EXHIBIT 10.8
LICENSING AND COOPERATIVE MARKETING AGREEMENT
BETWEEN
MICROSOFT CORPORATION AND TUT SYSTEMS, INC.
THIS LICENSING AND COOPERATIVE MARKETING AGREEMENT (the "Licensing and
Cooperative Marketing Agreement") is made and entered into this 27th day of
August, 1997 (the "Effective Date"), by and between MICROSOFT CORPORATION, a
Washington corporation ("Microsoft"), and TUT SYSTEMS, INC., a California
corporation ("Tut"). The agreement has been modified and restated as of July 30,
1998.
RECITALS
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WHEREAS, Tut has developed technology that enables low cost, high speed,
local area networks to run on "plain old telephone service" ("POTS") wiring,
which technology is referred to by Tut as its "HomeRun" technology;
WHEREAS, Microsoft and Tut desire to cooperate to enable Tut to productize
Tut's HomeRun technology, including the creation of integrated circuits and end
user products containing integrated circuits, the development of software
drivers to support HomeRun-based products when running in Microsoft's Windows
and Windows NT operating environments, the creation of a testing and
certification program to enable third parties to achieve compatibility with the
HomeRun technology, and the definition of additional enhancements and upgrades
for the HomeRun products to be developed by Tut during the term of this
Licensing and Cooperative Marketing Agreement;
WHEREAS, upon the completion of products based on the HomeRun technology
and the parties acceptance of the same, the parties further desire to cooperate
with respect to the marketing and promotion of such HomeRun products and
technology; and
WHEREAS, to further the foregoing objectives, and to induce Microsoft to
enter into the Licensing and Cooperative Marketing Agreement, Tut is issuing to
Microsoft the Series G Preferred Stock Purchase Warrant (the "Warrant") pursuant
to the terms and conditions of the Warrant Purchase and Equity Rights Agreement
dated as of the Effective Date by and between Microsoft and Tut in the form
attached hereto as Exhibit I (the "Warrant Purchase and Equity Rights Agreement"
and collectively with the Warrant and this Agreement, the "Transaction
Documents").
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Microsoft and Tut agree as
follows:
AGREEMENT
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1. DEFINITIONS. When used in this Licensing and Cooperative Marketing Agreement
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and its various Exhibits, the following terms shall have the following meanings
whenever initially capitalized:
(a) "HOMERUN END USER PRODUCTS" shall mean electronic devices (e.g. network
cards) based on or containing HomeRun Integrated Circuits.
(b) "HOMERUN INTEGRATED CIRCUITS" or "HICS" shall mean integrated circuits
based on or containing the HomeRun Technology.
(c) "HOMERUN INTELLECTUAL PROPERTY LICENSES" or "HIPS" shall mean non-
exclusive licenses to the HomeRun Technology, which licenses are granted to
third parties to enable them to create, market and distribute products based on
the HomeRun Technology, including but not limited to HomeRun End User Products
and HomeRun Integrated Circuits.
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
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(d) "HOMERUN PRODUCTS" shall collectively refer to the HomeRun End User
Products and the HomeRun Integrated Circuits.
(e) "HOMERUN TECHNOLOGY" shall mean Tut's proprietary technology that
enables low cost, high speed, local area networks to run on POTS wiring, which
technology is more fully described in the attached Exhibit A.
(f) "HOMERUN WINDOWS DRIVERS" shall mean software drivers to enable the
Windows Products to communicate with and operate in conjunction with the HomeRun
Products. The "Initial HomeRun Windows Drivers" are those software drivers that
work with the Initial HomeRun Products and the "Subsequent HomeRun Windows
Drivers" are those software drivers that work with the Subsequent HomeRun
Products.
(g) "HR1300HEC TECHNOLOGY" shall mean the technology and maskwork contained
in Tut's HR1300HEC HomeRun Integrated Circuit, or a derivative or successor
thereto as may be mutually agreed upon by the parties, which technology and
maskwork are described in the attached Exhibit B.
(h) "INITIAL HOMERUN PRODUCTS" shall mean the initial versions of the
HomeRun Products to be created by Tut pursuant to this Licensing and Cooperative
Marketing Agreement, which versions are more fully described and specified in
the Initial HomeRun Product Specifications.
(i) "INITIAL HOMERUN PRODUCT SPECIFICATIONS" shall mean the specifications
for the Initial HomeRun Products which specifications are attached hereto as
Exhibit C.
(j) "JOINT CREATIONS" shall mean any and all ideas, concepts, software
code, specifications and other intellectual creations regarding the HomeRun
Technology, the HomeRun Products and the HomeRun Windows Drivers creations
jointly (according to standard principals of inventorship and authorship) by
employees or contractors of Microsoft and Tut pursuant to this Agreement.
(k) "MARKETING AGREEMENT" shall refer to the Marketing Agreement attached
hereto as Exhibit E.
(m) "MICROSOFT CREATIONS" shall mean any and all ideas, concepts, software
code, specifications and other intellectual creations regarding the HomeRun
Technology, HomeRun Products and HomeRun Windows Drivers created solely by
Microsoft employees or contractors and submitted to Tut by Microsoft to this
Agreement for use in the development of the HomeRun Products and HomeRun
Technology.
(n) "SUBSEQUENT HOMERUN PRODUCTS" shall mean future, enhanced versions of
the HomeRun Products, which future versions are created during the term of this
Licensing and Cooperative Agreement but subsequent to the creation of the
Initial HomeRun Products, as more particularly described in the attached Exhibit
D.
(o) "TIMETABLE" shall mean the timetable for the development of the Initial
and Subsequent HomeRun Products, which timetable is attached hereto as Exhibit
F.
(p) "TUT CREATIONS" shall mean any and all ideas, concepts, software code,
specifications and other intellectual creations regarding the HomeRun
Technology, HomeRun Products and HomeRun Windows Drivers created solely by Tut
employees or contractors.
(q) "WINDOWS PRODUCTS" shall mean Microsoft's systems software products,
whether now known or hereafter developed, including but not limited to Microsoft
Windows 95, Windows CE, Windows NT Server, Windows NT Workstation, and any
derivative, successor or replacement products thereto.
2. HOMERUN PRODUCT AND HOMERUN WINDOWS DRIVER DEVELOPMENT.
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(a) HOMERUN PRODUCT DESIGN AND FEATURES. Tut agrees that it shall develop
the Initial HomeRun Products according to the Initial HomeRun Product
Specifications. During the term of this Licensing and Cooperative Marketing
Agreement, the parties agree to consult with each other with respect to features
and enhancements to be contained in Subsequent HomeRun Products, and with
respect to the target shipment dates for any such Subsequent HomeRun Products.
During the term of this Licensing and Cooperative Marketing Agreement, Microsoft
agrees m assist Tut in the development and testing of the HomeRun Products by
testing versions of the Initial HomeRun Products and any Subsequent HomeRun
Products in Microsoft's public network trials, as mutually agreed upon.
(b) INITIAL HOMERUN PRODUCTS AND INITIAL HOMERUN WINDOWS DRIVERS
DEVELOPMENT/MICROSOFT'S TESTING AND ACCEPTANCE OF THE SAME. Tut agrees to create
the Initial HomeRun Products and the Initial HomeRun Windows Drivers according
to the Timetable. Microsoft hereby agrees to provide Tut, free of char e, with
reasonable amounts of technical support with respect to the creation and support
of the Initial HomeRun Windows Drivers. Upon completion of the final versions of
the Initial HomeRun Products and the Initial HomeRun Windows Drivers, Tut agrees
to deliver two (2) copies of each such Initial HomeRun Product and HomeRun
Windows Driver to Microsoft for Microsoft's testing and acceptance. Microsoft
shall have thirty (30) days from receipt of the final versions of the Initial
HomeRun Products and the Initial HomeRun Windows Drivers to accept or reject the
same. Microsoft's acceptance of the Initial HomeRun Products and the Initial
HomeRun Windows Drivers shall be based on the conformance of the Initial HomeRun
Products and the Initial HomeRun Windows Drivers to the Initial Home HomeRun
Product Specifications, and Microsoft's quality standards for third party
products it endorsed Microsoft agrees not to unreasonably withhold its
acceptance of any Initial HomeRun Product or any Initial HomeRun Windows Driver.
If. Microsoft rejects an initial HomeRun Product or Initial HomeRun Windows
Driver, then Microsoft shall inform Tut in writing of Microsoft's rejection and
the reason(s) therefore. Tut shall have thirty (30) days to revise and submit
corrected versions of the rejected Initial HomeRun Product(s) and/or Initial
HomeRun Windows Driver(s) to Microsoft for re-testing and acceptance as set
forth above. In the event Microsoft rejects any re-submitted Initial HomeRun
Product(s) and/or Initial HomeRun Windows Driver(s), then Microsoft in its sole
discretion, may elect to either extend the correction period or to terminate
this Licensing and Cooperative Marketing Agreement as set forth in Section
12(b). In the event Microsoft fails to accept or reject within the specified
time flame a particular Initial HomeRun Product(s) and/or Initial HomeRun
Windows Driver(s), such Initial HomeRun Product(s) and/or Initial HomeRun
Windows Driver(s) shall be deemed accepted.
(C) SUBSEQUENT HOMERUN PRODUCTS AND SUBSEQUENT HOMERUN WINDOWS DRIVERS
DEVELOPMENT/MICROSOFT'S TESTING AND ACCEPTANCE OF THE SAME. During the term of
this Licensing and Cooperative Marketing Agreement, Tut agrees to create all
Subsequent HomeRun Products and Subsequent HomeRun Windows Drivers according to
the Timetable. Microsoft hereby agrees to provide Tut, free of charge, with
reasonable amounts of technical support with respect to the creation and port of
any Subsequent HomeRun Windows Drivers. Upon completion of the final versions of
any Subsequent HomeRun Products and Subsequent HomeRun Windows Drivers, Tut
agrees to deliver two (2) copies of each such Product and Driver to Microsoft
for Microsoft's testing and acceptance. Microsoft shall have thirty (30) days
from delivery of the final versions of any Subsequent HomeRun Products and
Subsequent HomeRun Windows Drivers to accept or reject the same. Microsoft's
acceptance of any Subsequent HomeRun Products and Subsequent HomeRun Windows
Drivers shall be based on the Subsequent HomeRun Products and the Subsequent
HomeRun Windows Drivers passing the HomeRun certification program referenced in
Section 4(b) of this Licensing and Cooperative Marketing Agreement, and
Microsoft's quality standards for third party products it endorse. Microsoft
agrees not to unreasonably withhold its acceptance of any Subsequent HomeRun
Products and Subsequent HomeRun Windows Driver(s), If Microsoft rejects a
Subsequent HomeRun Product or a Subsequent HomeRun Windows Driver, then
Microsoft shall inform Tut in writing of Microsoft's rejection and the reason(s)
therefore. Tut shall have thirty (30) days to revise and submit corrected
versions of such Subsequent HomeRun Product(s) and/or Subsequent HomeRun Windows
Driver(s) to Microsoft for re-testing and acceptance as set forth above. In the
event Microsoft rejects any re-submitted Subsequent HomeRun Product(s) and/or
Subsequent HomeRun Windows Driver(s), then Microsoft in its sole discretion, may
elect to either extend the correction period or to terminate this Licensing and
Cooperative Marketing Agreement as set forth in Section 12(b). In the event
Microsoft fails to accept or reject within the specified time frame a particular
Subsequent HomeRun Product(s) and/or Subsequent HomeRun Windows
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Driver(s), such Subsequent HomeRun Product(s) and/or Subsequent HomeRun Windows
Driver(s), shall be deemed accepted.
