EXHIBIT (a)(1) ================================================================ ================ OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS (THE "OFFER TO EXCHANGE") This document constitutes part of a prospectus relating to the Tut...

EXHIBIT (a)(1)
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OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS
(THE "OFFER TO EXCHANGE")

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This document constitutes part of a prospectus relating to the Tut Systems, Inc.
1998 Stock Plan and the Tut Systems, Inc. 1999 Nonstatutory Stock Option Plan
covering securities that have been registered under the Securities Act of 1933.

May 11, 2001

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TUT SYSTEMS, INC.

Offer to Exchange All Outstanding Options under the Tut Systems, Inc. 1992 Stock
Plan, the Tut Systems, Inc. 1998 Stock Plan and the Tut Systems, Inc. 1999
Nonstatutory Stock Option Plan Held by Certain Option Holders for New Options to
be Granted Under either the Tut Systems, Inc. 1998 Stock Plan or the Tut
Systems, Inc. 1999 Nonstatutory Stock Option Plan (the "Offer to Exchange")

The offer and withdrawal rights expire at 12:00 midnight, New York City Time, on
June 8, 2001 unless the offer is extended.

Tut Systems, Inc. ("Tut", "we" or "us") is offering eligible employees the
opportunity to exchange all outstanding options to purchase shares of Tut common
stock granted under the Tut Systems, Inc. 1992 Stock Plan ("1992 Stock Plan"),
the Tut Systems, Inc. 1998 Stock Plan ("1998 Stock Plan") and the Tut Systems,
Inc. 1999 Nonstatutory Stock Option Plan ("1999 Nonstatutory Stock Option Plan")
for new options which we will grant under the 1998 Stock Plan and the 1999
Nonstatutory Stock Option Plan. An "eligible employee" refers to all employees
of Tut or one of our U.S. subsidiaries, who are employees as of the date the
offer commences and as of the date the tendered options are cancelled, except
all executive officers, vice-presidents, members of the Board of Directors and
employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act
pay are not eligible to participate in the exchange offer. We are making the
offer upon the terms and conditions described in this Offer to Exchange, the
related memorandum from Xxxxxx Xxxxxx dated May 11, 2001, the Election Form, the
Notice to Change Election from Accept to Reject and the Promise to Grant New
Option (which together, as they may be amended from time to time, constitute the
"offer" or "program").

The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the
unexercised options tendered by the eligible employee and accepted for exchange.
Subject to the terms and conditions of this offer, we will grant the new options
on or about the first business day which is at least six months and two days
after the date we cancel the options accepted for exchange. You may only tender
options for all or none of the outstanding, unexercised shares subject to an
individual option grant. All tendered options accepted by us through the offer
will be cancelled as promptly as practicable after 12:00 midnight New York City
Time on the date the offer ends. The offer is currently scheduled to expire on
June 8, 2001 (the "Expiration Date") and we expect to cancel options on June 11,
2001, or as soon as possible thereafter (the "Cancellation Date"). If you
tender any option grant for exchange, you will be required to also tender all
option grants that you received during the six month period prior to the
Cancellation Date. Since we currently expect to cancel all tendered options on
June 11, 2001, this means that if you participate in the offer, you will be
required to tender all options granted to you since December 11, 2000.

The offer is not conditioned on a minimum number of options being tendered.
Participation in the offer is completely voluntary. The offer is subject to
conditions that we describe in Section 7 of this Offer to Exchange.

If you tender options for exchange as described in the offer, and we accept
your tendered options, then, subject to the terms of this offer, we will grant
you new options under the 1998 Stock Plan or the 1999 Nonstatutory Stock Option
Plan, as determined by the Board of Directors in their sole discretion. In
order to receive a new option pursuant to this offer, you must continue to be an
employee as of the date on which the new options are granted, which will be at
least six months and two days after the Cancellation Date.

The exercise price per share of the new options will be 100% of the fair
market value on the date of grant, as determined by the closing price of our
common stock reported by the Nasdaq National Market for the last market trading
day prior to the date of grant.

Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options.

Each new option granted will vest in accordance with the vesting schedule
of the cancelled options. Each new option granted will vest as follows:

. all shares equal to the number of shares that were fully vested under
the cancelled option on the Expiration Date will be fully vested;

. all shares equal to the number of unvested shares under the cancelled
option on the Expiration Date that would have been fully vested on the
date the new option is granted (at least six months and two days from
the Cancellation Date) will be fully vested; and

. all remaining unvested shares will vest ratably each month, beginning
on the date the new option is granted and ending on the date that is at
least twelve months prior to the date that the cancelled option would
have been fully vested. In other words, the vesting schedule for each
new option will be shortened by approximately twelve months.

