shares
an Optionee may, at any time during the period set out in rule 26.2, by
agreement with the Acquiring Company, release his Option in whole or in
part in consideration of the grant to him of a new option ("New Option")
which is equivalent to the Option but which relates to shares ("New
Shares") in:
26.1.3 the Acquiring Company;
26.1.4 a company which has Control of the Acquiring Company; or
26.1.5 a company which either is, or has Control of, a company which is a
member of a Consortium which owns either the Acquiring Company or a
company having Control of the Acquiring Company.
References in Section 13(c) of the Plan to a successor corporation assuming
or substituting the Option shall be disapplied for the purposes of the Sub-
Plan.
26.2 Period allowed for exchange of Options
The period referred to in rule 26.1 is the period of six months beginning
with the time when the person making the offer has obtained Control of the
Company and any condition subject to which the offer is made has been
satisfied.
26.3 Meaning of "equivalent"
The New Option shall not be regarded for the purpose of this rule 26 as
equivalent to the Option unless:
26.3.1 the New Shares satisfy the conditions in paragraphs 10 to 14 of
Schedule 9 to ICTA 1988; and
26.3.2 save for any performance target or other condition imposed on the
exercise of the Option, the New Option will be exercisable in the
same manner as the Option and subject to the provisions of the Sub-
Plan as it had effect immediately before the release of the Option;
and
26.3.3 the total market value, immediately before the release of the
Option, of the Shares which were subject to the Option is equal to
the total market value, immediately after the grant of the New
Option, of the New Shares (market value being determined for this
purpose in accordance with Part VIII of the Taxation of Chargeable
Gains Act 1992); and
8
26.3.4 the total amount payable by the Optionee for the acquisition of the
New Shares under the New Option is equal to the total amount that
would have been payable by the Optionee for the acquisition of the
Shares under the Option.
26.4 Date of grant of New Option
The date of grant of the New Option shall be deemed to be the same as the
Date of Grant of the Option.
26.5 Application of Sub-Plan to New Option
In the application of the Sub-Plan to the New Option, where appropriate,
references to "Company" and "Shares" shall be read as if they were
references to the company to whose shares the New Option relates and the
New Shares, respectively, save that in the definition of "Board" the
reference to "Company" shall be read as if it were a reference to Tut
Systems Inc.
26.6 Disapplication of Merger/Asset Sale Provisions
The provisions of the Plan in Section 13(c) relating to merger or asset
sale shall be disapplied for the purposes of the Sub-Plan, however should
the Acquiring Company not agree to grant a New Option in accordance with
rule 26.1 above, the Option shall fully vest and become exercisable in
accordance with the terms of Section 13(c).
27. Rights attaching to Shares issued on exercise of Options
All Shares issued on the exercise of an Option shall, as to any voting,
dividend, transfer and other rights, including those arising on a
liquidation of the Company, rank equally in all respects and as one class
with the Shares in issue at the date of such exercise save as regards any
rights attaching to such Shares by reference to a record date prior to the
date of such exercise.
Reference in section 4(b)(v) of the Plan to restrictions/limitations
imposed on Option Shares shall be disapplied for the purposes of the Sub-
Plan, to the extent that they do not apply to all shares of the same class.
28. Amendment of Sub-Plan
Notwithstanding section 15 of the Plan, no amendment of the Sub-Plan shall
take effect until it has been approved by the Inland Revenue.
29. Adjustment of Options
Notwithstanding sections 4(b)(vi) and (x) of the Plan, no adjustment to an
Option shall take effect until it has been approved by the Inland Revenue.
Reference in Section 13(a) of the Plan to `stock dividend, combination or
reclassification' shall be disapplied for the purposes of the Sub-Plan.
9
30. Exercise of discretion by Plan Administrator
In exercising any discretion which it may have under the Sub-Plan, the Plan
Administrator shall act fairly and reasonably.
31. Disapplication of certain provisions of Plan
The provisions of the Plan dealing with:
Incentive Stock Options;
Stock purchase rights;
Option Exchange Program;
Restricted Stock; and
Buyout Provisions
shall not form part of, and shall therefore be disregarded for the purposes
of the Sub-Plan.