3. OWNERSHIP OF AND LICENSES TO THE MICROSOFT CREATIONS, TUT CREATIONS AND THE
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JOINT CREATIONS.
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(A) MICROSOFT CREATIONS. Any and all Microsoft Creations shall at all times
remain the sole and exclusive property of Microsoft. Effective upon the delivery
of any Microsoft Creations to Tut, Microsoft shall be deemed to have granted to
Tut a perpetual, irrevocable, non-exclusive, worldwide, royalty free license
under Microsoft's proprietary rights in the Microsoft Creations (a) to make,
use, modify, create derivative works based upon, reproduce, import, distribute,
license, offer to sell, and sell, rent or lease copies of the HomeRun Products,
the HomeRun Windows Drivers and the HomeRun Technology, in source and object
code form, and derivative works thereof based on or containing such Microsoft
Creations, and (b) to license third parties to exercise the foregoing rights,
including the right to license such rights to further third parties. To the
extent that Microsoft believes that any technology existing, being created, or
to be created will qualify as Microsoft Creations, Microsoft will promptly
notify Tut in writing of their belief that such technology will be Microsoft
Creations; in the absence of such a notification, no technology shall be deemed
licensed under this Section 3(a) as Microsoft Creations.
(B) TUT CREATIONS. Any and all Tut Creations shall at all times remain the
sole and exclusive property of Tut, subject only to the license rights therein
granted to Microsoft in Sections 6 and 8 of this Licensing and Cooperative
Marketing Agreement. To the extent that Tut believes that any technology
existing, being created, or to be created will qualify as Tut Creations, Tut
will promptly notify Microsoft in writing of their belief that such technology
will be Tut Creations; in the absence of such a notification, no technology
shall be deemed licensed under this Section 3(b) as Tut Creations.
(C) JOINT CREATIONS. Microsoft and Tut each shall have an undivided, joint
ownership interest in the Joint Creations. Neither party shall be obligated to
pay the other any royalties or other consideration, nor account to the other for
any royalties or other consideration it may receive, for any license,
assignment, sale, lease or other distribution of the Joint Creations, or any
derivative technology thereof. Any derivative technology of the Joint Creations
made independently by the parties shall be owned exclusively by the creator of
such derivative technology. To enable each party to have the joint ownership
rights set forth in this Section 3(c), each party hereby assigns to the other
party an undivided, one-half interest in all right, title and interest in and to
the Joint Creations, including, without limitation, the following:
(i) Any United States copyrights that each such party may possess or
acquire in the Joint Creations and all world-wide copyrights and equivalent
rights in the Joint Creations including all renewals and extensions of such
rights may be secured under the laws now or hereafter in force and effect
in the United States of America or in any other country or countries;
(ii) All worldwide rights in and to any inventions, ideas, designs,
concepts techniques, discoveries or improvements, whether or not
patentable, embodied in Joint Creations, including but not limited to all
trade secrets utility and design patent rights and equivalent rights in and
to such inventions and designs, regardless of whether or not legal
protection for the Joint Creations is sought;
(iii) The right to develop derivative technology from the Joint
Creations with full rights to sublicense others to do the same without
further approval of the other party; and
(iv) The right to sue for intellectual property infringements of the
Joint Creations and the right to collect and retain damages from any such
infringements.
Each party hereby irrevocably and forever waives and agrees never to assert
against the other party or its licensees any or all "moral rights" it may have
in the Joint Creations. Each party shall execute and deliver such instruments
and take such other actions as may be requested by the other party to perfect or
protect their joint ownership of the rights in the Joint Creations, to carry out
the assignments and other activities contemplated in this Section 3(c), and to
assist the other and its nominees in every proper way to secure, maintain,
protect and defend for
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each party's benefit all such rights in the Joint Creations in the United States
and any and all foreign countries. The parties will cooperate with each other in
the filing and prosecution of any copyright or patent applications that the
parties jointly elect to file on the Joint Creations. To the extent either party
believes that any technology being created or to be created will qualify as
Joint Creations, they agree to promptly notify the other party in writing of
their belief that such technology will be Joint Creations.
4. COOPERATIVE MARKETING AND PROMOTION OBLIGATIONS OF THE PARTIES.
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(A) MARKETING EFFORTS. Beginning on the Effective Date, both Microsoft and
Tut agree to undertake the responsibilities and activities set forth in the
Marketing Agreement. In addition, Microsoft and Tut agree to cooperate during
the term of this Licensing and Cooperative Marketing Agreement in defining,
sharing and supporting the creation of white papers, presentations and other
customer-related marketing materials that outline the current or future
implementations of the HomeRun Technology on conventional household electrical
wiring and wireless alternatives. Microsoft and Tut further agree to cooperate
in promoting the HomeRun Technologies and HomeRun Products through mutually
acceptable use of each company's Web site.
(B) HOMERUN TESTING AND CERTIFICATION PROGRAM. Microsoft and Tut agree to
jointly create, within sixty (60) days of Microsoft's acceptance pursuant to
Section 2(b) of the Initial HomeRun Products and the Initial HomeRun Windows
Drivers, a testing and certification program(s) to validate that third parties
achieve compliance with the initial HomeRun Product Specifications (as well as
subsequent specifications developed by the parties for the Subsequent HomeRun
Products) in the implementation of the HomeRun Technology. The final testing and
certification program(s) will be designed by mutual agreement and administered
by Tut with Microsoft's reasonable cooperation. Tut agrees to conform the
Initial HomeRun Products and any Subsequent HomeRun Products with all elements
of the testing and certification programs designed by the parties pursuant to
this Licensing and Cooperative Marketing Agreement.
(C) TUT'S ADDITIONAL MARKETING EFFORTS AND OBLIGATIONS. Tut intends to
distribute the HomeRun Products and Technology in three forms: (i) HomeRun End
User Products, (ii) HIP sales, and (iii) HIP licenses. Tut shall set pricing for
the HomeRun End User Products, including pricing to its original equipment
manufacturers ("OEMs"), at a level to accomplish broad adoption of the HomeRun
End User Products. Tut shall manage and price HICS sales in accordance with
standard industry margins for integrated circuits, and HIP licenses in a
commercially reasonable manner. Tut shall leverage an OEM channel arrangement as
the primary channel for HIP sales and as a channel of distribution for the
HomeRun End User Products. Tut will allocate adequate financial, sales, and
marketing resources to the OEM channel in order to accomplish the foregoing. Tut
further agrees to make commercially reasonable efforts to support the dedicated
pilot projects as outlined in the Marketing Agreement that Microsoft will
initiate in order to showcase the HomeRun Technology and the HomeRun Products.
(D) MICROSOFT'S ADDITIONAL MARKETING EFFORTS AND OBLIGATIONS. Microsoft
agrees to use its OEM relationships to assist Tut in evangelizing the HomeRun
Technology and the HomeRun Products. Microsoft further agrees to assist Tut in
participating in appropriate Trade shows and conferences that Microsoft either
sponsors and/or participates in, provided that Tut shall remain solely
responsible for all fees and costs associated therewith. Additionally, Microsoft
will explore extending discounts to Tut for appropriate space on The Microsoft
Network ("MSN") for HomeRun Technology and HomeRun Product related business,
including but not limited to product literature and technical support Microsoft
agrees that the HomeRun Technology will be the technology that Microsoft
initially promotes for providing home networking Ethernet services over POTS
wiring.
5. TUT'S TECHNICAL SUPPORT OBLIGATIONS WITH RESPECT TO THE HOMERUN PRODUCTS AND
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THE HOMERUN TECHNOLOGY. Tut will at all times remain solely responsible for
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providing all technical support to HICS customers, HIP licensees, OEMs and to
end users of the HomeRun Products. In connection with its technical support, Tut
agrees to assist HICS customers and HIP licensees in the completion of Federal
Communication Commission ("FCC") testing and approval, including but not limited
to documentation (which shall include but is not limited to schematics and
layouts) and consulting as required to assist in the approval of various HomeRun
Technology based product offerings. Tut also agrees to provide technical support
to HICS customers and HIP licensees to aid them in
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obtaining international governmental approvals (i.e., the approval of foreign
country equivalents of the FCC), including but not limited to, documentation
(which shall include but is not limited to schematics and layouts), and
consulting as required to assist in the approval of various HomeRun Technology
based product offerings in key international markets, including but not limited
to the following and any others as mutually agreed upon between Microsoft and
Tut: Asia (the primary markets being Japan, China (including Hong Kong),
Malaysia and Singapore); and Europe (the primary markets being:. England,
France, Germany and Switzerland). Tut further agrees to make commercially
reasonable efforts to provide, free of charge, technical support for dedicated
pilot projects that Microsoft elects to initiate in order to showcase the
HomeRun Technology and the HomeRun Products.
6. TUT'S SPECIFIC OBLIGATIONS AND MICROSOFT'S SPECIFIC RIGHTS WITH RESPECT TO
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THE HR1300HEC TECHNOLOGY.
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(A) TUT'S EFFORTS TO LICENSE THE HR1300HEC TECHNOLOGY. Tut hereby agrees to
use its best efforts to license the right to use the HR1300HEC Technology to the
companies listed on the attached Exhibit G for incorporation into products those
companies will market and sell to end users, specifically including the right to
manufacture their own integrated circuits for inclusion in their own products.