Although our Board of Directors has approved the offer, neither we nor our
Board of Directors makes any recommendation as to whether you should tender or
not tender your options for exchange. You must make your own decision whether
or not to tender your options.

Shares of Tut common stock are traded on the Nasdaq National Market under
the symbol "TUTS." On May 10, 2001, the closing price of our common stock
reported on the Nasdaq National Market was $3.20 per share.

We recommend that you evaluate current market quotes for our common stock,
among other factors, before deciding whether or not to tender your options.

This Offer to Exchange has not been approved or disapproved by the
Securities and Exchange Commission (the SEC) or any State Securities Commission
nor has the SEC or any State Securities Commission passed upon the accuracy or
adequacy of the information contained in this Offer to Exchange. Any
representation to the contrary is a criminal offense.

You should direct questions about the offer or requests for assistance or
for additional copies of this Offer to Exchange, the memorandum from Xxxxxx
Xxxxxx dated May 11, 2001, the Election Form, the Notice to Change Election From
Accept to Reject and the Promise to Grant New Option to Shareholder Services,
Attention: Xxxx Xxxxxx at Tut Systems, Inc., 0000 Xxxx Xxx Xxxxxxx Xxxx.,
Xxxxxxxxxx, Xxxxxxxxxx, 00000 (telephone: (000) 000-0000).

IMPORTANT

If you wish to tender your options for exchange, you must complete and sign
the Election Form in accordance with its instructions, and fax or hand deliver
it and any other required documents to Shareholder Services, Attention Xxxx
Xxxxxx, Tut Systems, Inc. at fax number (000) 000-0000.

We are not making the offer to, and we will not accept any tender of
options from or on behalf of, option holders in any jurisdiction in which the
offer or the acceptance of any tender of options would not be in compliance with
the laws of that jurisdiction. However, we may, at our discretion, take any
actions necessary for us to make the offer to option holders in any of these
jurisdictions.

We have not authorized any person to make any recommendation on our behalf
as to whether you should tender or not tender your options through the offer.
You should rely only on the information in this document or to which we have
referred you. We have not authorized anyone to give you any information or to
make any representation in connection with the offer other than the information
and representations contained in this document and in the related memorandum
from Xxxxxx Xxxxxx dated May 11, 2001, Election Form, Notice to Change Election
from Accept to Reject and Promise to Grant New Option. If anyone makes any
recommendation or representation to you or gives you any information, you must
not rely upon that recommendation, representation or information as having been
authorized by us.

TABLE OF CONTENTS

Page

SUMMARY TERM SHEET.............................................................................. 1

CERTAIN RISKS OF PARTICIPATING IN THE OFFER..................................................... 9

INTRODUCTION.................................................................................... 12

THE OFFER....................................................................................... 14

1. Eligibility................................................................................ 14

2. Number of options; Expiration date......................................................... 14

3. Purpose of the offer....................................................................... 15

4. Procedures for tendering options........................................................... 17

5. Withdrawal Rights and Change of Election................................................... 18

6. Acceptance of options for exchange and issuance of new options............................. 19

7. Conditions of the offer.................................................................... 20

8. Source and amount of consideration......................................................... 21

9. Effect of a Change of Control Prior to the Granting of New Options......................... 21

10. Terms of New Options....................................................................... 22

11. Information concerning Tut................................................................. 26

12. Financial Information...................................................................... 26

13. Price range of shares underlying the options............................................... 27

14. Interests of directors and officers; transactions and arrangements concerning the options.. 27

15. Status of options acquired by us in the offer; accounting consequences of the offer........ 28

16. Legal matters; regulatory approvals........................................................ 29

17. Material U.S. Federal Income Tax Consequences.............................................. 30

18. Extension of offer; termination; amendment................................................. 32

19. Fees and expenses.......................................................................... 33

20. Additional information..................................................................... 33

21. Miscellaneous.............................................................................. 34

SCHEDULE A Information Concerning the Directors and Executive Officers of Tut Systems, Inc..... A-1

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SUMMARY TERM SHEET

The following are answers to some of the questions that you may have about
the offer. We urge you to read carefully the remainder of this Offer to
Exchange, the accompanying memorandum from Xxxxxx Xxxxxx dated May 11, 2001, the
Election Form, the Notice to Change Election From Accept to Reject and the
Promise to Grant New Option because the information in this summary is not
complete, and additional important information is contained in the remainder of
this Offer to Exchange, the memorandum from Xxxxxx Xxxxxx dated May 11, 2001,
the Election Form, the Notice to Change Election From Accept to Reject and the
Promise to Grant New Option. We have included page references to the remainder
of this Offer to Exchange where you can find a more complete description of the
topics in this summary.