10
- ------------------------------
Notes
(1) The Company is the "grantor" as defined in paragraph 1 of Schedule 9 to
ICTA 1988 because it has established the Sub-Plan. In most cases, it will also
be the Company which grants options under the Sub-Plan, although this is not a
requirement of UK tax legislation.
(2) A company is treated as another's "associated company" at a given time if,
at that time or at any other time within one year previously, one of the two has
control of the other, or both are under the control of the same person or
persons. A person is taken to have control of a company if he exercises, or is
able to exercise or is entitled to acquire, direct or indirect control over the
company's affairs and, in particular, if he possesses or is entitled to acquire
the greater part of the company's issued share capital or the voting power in
the company. UK tax legislation contains two definitions of control: the
definition of control here is different from that in paragraph 4 below.
(3) A close company is a company which is under the control (as defined in
paragraph 1 above) of five or fewer participators (eg shareholders) or of any
number of participators who are directors. There are attributed to a
participator all the rights and powers (eg shares, voting power) of, inter alia,
a company which he controls or of an "associate" (eg relative) of his.
Ordinarily, a company is excluded from being a close company if it is non UK
resident or 35% of the voting power in the company is held by the public and its
shares have been listed, and the subject of dealings, on a recognised stock
exchange within the preceding 12 months. However, for the purpose of the
material interest test (see paragraph 5 below), this exclusion does not apply
with the result that the normal definition of a "close company" is extended.
(4) A company is a member of a consortium owning another company if it is one
of a number of companies which between them beneficially own not less than
three-quarters of the other company's ordinary share capital and each of which
beneficially owns not less than one-twentieth of that capital.
(5) Control means the power of a person to secure:
(a) by means of the holding of shares or the possession of voting power in or
in relation to that or any other body corporate; or
(b) by virtue of any powers conferred by the articles of association or other
document regulating that or any other body corporate
that the affairs of the first-mentioned body corporate are conducted in
accordance with the wishes of that person.
(6) A person has a material interest in a company if he, either on his own or
with one or more associates, or if any associate of his with or without such
other associates:
(a) is the beneficial owner of, or able, directly or through the medium of
other companies, or by any other indirect means to control, more than 10
per cent of the ordinary share capital of the company; or
(b) where the company is a close company, possesses, or is entitled to acquire,
such rights as would, in the event of the winding-up of the company or in
any other circumstances, give an entitlement to receive more than 10 per
cent of the assets which would then be available for distribution among the
participators.
(7) The shares used in the scheme must be:
11
- --------------------------------------------------------------------------------
(a) ordinary shares;
(b) fully paid up;
(c) not redeemable; and
(d) save for certain limited exceptions, not subject to any restrictions which
do not apply to all shares of the same class.
The shares used in the scheme must be:
(a) of a class listed on a recognised stock exchange; or
(b) shares in a company which is not under the control of another company;
or
(c) shares in a company which is under the control of another company
(other than a company which is, or would if resident in the UK be, a close
company) whose shares are listed on a recognised stock exchange.
The shares used in the scheme form part of the ordinary share capital of:
(a) the grantor (ie the company which has established the scheme); or
(b) a company which has control of the grantor; or
(c) a company which either is, or has control of, a company which is a
member of a consortium owning either the grantor or a company having
control of the grantor.
Where the company whose shares are to be used in a scheme has more than one
class of ordinary share, the majority of the issued shares of the same
class as those which are to be used must be either employee control shares
(see below) or:
(a) must not be held by persons (including trustees holding shares on
behalf of such persons) who acquired their shares in pursuance of a right
conferred on them or opportunity offered to them as directors or employees
of any company, and not in pursuance of an offer to the public; and
(b) if the shares are not listed on a recognised stock exchange and the
company is under the control of another company whose shares are so listed,
must not be held by companies which have control of the company whose
shares are in question or of which that company is an associated company.
Shares are employee control shares if:
(a) the persons holding them are, by virtue of their holding of shares of
that class, together able to control the company; and
(b) those persons are, or have been, employees or directors of the company
or of another company which is under the control of the company.
(8) UK tax legislation imposes a limit (currently (Pounds)30,000) on the
"value" of the outstanding options which may be held by an individual
participant in an Inland Revenue approved executive share option scheme.
12