The foregoing licenses shall not, however, be required to include any right on
behalf of such companies to further grant to other third parties sub-licenses or
the right to sell standalone integrated circuits. The per unit royalties for the
HR1300HEC Technology or derivatives or successors to be charged by Tut will be
set by market conditions. Notwithstanding the foregoing, if:
[*]
(iii) at any time during the term of this Licensing and Cooperative
Marketing Agreement, Tut breaches its obligations under Section 9.
then Microsoft shall receive from Tut, a perpetual, irrevocable, non-exclusive,
real, worldwide license under Tut's copyrights, trade secrets, patents and other
intellectual property and proprietary rights (a) to make, use, modify, create
derivative works based upon, reproduce, import, distribute, license, offer to
sell, and sell, rent or lease products based on the HR1300HEC Technology and the
HomeRun Technology, and (b) to grant third parties (excluding, however, those
companies listed in Exhibit H) the right to exercise any of the rights set forth
in (a) above. [*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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[*]
In the event Microsoft is alleging that condition (iii) has occurred, then
Tut shall have thirty (30) days to cure such violation, and, in the absence of a
timely cure, the license grant described in this Section 6(a) shall thereupon
automatically be deemed to have been granted upon Microsoft's giving written
notice to Tut that Microsoft is accepting the license.
The HR1300HEC Technology and the HomeRun Technology that is covered by the
foregoing license shall include, by way of example, the HomeRun reference
designs and all related technical information necessary for producing,
enhancing, modifying, maintaining and supporting the HomeRun Technology,
including source code, mask works and technical specifications, and any updates
thereto created by or for Tut during the term of this Licensing and Cooperative
Marketing Agreement. All technical materials needed by Microsoft to exercise the
foregoing license, including source code, mask works and technical
specifications, shall be delivered to Microsoft within thirty (30) days of the
license coming into effect.
(b) ROYALTY PAYMENTS. In the event the license described in Section 6(a) is
granted to Microsoft, Microsoft agrees to pay Tut a non-recoupable license fee
of [*] within thirty (30) days of the license becoming effective and a royalty
of [*] for each unit of product sold by Microsoft or any of its sublicenses or
used by Microsoft or its sublicensees for business operations not related to the
testing and production of products based upon this license, or any lower per
unit royalty that is then being paid by any other Tut licensee. All payments due
pursuant to the license granted Microsoft in Section 6(a) subsequent to the One
Million Dollar non-recoupable license fee shall be made within forty five (45)
days after the end of each calendar quarter with respect to which Microsoft owes
Tut any royalties. Microsoft shall furnish Tut a statement together with payment
for any amount shown thereby to be due to Tut. The royalty statement shall
contain information sufficient to discern how the royalty payment was computed.
In no event shall the license described in Section 6(a) come into effect before
Microsoft affirmatively states in writing that it accepts the license and
believes that either of both conditions (i) or (ii) described in Section 6(a)
has occurred.
(c) AUDIT RIGHTS. During the time period Microsoft is exercising the
license rights granted in Section 6(a) and for three (3) years thereafter,
Microsoft agrees to keep all usual and proper records and books of account and
all usual and proper entries relating to HR1300HEC Technology efficient to
substantiate the number of copies of products based on the HR1300HEC Technology
distributed or otherwise disposed of by or for Microsoft. Microsoft shall
maintain such records for itself and for each Microsoft licensee which exercises
rights under this Licensing and Cooperative Marketing Agreement. In order to
verify statements issued by Microsoft and Microsoft's compliance with the terms
of this Licensing and Cooperative Marketing Agreement, upon thirty (30) days
prior written notice to Microsoft, Tut may cause an audit to be made of
Microsoft books and records. Any audit and/or inspection shall be conducted
during regular business hours at Microsoft's facilities. Any audit shall be
conducted by a nationally recognized independent certified public accountant
selected by Tut (other than on a contingent fee basis). Microsoft agrees to
provide Tut's designated audit or inspection team access to the relevant
Microsoft records. Prompt
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Page 7 of 40
adjustment shall be made to compensate for any errors or omissions disclosed by
such audit. Any such audit shall be paid for by Tut unless material
discrepancies are disclosed. "Material" shall mean more than five percent (5%)
of the amount that was reported. If material discrepancies are disclosed,
Microsoft agrees to pay Tut for the reasonable costs associated with the audit.
In no event shall audits be made more frequently than annually, and in no event
shall more than three (3) previous years be auditable.
7. MICROSOFT'S LICENSE GRANT TO TUT WITH RESPECT TO THE WINDOWS PRODUCTS.
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Microsoft hereby grants to Tut during the term of this Licensing and Cooperative
Marketing Agreement, a personal, non-transferable, worldwide, limited license to
reproduce and internally use in object code form, copies of the Windows Products
solely as reasonably required for Tut to undertake the HomeRun Product and
HomeRun Windows Driver development and testing described herein. Tut's use of
copies of the Windows Products shall at all time be in accordance with the terms
and conditions of the End User License Agreement which normally accompanies such
products. Upon termination of this Licensing and Cooperative Marketing Agreement
for any reason, Tut shall return to Microsoft or destroy all copies of the
Windows Products made pursuant to this Section 7.
8. TUT'S LICENSE GRANT TO MICROSOFT WITH RESPECT TO THE HOMERUN WINDOWS DRIVERS.
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Upon Microsoft's acceptance of a particular HomeRun Windows Driver pursuant to
Section 2(b) or (c), Tut shall be deemed to have granted to Microsoft, a
perpetual, irrevocable, non-exclusive, worldwide, royalty-free license under
Tut's copyrights, trade secrets, patents and other intellectual property and
proprietary rights (a) to make, use, modify, create derivative works based upon,
reproduce, import, distribute, license, offer to sell, and sell, rent or lease
copies of the HomeRun Windows Driver, in source and object code form, and
derivative works thereof; and (b) to license third parties to exercise the
foregoing rights, including the right to license such rights to further third
parties. Tut agrees to immediately deliver to Microsoft upon request, the source
code for any HomeRun Windows Driver. In the event Microsoft has accepted a given
HomeRun Windows Driver and its associated HomeRun Product, then Microsoft agrees
to use commercially reasonable efforts to incorporate that HomeRun Windows
Driver in the next major release of the applicable Windows Products.
9. COVENANTS. In partial consideration for the assistance Microsoft will be
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providing to the development of the HomeRun Technology, Tut agrees for a
period of three (3) years from the Effective Date that Microsoft shall be the
preferred operating system developer or operating system vendor with
authorized access to information regarding the behavior of the algorithms and
the software code underlying the HomeRun Technology and the HomeRun Products.
[*] In the event that either the IEEE or ANSI elect at any time during the
three year period to standardize the HomeRun Technology, then upon such
standard becoming effective, the restrictions set forth above will
automatically terminate; provided, however, that any material provided to Tut
by Microsoft pursuant to Section 3 of this Licensing and Cooperative Marketing
Agreement, shall remain at all times Microsoft proprietary and confidential
information and no Microsoft confidential information shall be disclosed to
IEEE or ANSI without Tut having received Microsoft's prior written permission
for such disclosure. Without limiting Microsoft's remedies hereunder, the
parties expressly agree that Microsoft may enforce the provisions of this
Section 9 by specific performance in an action for injunctive or other
equitable relief.
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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10. PROMOTION AND PUBLIC ANNOUNCEMENT. Except as expressly set forth in the
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Marketing Agreement, the parties agree that the contents of all press releases
or other public announcements or disclosure concerning the Transaction Documents
and the relationship between the parties shall be made only with the consent of
Tut and Microsoft prior to the release thereof. The foregoing notwithstanding,
each party reserves the right to make such disclosures, whether in public
filings or otherwise, as may be necessary in the judgment of such party's legal
counsel and independent auditors after prior consultation with the other party
with respect thereto, provided such party and its legal counsel and independent
auditors comply at all times with the provisions of Section 1l of this Licensing
and Cooperative Marketing Agreement.
11. CONFIDENTIALITY. All confidential information disclosed by either party
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pursuant to this Transaction Documents, along with the terms and conditions of
the Transaction Documents, shall be subject to the Non Disclosure Agreement
dated August 29, 1996 between the parties, as modified by Section l0 of this
Licensing and Cooperative Marketing Agreement.
12. TERM AND TERMINATION.
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(A) TERM. This Licensing and Cooperative Marketing Agreement shall take
effect on the Effective Date and shall continue in effect for a period of two
(2) years unless such term is renewed by mutual agreement of the parties or is
terminated in accordance with this Licensing and Cooperative Marketing
Agreement.
(B) TERMINATION BY MICROSOFT PURSUANT TO SECTIONS 2(b) AND (c). In the
event Microsoft rejects a resubmitted HomeRun Product and/or HomeRun Windows
Driver pursuant to either Section 2(b) or 2(c) and elects in its discretion to
terminate this Licensing and Cooperative Marketing Agreement rather than grant
an extension to the correction period, then any such decision by Microsoft to
terminate this Licensing and Cooperative Marketing Agreement shall be effective
immediately upon Microsoft's giving written notice of its election to terminate.
(C) TERMINATION BY EITHER PARTY FOR CAUSE. Either party may terminate this
Licensing and Cooperative Marketing Agreement immediately upon written notice at
any time if the other party is in material breach of Licensing and Cooperative
Marketing Agreement and fails to cure such breach within thirty (30) days after
written notice thereof.
(D) SURVIVAL/OBLIGATIONS UPON EXPIRATION OR TERMINATION. sections 1, 3, 5,
8, 11, 14, 15 and 16 shall survive any expiration of this Licensing and
Cooperative Marketing Agreement or the termination of this Licensing and
Cooperative Marketing Agreement pursuant to either Section 12(b) or (c). If the
license referenced in Section 6 has been granted to Microsoft prior to either
the natural expiration of this Agreement or a termination of this Agreement by
either party, then Section 6 shall also survive such expiration or termination.
If the license referenced in Section 6 has not been granted at the expiration or
termination of this Agreement, then Section 6 will only survive if the cause of
termination is a termination by Microsoft pursuant to either Section 12(b) or
(c). Furthermore, Section 9 shall only survive in the event of either the
natural expiration of this Agreement or a termination of this Agreement by
Microsoft pursuant to either Section 12(b) or (c).