Q: What securities are we offering to exchange?

A: We are offering to exchange all outstanding, unexercised options to
purchase shares of common stock of Tut granted under the 1992 Stock Plan,
the 1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan held by
eligible employees for new options we will grant under either the 1998
Stock Plan or 1999 Nonstatutory Stock Option Plan, as determined by the
Board of Directors in their sole discretion. (Page 14)

Q. Who is eligible to participate?

A. Employees are eligible to participate if they are employees of Tut Systems,
Inc. ("Tut") or one of our U.S. subsidiaries as of the date the offer
commences and the date on which the tendered options are cancelled.
However, members of the Board of Directors, all executive officers and
vice-presidents of Tut and employees receiving Workers' Adjustment and
Retraining Notification ("WARN") Act pay are not eligible to participate.
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In order to receive a new option, you must remain an employee as of the
date the new options are granted, which will be at least six months and two
days after the Cancellation Date. If Tut does not extend the offer, the
new options will be granted on December 13, 2001. (Page 14)

Q. Are employees outside the United States eligible to participate?

A. No, employees of our non-U.S. subsidiaries are not eligible to participate.
(Page 14)

Q. Why are we making the offer?

A. We believe that granting stock options motivates high levels of performance
and provides an effective means of recognizing employee contributions to
the success of our company. The offer provides an opportunity for us to
offer eligible employees a valuable incentive to stay with our company.
Some of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the
current market price of our shares. By making this offer to exchange
outstanding options for new options that will have an exercise price equal
to the market value of the shares on the grant date, we intend to provide
our eligible employees with the benefit of owning options that over time
may have a greater potential to increase in value, create better
performance incentives for eligible employees and thereby maximize
stockholder value. (Page 15)

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Q. What are the conditions to the offer?

A. The offer is not conditioned on a minimum number of options being tendered.
Participation in the offer is completely voluntary. The conditions are
described in Section 7 of this Offer to Exchange. (Page 20)

Q. Are there any eligibility requirements that you must satisfy after the
expiration date of the offer to receive the new options?

A. To receive a grant of new options through the offer and under the terms of
either the 1998 Stock Plan or the 1999 Nonstatutory Stock Option Plan you
must be employed by Tut or one of our U.S. subsidiaries as of the date the
new options are granted.

As discussed below, subject to the terms of this offer, we will not grant
the new options until on or about the first business day which is at least
six months and two days after the Cancellation Date. If, for any reason,
you do not remain an employee of Tut or one of our U.S. subsidiaries
through the date we grant the new options, you will not receive any new
options or other compensation in exchange for your tendered options that
have been accepted for exchange and cancelled. (Page 14)

Q. How many new options will you receive in exchange for your tendered
options?

A. If you meet the eligibility requirements and subject to the terms of this
offer, we will grant you new options to purchase the number of shares equal
to the number of shares subject to the unexercised options you tender. New
options will be granted under the 1998 Stock Plan or the 1999 Nonstatutory
Stock Option Plan, as determined by the Board of Directors in their sole
discretion, unless prevented by law or applicable regulations. All new
options will be subject to a new option agreement between you and us. You
must execute the new option agreement before receiving new options. (Page
14)

Q. When will you receive your new options?

A. We will not grant the new options until on or about the first business day
which is at least six months and two days after the Cancellation Date. Our
Board of Directors will select the actual grant date for the new options.
If we cancel tendered options on June 11, 2001, which is the scheduled date
for the cancellation of the options (the first business day following the
Expiration Date), the new options will not be granted until December 13,
2001. (Page 19)

Q. Why won't you receive your new options immediately after the expiration
date of the offer?

A. If we were to grant the new options on any date which is earlier than six
months and two days after the date we cancel the options accepted for
exchange, we would be subject to onerous accounting charges. We would be
required for financial reporting purposes to treat the new options as
variable awards. This means that we would be required to record the non-
cash accounting impact of decreases and increases in the company's share
price as a compensation expense for the new options issued under this
offer. We would have to continue this variable accounting for these new
options until they were exercised, forfeited or terminated. The higher the
market value of our shares, the greater the compensation expense

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we would have to record. By deferring the grant of the new options for at
least six months and two days, we believe we will not have to treat the new
options as variable awards. (Page 29)

Q. If you tender options in the offer, will you be eligible to receive other
option grants before you receive your new options?

