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
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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
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TABLE OF CONTENTS
(continued)
Page
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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
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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
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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
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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
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. 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.
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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
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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
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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.
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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.
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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.
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