13. REPRESENTATIONS WARRANTIES AND COVENANTS.
----------------------------------------
(A) BY TUT. Tut represents, warrants and covenants that:
(i) This Licensing and Cooperative Marketing Agreement, the Warrant
Purchase and Equity Rights Agreement and all related agreements are legal,
valid and binding agreements of Tut, each enforceable against Tut in
accordance with its terms.
(ii) No work or materials Tut develops, acquires or uses in connection
with its performance under Licensing and Cooperative Marketing Agreement,
including without limitation the HomeRun
Page 9 of 40
Technology, the HomeRun Products, the HomeRun Windows Drivers, and the
HomeRun logo (if any), shall (i) infringe any copyright, patent, trade
secret, trademark, moral right, or other proprietary or personal right held
by any third party, (ii) contain any defamatory or unlawful statements, or
(iii) contain any instructions that may cause harm or injury.
(iii) All obligations owed to third parties with respect to the
HomeRun Technology, the HomeRun Products, the HomeRun Windows Drivers, and
the HomeRun logo (if any) and Microsoft's exercise of any rights therein as
may be authorized in this Licensing and Cooperative Marketing Agreement,
including, but not limited to, any payment of fees owed to third parties
for the exercise of such rights, have been or will be satisfied and/or
paid, and that Microsoft and its licensees shall in no event have any
obligations with respect to any such third party fees.
(iv) Tut will carry out its obligations hereunder in a professional
manner and its work will be of a high grade, nature, and quality.
(v) There is no pending or threatened claim or other dispute or
investigation of any nature whatsoever concerning, affecting or relating to
Tut or any of its property, which could result in a liability of Tut for
$100,000 or more.
(vi) Tut has not made any agreement or taken any action that may have
caused any person or entity to become entitled to a commission or finder's
fee as a result of or in connection with the Transaction Documents.
(B) BY MICROSOFT. Microsoft represents, warrants and covenants that:
(i) This Licensing and Cooperative Marketing Agreement, the Warrant
Purchase and Equity Rights Agreement and all related agreements are legal,
valid and binding agreements of Microsoft, each enforceable against
Microsoft in accordance with its terms.
(C) RELIANCE. The representations, warranties and covenants contained in
this Licensing and Cooperative Marketing Agreement shall be deemed to have been
relied upon by Microsoft and Tut respectively, regardless of any investigation
made by Microsoft or Tut, and shall survive any expiration or termination of
this Licensing and Cooperative Marketing Agreement, the Warrant Purchase and
Equity Rights Agreement or any related agreement. THE REPRESENTATIONS AND
WARRANTIES MADE IN THIS SECTION 13 ARE THE ONLY REPRESENTATIONS AND WARRANTIES
MADE BY THE PARTIES AND ALL OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION,
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY
DISCLAIMED.
14. INDEMNITY. Tut shall indemnify, pay the defense costs of, and hold Microsoft
---------
and its successors, officers, directors, employees and licensees harmless from
any and all actions, causes of action, claims, demands, costs, losses,
liabilities, expenses and damages (including reasonable attorneys' fees) arising
out of or in connection with any claim which, if true, would represent a breach
by Tut of any of its representations, warranties, covenants or obligations under
this Licensing and Cooperative Marketing Agreement or any related agreement.
Microsoft agrees to consult with Tut with respect to the defense of any such
actions, causes of action, claims or demands, provided that Microsoft shall at
all times remain in the control of the defense of such actions, causes of
action, claims, demands. Tut shall reimburse Microsoft on demand for any payment
made by Microsoft in respect of any liability or claim to which the foregoing
indemnity relates, and which has resulted in an adverse judgment against
Microsoft or has been settled with the written consent of Tut. Prompt notice
shall be given to Tut of any claim to which the foregoing indemnity relates.
Nothing in this section is intended to limit or shall limit any obligation of
Tut to Microsoft.
Page 10 of 40
15. NOTICES. All notices, requests, demands, consents and other communications
-------
required or permitted hereunder will be in writing and will be deemed to have
been duly given when personally delivered m an officer of each party, or when
such notice is received, certified mail return receipt requested, first-class
postage prepaid, or when such notice is received by overnight commercial
courier, by the intended recipient at the address specified below:
TO TUT: TO MICROSOFT:
- ------ ------------
Tut Systems, Inc. Microsoft Corporation
2495 Estrand Way One Microsoft Way
Pleasant Hill, CA 94523-3911 Redmond, Washington, 98052-6399
Attn.: Nelson Caldwell Attn.: Group Vice President, Platforms
Telephone: 510 682-6510 Telephone: (206) 882-8080
Fax: 510 682-4125 Fax: (206) 936-7409
In all cases copies shall be sent to:
- ------------------------------------
Wilson, Sonsini, Goodrich & Rosati Microsoft Corporation
650 Page Mill Road One Microsoft Way
Palo Alto, California 94304 Redmond, Washington, 98052-6399
Attn.: Jeff Herbst Attn: Law & Corporate Affairs
Telephone: 650 493-9300 Telephone: (206) 882-8080
Fax: 650 493-6811 Fax: (206) 936-7409
or to such other address as a party may from time to time designate in writing
by written notice to the other
party.
16. MISCELLANEOUS.
-------------
(a) NO PARTNERSHIP. Nothing in this Licensing and Cooperative Marketing
Agreement or the Warrant Purchase and Equity Rights Agreement shall be construed
as creating an employer-employee relationship, a partnership, a franchise, or a
joint venture between the parties.
(b) GOVERNING LAW AND VENUE/ATTORNEYS' FEES. This Licensing and Cooperative
Marketing Agreement shall be governed by the laws of the State of Washington and
Tut consents to jurisdiction and venue in the state or federal courts sitting in
King County, Washington. In any action or suit to enforce any right or remedy
under this Licensing and Cooperative Marketing Agreement or to interpret any
provision of this Licensing and Cooperative Marketing Agreement, the prevailing
party shall be entitled to recover its costs, including reasonable attorneys'
fees.
(c) SEVERABILITY. In the event that any provision of this Licensing and
Cooperative Marketing Agreement is found invalid or unenforceable pursuant to
judicial decree or decision, the remainder of this Licensing and Cooperative
Marketing Agreement shall remain valid and enforceable according to its terms.
The parties intend that the provisions of this Licensing and Cooperative
Marketing Agreement be enforced to the fullest extent permitted by applicable
law.
(d) PROHIBITION ON ASSIGNMENT. This Licensing and Cooperative Marketing
Agreement shall not be assigned in whole or in any part by Tut except to a
purchaser or assignee of the HomeRun Technology or to a successor in interest.
This Licensing and Cooperative Marketing Agreement shall not be assigned in
whole or in any part by Microsoft except to a subsidiary or affiliate under the
direct control of Microsoft.
(e) NO OFFER. This Licensing and Cooperative Marketing Agreement does not
constitute an offer by either party and it shall not be effective until signed
by both parties. This Licensing and Cooperative Marketing Agreement and the
Warrant Purchase and Equity Rights Agreement constitutes the entire agreement
between the parties with respect to all subject matter hereof and merges all
prior and contemporaneous communications. It shall
Page 11 of 40
not be modified except by a written agreement dated subsequent to the date of
this Licensing and Cooperative Marketing Agreement and signed on behalf of Tut
and Microsoft by their respective duly authorized representatives.
(F) MODIFICATION; WAIVERS. This Licensing and Cooperative Marketing
Agreement may be modified or amended only with the written consent of Microsoft
and Tut. Except as otherwise specifically provided herein, no delay on the part
of either party hereto in exercising any right, power or privilege hereunder
will operate as a waiver thereof; nor will any waiver on file part of either
party hereto of any right, power or privilege hereunder operate as a waiver of
any other fight, power or privilege hereunder, nor will any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
IN WITNESS WHEREOF, the parties have executed this Licensing and Cooperative
Marketing Agreement as of the dates shown below.
MICROSOFT CORPORATION TUT SYSTEMS, INC.
By (Sign) /s/ Paul Maritz By (Sign) /s/ Matthew Taylor
------------------- ---------------------
Name (Print) Paul Maritz Name (Print) Matthew Taylor
---------------- ------------------
Title Group VP Title Chairman
----------------------- -------------------------
Date 8/27/97 Date 8/27/97
------------------------ --------------------------
Page 12 of 40
EXHIBIT A
---------
DESCRIPTION OF THE HOMERUN TECHNOLOGY
-------------------------------------
HomeRun enables a home-based 1.3 Mbps Ethernet LAN using existing single-pair
residential wiring. External or internal PC card HomeRun network adapters
connect between the computer and any standard RJ-11 telephone jack. HomeRun uses
frequency division multiplexing, allowing networking signals and standard
telephone service to co-exist transparently on the same wires. HomeRun supports
most wiring topologies with less than 500 feet between any two devices. HomeRun
does not require any special terminations, filters or splitters. The core
HomeRun technologies consist of Time Modulation line code (TM32), noise
suppression circuits, and collision sensors.
HOME SCENARIO HIGHLIGHTING THE HR1300T EXTERNAL ADAPTER
[FLOORPLAN OF HR1300T APPEARS HERE]
HOME SCENARIO SHOWING HR1300ISA NETWORK INTERFACE CARDS
[FLOORPLAN OF HR1300ISA NETWORK INTERFACE CARDS APPEARS HERE]
Page 13 of 40
EXHIBIT B
---------
DESCRIPTION OF THE HR1300HEC TECHNOLOGY
---------------------------------------
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT C
---------
INITIAL HOMERUN PRODUCT SPECIFICATIONS
--------------------------------------
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT D
---------
SUBSEQUENT HOMERUN PRODUCTS TO BE DEVELOPED BY TUT UNDER THIS AGREEMENT
-----------------------------------------------------------------------
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT E
---------
MARKETING AGREEMENT
OVERVIEW
- --------
HomeRun's ability to use the existing residential wiring as a home LAN will
assist. Microsoft in its goal of information-sharing solutions in home networks.
Microsoft's Consumer Windows Group ("CWG") will work with Tut to incorporate
their joint message into the marketing programs for products that can take
advantage of Tut technology
ELEMENTS OF THE MARKETING AGREEMENT
- -----------------------------------
Microsoft and Tut agree that the following list constitutes the four general
areas in which the companies will focus on working together:
1. MEDIA RELATIONS - publicize the product offerings and the companies'
relationship (Tut's position as a Microsoft key consideration for in-home
networking over residential wiring).