A. No. If we accept options you tender in the offer, you will not receive any
other option grants before the grant date for your new options, such as
annual, bonus or promotional options, for which you may otherwise be
eligible before the new option grant date in order for us to avoid
incurring compensation expenses against our earnings because of accounting
rules that could apply to these interim option grants as a result of the
offer. (Page 19)

Q. Will you be required to give up all your rights to the cancelled options?

A. Yes. Once we have accepted options tendered by you, your options will be
cancelled and you will no longer have any rights under those options. We
currently expect to accept all properly tendered options promptly following
the expiration of the offer. You have the right to change your election
regarding particular tendered options at any time before the expiration of
the offer. The offer is scheduled to expire at 12:00 midnight, New York
City Time, on June 8, 2001 unless we extend it. Thus, if for any reason,
you do not remain an employee of Tut or one of our U.S. subsidiaries
through the date we grant the new options, you will not receive any new
options or other compensation in exchange for your tendered options that
have been accepted for exchange and cancelled. (Page 19)

Q. What will the exercise price of the new options be?

A. The exercise price per share of the new options will be 100% of the fair
market value of our common stock on the date of grant, as determined by the
closing price reported by the Nasdaq National Market for the last market
trading day prior to the date of grant. (Page 23)

Accordingly, we cannot predict the exercise price of the new options.
Because we will not grant new options until on or about the first business
day that is at least six months and two days after the Cancellation Date,
the new options may have a higher exercise price than some or all of your
current options. We recommend that you evaluate current market quotes for
our shares, among other factors, before deciding whether or not to tender
your options. (Page 9)

Q. When will the new options vest?

A. The vesting of the newly issued options will be in accordance with the
vesting schedule of the cancelled options, however, the vesting schedule
will be shortened by approximately twelve (12) months. You will receive
credit for vesting accrued prior to the cancellation of the tendered
options and you will receive credit for the period between the cancellation
of the tendered options and the grant of the new options.

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Each new option granted will vest as follows:

. all shares equal to the number of shares that were fully vested under
the cancelled option on the Expiration Date will be fully vested;

The following is an example:

Old option (cancelled):
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Total number of shares: 1,000
Grant date: 5/13/99
Vesting start date: 5/13/99
Vesting schedule: 1/4 at 1 year, 1/48 monthly thereafter
Total number of shares vested at Expiration Date: 500
Total number of shares unvested at Expiration Date: 500
Scheduled full vesting date: 5/13/03

New Option:
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Total number of shares: 1,000
Vesting start date: 12/13/01
Grant date: 12/13/01
Total number of shares vested on grant date: 625

500 (portion of cancelled option that was vested on the Expiration Date)
+125 (portion of cancelled option that would have been fully vested on
the date the new options are granted) = 625

Total number of shares unvested on grant date: 375

Vesting schedule for unvested shares: 1/5 of remaining shares for 5
months (17 months remaining until scheduled full vesting date for
cancelled option shortened by twelve months).

Fully vested: 5/13/02. (Page 23)

Q. What if we enter into a merger or other similar transaction?

A. It is possible that, prior to the grant of new options, we might effect or
enter into an agreement such as a merger or other similar transaction. The
Promise to Grant Stock New Option which we will give you is a binding
commitment, and any successor to our company will be legally obligated by
that commitment. (Page 21)

You should be aware that these types of transactions could have substantial
effects on our share price, including potentially substantial appreciation
in the price of our shares. Depending on the structure of this type of
transaction, tendering option holders might be

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deprived of any further price appreciation in the shares associated with
the new options. For example, if our shares were acquired in a cash merger,
the fair market value of our shares, and hence the price at which we grant
the new options, would likely be a price at or near the cash price being
paid for the shares in the transaction, yielding limited or no financial
benefit to a recipient of the new options for that transaction. In
addition, in the event of an acquisition of our company for stock,
tendering option holders might receive options to purchase shares of a
different issuer. (Page 16)

Q. Are there circumstances where you would not be granted new options?

A. Yes. Even if we accept your tendered options, we will not grant new
options to you if we are prohibited by applicable law or regulations from
doing so. Such a prohibition could result from changes in SEC rules,
regulations or policies or Nasdaq listing requirements. We will use
reasonable efforts to avoid the prohibition, but if it is applicable
throughout the period from the first business day that is at least six
months and two days after the Cancellation Date, you will not be granted a
new option. We do not anticipate any such prohibitions and are referring
to the possibility in an abundance of caution. (Page 29)

Also, if you are no longer an employee on the date we grant new options,
you will not receive any new options. (Page 14)

Q. If you choose to tender an option which is eligible for exchange, do you
have to tender all the shares in that option?