2. WEBSITE LINKAGE - create references to Tut's products and embed links to
Tut's web site at appropriate location(s) on Microsoft's website to inform
customers about Tut's HomeRun Product
3. GENERAL MARKETING - introduce Tut to key channels and field contacts within
Microsoft
4. SPECIFIC PRODUCT MARKETING ACTIVITIES - execute marketing activities around
Tut's HomeRun
MUTUAL MARKETING OBLIGATIONS
- ----------------------------
The following are activities that both parties will commit to on behalf of the
marketing agreement:
MEDIA RELATIONS
. Both parties will provide their respective public relations agency product
information on Tut and related Microsoft systems products, as the case may
be, to satisfy requests for information.
. Both parties will participate in joint calls regarding the companies'
relationship and the products to a mutually agreed upon set of press
representatives, industry analysts, and product reviewers.
. Both parties will provide a general quote to be used in their respective
general media relations' activities.
. Both parties will include each other's products in PR talking points, as
appropriate.
. Both parties will incorporate their respective product information (one-
page fact sheet) in appropriate press briefing materials
GENERAL MARKETING
. CWG will attempt to include Tut in one or more Microsoft Partner Pavilions
at appropriate trade shows, e.g. N+I, with expenses paid by Tut.
. CWG will send email introducing Tut to key Microsoft sales/channel
contacts.
. Both parties will include an announcement of their cooperation in
appropriate activities announcements
WEB SITE
. Both parties' websites will publish content provided by each other such as
products, case studies, and white papers, subject to mutual approval, or
will provide link to such content on their respective site.
. Both parties website will provide reference to their respective products
or related efforts on an appropriate page
SPECIFIC PRODUCT MARKETING ACTIVITIES
. In order to facilitate progress in home networking, CWG agrees to provide
introduction and appropriate assistance in approaching the following OEM
and potential cooperative parties in the specified time frame, whereas Tut
will make any commercially reasonable effort to engage these companies for
their respective products/technology.
Page 18 of 40
. Compaq
. International Business Machines
. Intel
--------------------
. Philips
. Sony
. AT&T Wireless Services
. HP
. Mitsubishi
--------
. AT&T Worldnet
. Cisco
. Dell
. Gateway
. GTE
. Hughes Direct TV
. Hybrid Networks
. NEC
. Nynex
. 3 Com
. Toshiba
. US West
. Worldcom
. Bell Atlantic
. TCI
. Comcast
. Pilot HomeRun Product Installations
. Microsoft will cooperate with Tut Systems on a showcase installation of
Initial HomeRun Products, and in addition Microsoft will cooperate with
Tut Systems on a minimum of two additional demonstration implementations
of Initial HomeRun Products.
Page 19 of 40
Sales Tools
- -----------
. Microsoft and/or Tut, as case may be, will use commercially reasonable
efforts to provide or deliver the following Sales Tools, as described below:
- ------------------------------------------------------------------------------------------------------------------------------------
SALES TOOL DESCRIPTION AUDIENCE OWNER DATE
- ------------------------------------------------------------------------------------------------------------------------------------
Web Site Section of tutsys.com and microsoft.com OEMs, SPs, ISPs Tut, MS Within 90 days of
featuring product information and Effective Date
cross-references
- ------------------------------------------------------------------------------------------------------------------------------------
Demonstration Web Site demonstration, script to highlight OEMs, SPs Tut October 1997
key features of HomeRun product, related
technology
- ------------------------------------------------------------------------------------------------------------------------------------
Evaluation Demonstration versions of HomeRun OEMs
versions of products(HR 1300 ISA and HR 1300 T) for Tut September 1997
HomeRun Product evaluation and demonstration purposes
- ------------------------------------------------------------------------------------------------------------------------------------
Datasheet Product positioning and information. OEMs, VARs Tut October 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Strategy White MS and TUT will jointly draft a Home OEMs SPs Tut & MS October 1997
Paper Networking, Connectivity Strategy White Paper
- ------------------------------------------------------------------------------------------------------------------------------------
Reviewers Guide Complete description of HomeRun product OEMs SPs Tut November 1997
features in the context of CWG activities January 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Deployment Guide Deployment Guide for residential customers: SPs, ISPs Tut/MS January 1998
how to plan, and implement this technology
- ------------------------------------------------------------------------------------------------------------------------------------
Training materials In-depth technical training materials that SPs Tut/MS November 1997
will outline installation, troubleshooting,
upgrades, etc. for Solution Providers or any
other entities that will install and/or
service this technology
- ------------------------------------------------------------------------------------------------------------------------------------
Case Studies Case study to be based on initial HomeRun SPs, ISPs Tut/MS February 1998
product installations, such as those noted
above
- ------------------------------------------------------------------------------------------------------------------------------------
Business High level guide for this category of SPs, ISPs Tut/MS November 1997
Managers Guide technology and/or installations,
for services
- ------------------------------------------------------------------------------------------------------------------------------------
Page 20 of 40
EXHIBIT F
---------
TIMETABLE
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT G
---------
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT H
---------
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT I
---------
WARRANT PURCHASE AND EQUITY RIGHTS AGREEMENT
THIS WARRANT PURCHASE AND EQUITY RIGHTS AGREEMENT dated August 28/th/, 1997
(the "Warrant Purchase and Equity Rights Agreement"), is made by and between TUT
SYSTEMS, INC., a California corporation (the "Corporation"), and MICROSOFT
CORPORATION, a Washington corporation ("Microsoft").
WHEREAS, the Corporation wishes to sell to Microsoft, and Microsoft wishes
to acquire from the Corporation, a Series G Preferred Stock Purchase Warrant, in
the form of Attachment 1 (the "Warrant"), to purchase an aggregate of 2,667,343
shares of Series G Preferred Stock, of the Corporation, upon the terms and
conditions hereinafter set forth.
WHEREAS, the Warrant is being issued to Microsoft in connection with the
Licensing and Cooperative Marketing Agreement dated the date hereof, between the
Corporation and Microsoft (the "Licensing and Cooperative Marketing Agreement").
NOW THEREFORE, in consideration of the mutual benefits to be derived from
this Warrant Purchase and Equity Rights Agreement and of the representations,
warranties, conditions and promises hereinafter contained, the parties hereby
agree as follows:
ARTICLE I
ISSUANCE OF WARRANT
Simultaneously herewith, the Corporation is issuing and delivering the
Warrant to Microsoft as an inducement to and in consideration of Microsoft
entering into the Licensing and Cooperative Marketing Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to Microsoft and agrees that:
2.1 Organization; Good Standing The Corporation is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of its business or the
ownership of its property makes such qualification necessary, except where the
failure to be so qualified will not have a material adverse effect on the
Corporation, and has the corporate power and authority to own and lease its
properties, to carry on its business as presently conducted, and to execute,
deliver and perform its obligations under this Warrant Purchase and Equity
Rights Agreement and the Warrant.
2.2. Due Authorization The execution, delivery and performance of this
-----------------
Warrant Purchase and Equity Rights Agreement and the Warrant have been duly
authorized by all requisite corporate action by the Corporation and will not
violate or result in a breach of any provision of any law, statute, rule or
regulation, any order of any court or other agency, the Certificate of
Incorporation (the "Charter") or Bylaws of the Corporation (the "Bylaws") or any
other agreement or understanding, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon the properties or
assets of the Corporation.
2.3. Binding Obligation; No Consents This Warrant Purchase and Equity
-------------------------------
Rights Agreement and the Warrant have been duly executed and delivered by the
Corporation and constitute valid and legally binding obligations of the
Corporation, enforceable in accordance with their respective terms. No
registration or filing with, or consent or approval of, or other action by, any
Federal, state or other governmental department, commission, board, bureau,
agency or instrumentality or any third party is necessary for the execution,
delivery and performance of this Warrant Purchase and Equity Rights Agreement or
the Warrant or for the issuance of the shares of Common
Page 25 of 40
Stock issued upon exercise of the Warrant (the "Warrant Shares") other than
those required under applicable federal and state securities laws (the
"Securities Consents and Filings"). The Corporation covenants and agrees to make
and obtain all required Securities Consents and Filings within the applicable
statutory periods prescribed for such consents and filings.
2.4. Capitalization The authorized capital stock of the Corporation
--------------
consists of 30,000,000 shares of Preferred stock, of which 24,810,612 million
shares are issued and outstanding on the date hereof; and 45,000,000 shares of
Common Stock, of which 678,676 shares (excluding nominal shares issued in
exercise of employee options since July 25, 1997) are issued and outstanding on
the date hereof. All of the issued and outstanding shares of capital stock have
been duly authorized and validly issued and are fully-paid and non-assessable,
and there are no preemptive rights or cumulative voting rights with respect
thereto. On the date hereof, 1,248,691 shares of Common Stock were reserved for
future issuance under the Corporation's employee stock option plan (the "Plan").
On the date hereof there were no outstanding options, warrants, or other
securities convertible into or exchangeable for shares of the Corporation's
equity securities other than options outstanding under the Plan.
2.5. Litigation, Etc There are no material (i) actions, suits, claims,
---------------
investigations or legal or administrative proceedings pending against the
Corporation or any of its subsidiaries relating to or affecting the Corporation,
whether at law or in equity, or before or by any governmental authority or
arbitrator, which if determined adversely against the Corporation or any of its
subsidiaries could reasonably be expected to materially adversely affect the
business, results of operations, financial condition, assets, liabilities or
prospects of the Corporation and its subsidiaries, taken as a whole, or
(ii) judgments, decrees, injunctions or orders of any governmental authority or
arbitrator against the Corporation or any of its subsidiaries that could
reasonably be expected to materially adversely affect the business, results of
operations, financial condition, assets, liabilities or prospects of the
Corporation and its subsidiaries, taken as a whole.
2.6. Financial Information. The Corporation has delivered to Microsoft
---------------------
copies of the Company's audited financial statements at and for the years ended
December 31, 1994, 1995 and 1996 and unaudited financial statements for each of
the first two full quarters of 1997 (collectively, the "Financial Statements").
The Financial Statements arc complete and correct, in accordance with the books
and records of the Corporation and present fairly the financial condition and
results of operations of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied, with the exception that the
unaudited interim financial statements omit footnotes and typical year end
adjustments necessary for compliance with GAAP.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MICROSOFT
Microsoft represents and warrants to the Corporation that:
3.1. Organization Microsoft is a corporation duly organized validly
------------
existing and in good standing under the laws of the State of Washington and has
the corporate power and authority to execute, deliver and perform its
obligations under this Warrant Purchase and Equity Rights Agreement
3.2. Due Authorization The execution, delivery and performance of this
-----------------
Warrant Purchase and Equity Rights Agreement have been duly authorized by all
requisite action by Microsoft.
3.3. Binding Obligation; No Consents This Warrant Purchase and Equity
-------------------------------
Rights Agreement constitutes a valid and legally binding obligation of
Microsoft, enforceable in accordance with its terms. No registration or filing
with, or consent or approval of, or other action by, any Federal, state or other
governmental department, commission, board, bureau, agency or instrumentality or
any third party is necessary for the execution, delivery and performance of this
Warrant Purchase and Equity Rights Agreement by Microsoft.
3.4. Investment Representations
--------------------------
Page 26 of 40
(a) Microsoft is acquiring the Warrant hereunder and will acquire
Warrant Shares upon the exercise of the Warrant for its own account, for
investment and not with a view to the distribution thereof.
(b) Microsoft understands that the Warrant and Warrant Shares will not
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act and that they must be held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from registration.
(c) Microsoft understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to Microsoft)
promulgated under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for sales
under certain circumstances and only in limited amounts.
(d) Microsoft is an "accredited investor" (as such term is defined in
Rule 501(a) promulgated under the Securities Act).
ARTICLE IV
COVENANTS OF THE CORPORATION
The Corporation hereby covenants and agrees with Microsoft as follows:
4.1 Shareholder Rights Agreement. Upon the execution of the Warrant,
----------------------------
Microsoft shall become a party to the Third Amended and Restated Shareholders'
Rights Agreement dated as of July 1, 1996, by and among the Company and the
persons or entities who are signatories thereto (the "Rights Agreement"), or any
substitute or successor agreement thereto which is substantially similar to the
Rights Agreement, with full rights as a "Shareholder" thereunder.
4.2 Right of First Refusal on Sale of Corporation. During the period
---------------------------------------------
commencing on the date hereof and ending on the earlier to occur of (1) the
closing of an underwritten initial public offering of the Company's common stock
and (2) the later to occur of (i) the natural termination of the Licensing and
Cooperative Marketing Agreement and (ii) the termination of the survival of
Section 9 of the Licensing and Cooperative Marketing Agreement (the "Refusal
Period"), in the event that the Corporation or any shareholder, officer,
director, agent, representative or affiliate which individually or together with
any other Person (as defined below) or group controls the Corporation (each a
"Control Person" and collectively, the "Control Persons") receives an offer from
any Person set forth on Exhibit I to the Licensing and Cooperative Marketing
Agreement (each a "Specified Person" and collectively, the "Specified Persons")
to engage in an Acquisition Transaction (as defined below), the Corporation
shall promptly notify Microsoft in writing of such offer along with all of the
material terms and conditions thereof; including, but not limited to, the
identity of the offeror, nature of the transaction, price, nature of the
consideration and timing for closing. During the term of this Warrant Purchase
and Equity Rights Agreement, the Corporation shall use all commercially
reasonable efforts to ensure that none of the Control Persons takes or causes or
permits any Person to take, directly or indirectly, any of the following actions
with any Specified Person unless such actions concurrently are undertaken with
Microsoft: solicit, encourage, initiate or participate in any negotiations,
inquiries or discussions with respect to any offer or proposal to acquire all or
any significant part of the Corporation's business, assets (including its
HomeRun Technology (as defined in the Licensing and Cooperative Marketing
Agreement)), stock or other equity interest, whether by merger, consolidation,
other business combination, purchase of assets, tender or exchange offer or
otherwise (each of the foregoing, an "Acquisition Transaction"). If at any time
during the Refusal Period the Corporation (or to the extent the Corporation is
able to influence them, the Control Persons) should desire to enter into or
execute any agreement with any Specified Person relating to an Acquisition
Transaction, the Corporation (or to the extent the Corporation is able to
influence them, the Control Persons) shall first offer Microsoft the same
opportunity proposed with respect to the Specified Person, and if Microsoft
agrees to substantially the same economic terms and conditions proposed with
respect to such Specified Person within thirty (30) days after Microsoft's
receipt of written notice of such opportunity, then the Corporation (and/or each
Page 27 of 40
applicable Control Person) will enter into or execute such proposed agreement
with Microsoft rather than the respective Specified Person. For purposes of this
Warrant Purchase and Equity Rights Agreement, the term "Person" shall mean any
general partnership, limited partnership, corporation, limited liability
company, joint venture, trust, business trust, governmental agency, co-
operative, association, individual or other entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such a Person
as the context may require.
4.3 Information and Board Observer. Immediately upon exercise of the
------------------------------
Warrant and for so long as Microsoft owns Warrant Shares (as defined in the
Warrant), or securities issued upon conversion or exchange thereof, representing
at least 50% of the total Warrant Shares for which rights to re vest under
Section 1.1 of the Warrant: (a) the Corporation will provide to Microsoft copies
of all correspondence, documents and other information and materials provided to
members of the Corporation's board of directors in connection with their service
as directors; (b) the Corporation will make available to Microsoft copies of all
correspondence, documents and other information and materials made available to
members of the Corporation's board of directors in connection with their service
as directors; and (c) the Corporation will notify Microsoft of all meetings
(official and unofficial) of the Corporation's board of directors (and all
meetings, official and unofficial, of any committee of such board), in the same
manner and at the same time as the Corporation notifies the members of said
board (or committee, if applicable), and the Corporation will permit a
representative of Microsoft, designated by Microsoft, to attend all such
meetings as an observer. Prior to disclosure of any confidential and proprietary
information disclosed to Microsoft's designated board meeting representative
pursuant to this Section 4.3, such representative will enter into a
confidentiality and non-disclosure agreement reasonably acceptable to the
Corporation and Microsoft.
ARTICLE V
MISCELLANEOUS
5.1. Amendment, Modification or Waiver This Warrant Purchase and Equity
---------------------------------
Rights Agreement shall not be altered or otherwise emended except pursuant to an
instrument in writing signed by each of the parties hereto.
5.2. Entire Agreement; Content of Exhibits This Warrant Purchase and
-------------------------------------
Equity Rights Agreement, the Exhibits attached hereto and the Licensing and
Cooperative Marketing Agreement contain the entire agreement of the parties with
respect to the transactions contemplated hereby and thereby and supersede all
prior agreements or understandings among the parties with respect thereto.
5.3. Descriptive Headings Descriptive headings are for convenience only
--------------------
and shall not control or affect the meaning or construction of any provision of
this Warrant Purchase and Equity Rights Agreement.
5.4. Counterparts This Warrant Purchase and Equity Rights Agreement may be
------------
executed in two counterparts, and each such counterpart hereof shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one agreement.
5.5. Governing Law This Warrant Purchase and Equity Rights Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of
California, without regard to its conflicts of laws principles.
5.6. Benefits of Agreement All the terms and provisions of this Warrant
---------------------
Purchase and Equity Rights Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
Page 28 of 40
assigns. Anything contained herein to the contrary notwithstanding, this Warrant
Purchase and Equity Rights Agreement shall not be assignable by any party hereto
without the consent of the other party hereto.
IN WITNESS WHEREOF, each of the parties has caused this Warrant Purchase
and Equity Rights Agreement to be executed on its behalf as of the date first
above written.
TUT SYSTEMS, INC.
By /s/ Matthew Taylor
------------------------------
Name: Matthew Taylor
Title: Chairman
MICROSOFT CORPORATION
By /s/ Paul Maritz
------------------------------
Name: Paul Maritz
Title: Group V.P.
Page 29 of 40
ATTACHMENT 1
------------
WARRANT
-------
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR
OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE
UNLESS (A)SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES'
LAW, OR (B)THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAW.
WARRANT NO. M-1 AUGUST 27, 1997
TUT SYSTEMS, INC.
SERIES G PREFERRED STOCK PURCHASE WARRANT
Tut Systems, Inc., a California corporation (the "Company"), hereby grants
to Microsoft Corporation, a Washington corporation ("Microsoft"), or its
registered assigns or transferees (Microsoft and each such assign or transferee
being referred to herein as a "holder" and collectively as the "holders") the
right to purchase, at any time and from time to time on and after the date
hereof until the earliest to occur of (i) five years from Original Issue Date,
(ii) the closing of any consolidation or merger of the Company with another
entity in which the Company is not the surviving entity or the sale of all or
substantially all of the Company's assets to another person or entity (a "Sale
Transaction") or (iii) the closing of an underwritten initial public offering of
the Company's Common Stock (the "IPO") (the "Expiration Date"), up to 2,667,343
fully paid and non-assessable shares of Series G Preferred Stock of the Company
(the "Preferred Stock"), on the terms and subject to the conditions set forth
below. The Company shall be obligated to provide holder with written notice of
any Sale Transaction or IPO at least 30 days prior to closing or consummation
thereof. References herein to "Common Stock" shall refer to the Company's common
stock, of no par value per share, and any other class of equity security of the
Company (whether designated as preferred or common stock) for or into which the
Series G Stock is or becomes convertible or exchangeable. References herein to
the term "Stock" shall mean and include the Company's authorized preferred and
common stock of any class or classes and any securities convertible into or
exchangeable for such stock.
This Series G Preferred Stock Purchase Warrant (hereinafter, this
"Warrant") was originally issued by the Company in connection with the Licensing
and Cooperative Marketing Agreement (the "Licensing and Cooperative Marketing
Agreement") on August , 1997 (the "Original Issue Date"). Microsoft
acknowledges that the Company intends to conduct an offering of Series G
Preferred Stock which is expected to close on or prior to December 31, 1997 (the
"Series G Offering"). In the event the Company does not raise a minimum of
$1,000,000 in the Series G Offering prior to the earlier to occur of (i) one
year from the Original Issue Date or (ii) thirty days prior to the Expiration
Date (the "Designation Date"), the Company covenants and agrees to effect a
designation of Series G Preferred Stock (or Series H Preferred Stock in the
event the Company has already created a Series G, in which case all references
herein to Series G Preferred Stock shall be deemed to be Series H Preferred
Stock) with rights and preferences equal to and substantially similar to the
Company's Series F Preferred Stock in all respects. At no time shall one Series
G Preferred Share be convertible into less than one Common Share.
Page 30 of 40
1. Exercise and Vesting of Warrant.
-------------------------------
1.1 Exercise and Vesting. Subject to adjustment as hereinafter
--------------------
provided, the rights represented by this Warrant are exercisable at a price per
share (thc "Exercise Price") of Preferred Stock issuable hereunder (hereinafter,
"Warrant Shares") equal to the lower of (i) $2.50 and (ii) the per share sales
price of Series G Preferred Stock sold by the Company in the Series G Offering
if the Company raises a minimum of $1,000,000 in the Series G Offering on or
prior to the Designation Date. In the event the Company does not raise a minimum
of $1,000,000 in the Series G Offering on or prior to the Designation Date, the
Exercise Price shall be $2.50, The Exercise Price shall be payable in cash or by
certified or official bank check as hereinafter provided or in accordance with
Section 1.2 below. Rights to purchase the Warrant Shares hereunder shall vest
and become exercisable on the following dates (each a "Vesting Date"): (i)
rights to acquire 30% of the Warrant Shares shall vest and become exercisable on
the date of the public announcement by the Company and Microsoft of the
Licensing and Cooperative Marketing Agreement and the relationship created
thereby if such announcement is made on or prior to October 31, 1997, (ii)
rights to acquire 40% of the Warrant Shares shall vest and become exercisable
upon the signing of a letter of intent or a definitive agreement with any of the
companies listed on Exhibit G to the Licensing and Cooperative Marketing
Agreement if such signing occurs on or prior to December 31, 1997, and (iii)
rights to acquire 30% of the Warrant Shares shall vest and become exercisable
upon initiation of the Home Run showcase detailed in the Marketing Agreement (as
defined in the Licensing and Cooperative Marketing Agreement) if begun by
December 31, 1997. Upon the request of the holder, the Company agrees to furnish
following each Vesting Date a certificate signed by the Chief Financial Officer
of the Company which certifies the number of vested Warrant Shares and Exercise
Price hereunder. Notwithstanding the foregoing, no Warrant Shares shall vest
following such time as the Licensing and Cooperative Marketing Agreement is
terminated by the Company in accordance with Section 12(c) thereof.
Upon surrender of this Warrant with a duly executed Notice of Exercise in
the form of Annex A hereto, together with payment, if applicable, of the.
-------
Exercise Price for the Warrant Shares purchased, at the address specified in
Section 9 below or at such other address as the Company shall have advised the
holder in writing (the "Designated Office"), the holder shall be entitled to
receive a certificate or certificates for the Warrant Shares so purchased. The
Company agrees that the Warrant Shares shall be deemed to have been issued to
the holder as of the close of business on the date on which this Warrant shall
have been surrender together with the Notice of Exercise and payment, if
applicable, for such Warrant Shares. In lieu of issuance of fractional shares
hereunder, the Company shall upon exercise hereof promptly pay in cash or by
Company check to the holder the difference between the proportional fraction of
the Exercise Price and the proportional fraction of the Current Market Price (as
defined in Section l.2(c) hereof) of a share of Preferred Stock.
1.2 Right to Convert. In the event, and only in the event, the
----------------
Company raises a minimum of $1,000,000 in the Series G Offering at a valuation
of $2.50 or more per share prior to the Designation Date, holder shall have the
following rights set forth in this Section 1.2 (a) Subject to the vesting
schedule set forth in Section 1.1, at any time or from time to time on or prior
to the Expiration Date when the Exercise Price shall be less than the Current
Market Price (as defined in Section 1.2(c)) of a share of Preferred Stock, the
holder of this Warrant shall also have the right to convert this Warrant or any
portion thereof (the "Conversion Right"), without payment by the holder of this
Warrant of the Exercise Price or any other consideration, into shares of
Preferred Stock as provided in this Section 1.2. Upon exercise of the Conversion
Right with respect to a particular number of Warrant Shares (the "Converted
Warrant Shares"), the Company shall deliver to the holder of this Warrant
(without payment by the holder of this Warrant of the Exercise Price or any
other consideration) that number of shares of Preferred Stock equal to the
quotient obtained by dividing (x) the difference between (1) the product of (A)
the Current Market Price of a share of Preferred Stock by (B) the number of
Converted Warrant Shares and (2) the product of (A) the Exercise Price
multiplied by (B) the number of the Converted Warrant Shares, in each case as of
the Conversion Date (as defined by Section 1.2(b)), by (y) the Current Market
Price of a share of Prefer Stock on the Conversion Date. No fractional Warrant
Shares shall be issuable upon exercise of the Conversion Right, and if the
number of Warrant Shares to be issued determined in accordance with the
following formula is other than a whole number, the Company shall pay to the
holder of this Warrant an amount in cash equal to the Current Market Price of
the resulting fractional Warrant Share on the Conversion Date.
Page 31 0f 40
(b) The Conversion Right may be exercised by the holder of this
Warrant by the surrender of this Warrant as provided in Section 1.1, together
with a written statement specifying that the holder of this Warrant thereby
intends to exercise the Conversion Right and indicating the number of Converted
Warrant Shares which are covered by the exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Corporation of this Warrant,
together with the aforesaid written statement, or on such later date as is
specified therein (the "conversion Date"). The Corporation shall issue to the
holder of this Warrant as of the Conversion Date a certificate for the Warrant
Shares issuable upon exercise of the Conversion Right and, if applicable, a new
warrant of like tenor evidencing the balance of the Warrant Shares remaining
subject to this Warrant.
(c) The term "Current Market Price" for the Preferred Stock as of a
specified date shall mean: (i) if the Preferred Stock is Publicly Traded on such
date, the average current market price over the preceding 20 trading days (as
reported on the principal stock exchange or quotation system on which the
Preferred Stock is listed or quoted); (ii) if the Common Stock is Publicly
Traded on such date, the average current market price over the preceding 20
trading days (as reported on the principal stock exchange or quotation system on
Which the Common Stock is listed or quoted) divided by the then current exchange
ratio for conversion of each share of Preferred Stock into Common Stock (for
purposes of clarity, if the average current market price of the Common Stock is
$10 and each share of Preferred Stock is convertible into two shares of Common
Stock, the Current Market Price of the Preferred Stock would be $20 ($10 divided
by 0.5)); or (iii) if the Preferred Stock or Common Stock is not publicly traded
on such date, the greater of the book value (determined in accordance with GAAP)
and the value per share of Preferred Stock as of such date mutually determined
between the Company and the holder, provided that in the event the Company and
the holder are unable to agree on the Current Market Price, the determination
shall be submitted to and determined by an investment banking firm of recognized
standing selected and paid for by the Company and the holder. In reference to
any equity security of the Company, the term "Publicly Traded" shall mean the
security is listed on a national securities exchange, the Nasdaq Stock Market or
traded in the over-the-counter market.
2. Transfer, Issuance of Stock Certificates; Restrictive Legends.
-------------------------------------------------------------
2.1. Transfer. This Warrant and the rights conferred hereby shall be
--------
transferable by the holder only with the prior written consent Of the Company,
which consent shall not be unreasonably withheld (provided the Company may
withhold consent to transfer to any person or entity who or which is not an
affiliate of the holder). Any transfer in violation of the provisions of this
Section 2 shall be void and of no force or effect. Subject to compliance with
the restrictions on transfer set forth in this Section 2, each transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the repay to be maintained for such person, upon surrender of this
Warrant at the Designated Office, together with a written assignment of this
Warrant in the form of Annex B hereto duly executed by the holder or its agent
-------
or attorney. Upon such surrender and delivery, the Company shall execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and shall issue
to the assigner a new Warrant evidencing the portion of this Warrant not so
assigned, if any. A Warrant, if properly assigned in compliance with the
Provisions hereof, may be exercised by the new holder for the purchase of
Warrant Shares without having a new Warrant issued. All Warrants issued upon any
assignment of Warrants in compliance with this Section 2 shall be the valid
obligations of the Company, evidencing the same rights, and entitled to the same
benefits as the Warrants surrendered upon such registration of transfer or
exchange.
2.2 Stock Certificates. Certificates for the Warrant Shares shall be
------------------
delivered to the holder within a reasonable time after the rights represented by
this Warrant shall have been exercised pursuant to Section 1, and a new Warrant
representing the share, shares or fraction of a share of Preferred Stock, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder within such time. The issuance of certificates for
Warrant Shares upon the exercise of this Warrant shall be made without charge to
the holder hereof including, without limitation, any tax that may be payable in
respect thereof; provided, however, that the Company shall not be required to
-------- -------
pay any income tax to which the holder hereof may be subject in connection with
the issuance of this Warrant or the Warrant Shares.
Page 32 of 40
2.3. Restrictive Legends. (a) Except as otherwise provided in this
-------------------
Section 2, each certificate for Warrant Shares initially issued upon the
exercise of this Warrant, and each certificate for Warrant Shares issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B)THE HOLDER SHALL DELIVER
TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH PROPOSED TRANSFER, IS EXEMPT FROM THE
REGISTRA-TION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAWS.
(b) Except as otherwise provided in this Section 2, each Warrant shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS
WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID
OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECCTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR (B) THE HOLDER SHALL DELIVER TO THE
COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE
TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES
LAW.
Notwithstanding the foregoing, the legend requirements of this Section 2.3 shall
terminate as to any particular Warrant or Warrant Share when the Company shall
have received from the holder thereof an opinion of counsel in form and
substance reasonably acceptable to the Company that such legend is not required
in order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this Section 23 shall terminate, the holder hereof or of Warrant
Shares, as the case may be, shall be entitled to receive from the Company
without cost to such holder a new Warrant or certificate for Warrant-Shares of
like tenor, as the case may be, without such restrictive legend.
3. Adjustment of Number of Shares; Exercise Price, Nature of Securities
--------------------------------------------------------------------
Issuable Upon Exercise of Warrants.
----------------------------------
3.1 Exercise Price, Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price set forth in Section 1 hereof and the number of shares purchasable
hereunder shall be subject to adjustment from time to time as hereinafter
provided.
3.2 Reorganization or Reclassification. If any capital reorganization
----------------------------------
or reclassification of the capital stock of the Company (collectively referred
to as a "Reorganization Transaction") shall be effected in such a way that
holders of Preferred Stock shall be entitled to receive stock, securities, cash
or assets with respect to or in exchange for Preferred Stock, then, as a
condition of such Reorganization Transaction, lawful and adequate provisions
shall be made whereby the holder of this Warrant shall the after have the right
to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant, upon exercise of this Warrant and in lieu of the
Warrant Shares immediately theretofore purchasable and receivable upon the
exercise of the rights
Page 33 of 40
represented hereby, such number, amount and like kind of shares of stock,
securities, cash or assets as may be issued or payable pursuant to the terms of
the Reorganization Transaction with respect to or in exchange for the number of
shares of Preferred Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby as if such shares were
outstanding immediately prior to the Reorganization Transaction, and in any such
case appropriate provision shall be made with respect to the rights and interest
of the holders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of Warrant Shares purchasable and receivable upon the exercise of this Warrant)
shall the thereafter be applicable, as nearly as may be, in relation to any
shares of stock or securities thereafter deliverable upon the exercise hereof.
3.3 Stock Splits, Stock Dividends and Reverse Stock Splits. In case
------------------------------------------------------
at any time the Company shall subdivide its outstanding shares of Preferred
Stock into a greater number of shares, or shall declare and pay any stock
dividend with respect to its outstanding stock that has the effect of increasing
the number of outstanding shares of Preferred Stock, the Exercise Price in
effect immediately prior to such subdivision or stock dividend shall be
proportionately reduced and the number of Warrant Shares purchasable pursuant to
this Warrant immediately prior to such subdivision or stock dividend shall be
proportionately increased, and conversely, in case at any time the Company shall
combine its outstanding shares of Preferred Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
3.4 Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company which are not
adequately covered by this Section 3 and which would cause or trigger
antidilution rights under the Rights Agreement (as defined in Section S hereof),
the Company shall make an appropriate and corresponding adjustment to the rights
hereunder so as to preserve, without dilution, the exercise rights of the holder
hereof. In the event that the holder disputes such adjustment, the holder shall
be entitled to select an additional fm of independent certified public
accountants of national standing and paid for by the holder to calculate such
adjustment and the Company and the holder shall use their good faith best
efforts to agree on such adjustment based on the reports of the two accounting
firms. In the event that the Company and the holder are still unable to reach
agreement as to such adjustment, the Company and the holder agree to submit such
determination to binding arbitration. Upon determination of such adjustment, the
Board of Directors shall forthwith make the adjustments described therein.
3.5 Accountant's Certificate. In each case of an adjustment in the
------------------------
Exercise Price, number of Warrant Shares or other stock, securities or property
receivable upon the exercise of this Warrant, the Company shall compute, and
upon the holders request and pen shall cause independent public accountants of
recognized standing selected by the Company and reasonably acceptable to the
holder to certify such computation, such adjustment in accordance with the terms
of this Warrant and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based, including a
statement of (a) the number of shares of Preferred Stock of each class
outstanding or deemed to be outstanding, (b) the adjusted Exercise Price and (c)
the number of Warrant Shares issuable upon exercise of this Warrant. The Company
will forthwith mail a copy of each such certificate to the holder hereof. In the
event that the holder dispute such adjustment, the holder shall be entitled to
select an additional firm of independent certified public accountants of
national standing and paid for by the holder to certify such adjustment and the
Company and the holder shall use their good faith best efforts to agree on such
adjustment based on the reports of the two accounting firms. In the event that
the Company and the holder are still unable to reach agreement as to such
adjustment, the Company and the holder agree to submit such determination to
binding arbitration. Upon determination of such adjustment, the Board of
Directors shall forthwith make the adjustments described therein.
4. Registration; Exchange and Replacement of Warrant; Reservation of
-----------------------------------------------------------------
Shares.
- ------
The Company shall keep at the Designated Office a register in which
the Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the
Page 34 of 40
dissolution, liquidation or winding-up of the Company, close such register so as
to result in preventing or delaying the exercise or transfer of this Warrant.
The Company may deem and treat the person in whose name this Warrant
is registered as the holder and owner hereof for all purposes and shall not be
affected by any notice to the contrary, until presentation of this Warrant for
registration or transfer as provided in this Section 4.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant without
requiting the posting of any bond or the giving of any security.
On and after the Designation Date (or as soon thereafter as reasonably
practicable), the Company shall at all times reserve and keep available out of
its authorized shares of Preferred Stock, solely for the purpose of issuance
upon the exercise of this Warrant, such number of shares of Preferred Stock as
shall be issuable upon the exercise hereof. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Exercise Price therefor,
if applicable, all Warrant Shares issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.
5. Registration of Preferred Stock. The Warrant Shares issued and issuable
-------------------------------
hereunder shall be deemed "Registrable Securities" under the Third Amended and
Restated Shareholders' Rights Agreement dated as of July 1, 1996 by and among
the Company and the persons or entities who are signatories thereto (the "Rights
Agreement"), or any substitute or successor agreement thereto which is
substantially similar to the Rights Agreement, and the holder shall become a
party to such Rights Agreement as soon as reasonably practicable after the
Designation Date. The Company represents and warrants to the holder that the
Company is not a party to any agreement that conflicts in any manner with the
holder's rights to cause the Company to register the Registrable Securities
pursuant to the Rights Agreement and this Section 6.1. The Company covenants and
agrees that it shall not, without the prior written consent of the Shareholders
holding a majority of the outstanding Registrable Securities, amend, modify or
restate the Rights Agreement or grant to any third party rights of a similar
nature as those set forth in the Rights Agreement if the rights of the
Shareholders would be subordinated, diminished or otherwise adversely affected
in a different manner other than "Holders" of Registrable Securities.
Capitalized terms used in this Section 5 but not otherwised defined in this
Warrant have the meanins set forth in the Rights Agreement.
6. Company Information.
-------------------
Until the termination of the registration rights referred to in
Section 5, the Company shall deliver to each holder hereof or of Warrant Shares
one copy of each of the following items:
(i) as soon as available, and in any event within forty-five (45) days
after the end of each fiscal quarter of the Company, its Form 10-Q as filed
with the Commission for such quarter or if the Company is not publicly
traded its unaudited interim consolidated balance sheets of the Company and
its subsidiaries as at the end of such quarter and the related consolidated
statements of income, cash flow and stockholders' equity of the Company and
its subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarter, all in reasonable detail and certified by
a principal financial officer of the Company, as prepared in accordance
with GAAP consistently applied (subject to year end adjustments and the
absence of footnotes), and fairly presenting the consolidated financial
position and results of operations of the Company and its subsidiaries for
such periods;
(ii) within one hundred and twenty (120) days after the end of each
fiscal year of the Company, its Form 10-K as filed with the Commission for
such fiscal year or if the Company is not publicly traded its consolidated
balance sheets of the Company and its subsidiaries as at the end of such
year and the related consolidated statements of income, cash flow and
stockholders'
Page 35 of 40
equity of the Company and its subsidiaries for such fiscal year, setting
forth in each case in comparative form the consolidated figures for the
previous fiscal year, all in reasonable detail and accompanied by a report
thereon of independent public accountants of recognized national standing
selected, by the Company, which report shall state that such consolidated
financial statements present fairly the financial position of the Company
and its subsidiaries as at the dates indicated and the results of their
operations and changes in their financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years (except as otherwise specified in such report) and that the audit by
such accountants in connection with such consolidated financial statements
has been made in accordance with generally accepted auditing standards; and
(iii) promptly upon their becoming available, copies of all financial
statements, reports, proxy statements, notices, documents or other
communications sent or made available generally by the Company to any class
of its security holders or by any subsidiary of the Company to any class of
its security holders.
7. Notices.
-------
All notices, requests, demands, and other communications made in connection
with this Warrant shall be in writing and shall be deemed to have been duly
given on the date of delivery, if delivered to the persons identified below, or
upon receipt if (a)mailed by certified or registered mall, postage prepaid,
return receipt requested, (ii) upon receipt if sent by express courier service,
or (iii) sent by facsimile upon written confirmation of receipt by the recipient
of such notice:
If to Holder. Microsoft Corporation
------------ One Microsoft Way
Redmond, WA 98052-6399
Attention: Robert A. Eshelman
Telephone No.: (206) 852-8080
Facsimile No.: (206) 869-1327
If to the Company: Tut Systems, Inc.
----------------- 2495 Estrand Way
Pleasant Hill, CA 94523-391l
Attention: Neslon Caldwell
Telephone No.: (510) 682-6510
Facsimile No.: (510) 682-4125
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 7.
8. Successors.
----------
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors, assigns and
transferees.
9. Law Governing.
-------------
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of California (not including the choice of
law rules thereof.
Page 36 of 40
10. Entire Agreement: Amendments and Waivers.
-----------------------------------------
This Warrant sets forth the entire understanding of the parties with
respect to the transactions contemplated hereby. The failure of any party to
seek redress for the violation or to insist upon the strict performance of any
term of this Warrant shall not constitute a waiver of such term and such party
shall be entitled to enforce such term without regard to such forbearance. This
Warrant may be amended, and any breach of or compliance with any covenant,
agreement, warranty or representation may be waived, only if the Company has
obtained the written consent or written waiver of the holder, and then such
consent or waiver shall be effective only in the specific instance and for the
specific purpose for which given.
11. Severability; Headings.
----------------------
If any term of this Warrant as applied to any person or to any
circumstance is prohibited, void, invalid or unenforceable in any jurisdiction,
such term shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or invalidity without in any way affecting any other term of this
Warrant or affecting the validity or enforceability of this Warrant or of such
provision in any other jurisdiction. The Section headings in this Warrant have
been inserted for purposes of convenience only and shall have no substantive
effect.
[remainder of page intentionally blank]
Page 37 of 40
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first written above.
TUT SYSTEMS, INC.
/s/ Matthew Taylor
By: --------------------
Name: Matthew Taylor
Title: Chairman
Accepted and agreed:
MICROSOFT CORPORATION
/s/ Paul Maritz
By:-----------------
Name: Paul Maritz
Title: Group V.P.
Page 38 of 40
ANNEX A
-------
NOTICE OF EXERCISE
(TO BE EXECUTED UPON PARTIAL OR FULL
EXERCISE OF THE WITHIN WARRANT)
The undersigned hereby irrevocably elects to exercise the right to
purchase ____________ shares of Series G Preferred Stock of Tut Systems, Inc.
covered by the within Warrant according to the conditions hereof and herewith
makes payment of the Exercise Price of such shares in full in the amount of
$______________________.
By:__________________________________
(Signature of Registered Holder)
Dated:____________
Page 39 of 40
ANNEX B
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ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Series G Preferred Stock set forth below:
Name and Address of Assignee No. of Shares
- ---------------------------- -------------
and does hereby irrevocably constitute and appoint ______________________
attorney-in-fact to register such transfer onto the books of Tut Systems, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:__________________ Print Name: ____________________
Signature:______________________
Witness:_______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.