Yes. We are not accepting partial tenders of options. However, you may
tender the remaining portion of an option which you have partially
exercised. Accordingly, you may tender one or more of your option grants,
but you may only tender all of the unexercised shares subject to each
option or none of those shares. For example and except as otherwise
described below, if you hold (i) an option to purchase 1,000 shares at
$10.00 per share, 700 of which you have already exercised, (ii) an option
to purchase 1,000 shares at an exercise price of $20.00 per share and (iii)
an option to purchase 2,000 shares at an exercise price of $40.00 per
share, you may tender:

. none of your options,

. options with respect to the 300 remaining unexercised shares under the
first option grant,

. options with respect to all 1,000 shares under the second option grant,

. options with respect to all 2,000 shares under the third option grant,

. options with respect to two of the three option grants, or

. all options under all three of the option grants.

In this example, the above describes your only choices. For example, you
may not tender options with respect to only 150 shares (or any other
partial amount) under the first option grant or less than all of the shares
under the second and third option grants. (Page 14)

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Also, if you decide to tender any of your options, then you must tender
all of your options that were granted to you during the six month period
prior to the cancellation of any tendered options. For example, if you
received an option grant in June 2000 and a grant in February 2001 and you
want to tender your June 2000 option grant, you would also be required to
tender your February 2001 option grant. (Page 14)

Q. What happens to options that you choose not to tender or that are not
accepted for exchange?

A. Options that you choose not to tender for exchange or that we do not accept
for exchange retain their current exercise price and current vesting
schedule and remain outstanding until you exercise them or they expire by
their terms.

You should note that there is a risk that any incentive stock options you
hold may be affected, even if you do not participate in the exchange. We
believe that you will not be subject to current U.S. federal income tax if
you do not elect to participate in the option exchange program. We also
believe that the option exchange program will not change the U.S. federal
income tax treatment of subsequent grants and exercises of your incentive
stock options (and sales of shares acquired upon exercise of such options)
if you do not participate in the option exchange program.

However, the IRS may characterize the option exchange program as a
"modification" of those incentive stock options, even if you decline to
participate. In 1991, the IRS issued a private letter ruling in which
another company's option exchange program was characterized as a
"modification" of the incentive stock option that could be exchanged. This
does not necessarily mean that our offer to exchange options will be viewed
the same way. Private letter rulings issued by the IRS contain the IRS's
opinion regarding only the specific facts presented by a specific person or
company. The person or company receiving the letter may rely on it, but no
other person or company may rely on the letter ruling or assume the same
opinion would apply to their situation, even if the facts at issue are
similar. While such letters do not provide certainty, they may indicate
how the IRS will view a similar situation. We therefore do not know if the
IRS will assert the position that our offer constitutes a "modification" of
incentive stock options that can be tendered. A successful assertion by
the IRS of this position could extend the options' holding period to
qualify for favorable tax treatment. Accordingly, to the extent you
dispose of your incentive stock option shares prior to the lapse of the new
extended holding period, your incentive stock option could be taxed
similarly to a nonstatutory stock option. (Page 31)

Q. Will you have to pay taxes if you exchange your options in the offer?

A. If you exchange your current options for new options, you should not be
required under current law to recognize income for U.S. federal income tax
purposes at the time of the exchange. Further, at the grant date of the new
options, you will not be required under current law to recognize income for
U.S. federal income tax purposes. We recommend that you consult with your
own tax advisor to determine the tax consequences of tendering options
through the offer. (Page 30)

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Q. If your current options are incentive stock options, will your new options
be incentive stock options?

A. If your current options are incentive stock options, your new options will
be granted as incentive stock options to the maximum extent they qualify as
incentive stock options under the tax laws on the date of the grant. One
requirement for options to qualify as incentive stock options under the
current U.S. tax laws is that the value of shares subject to options that
first become exercisable by the option holder in any calendar year cannot
exceed $100,000, as determined using the option exercise price. The excess
value is deemed to be a non-statutory stock option, which is an option that
is not qualified to be an incentive stock option under the current U.S. tax
laws. (Page 31)

Q. When will your new options expire?

A. Your new options will expire ten years from the date of grant, or earlier
if your employment with Tut terminates. (Page 22)

Q. When does the offer expire? Can the offer be extended, and if so, how will
you be notified if it is extended?

A. The offer expires on June 8, 2001, at 12:00 midnight, New York City Time,
unless we extend it. We may, in our discretion, extend the offer at any
time, but we cannot assure you that the offer will be extended or, if
extended, for how long. If the offer is extended, we will make a public
announcement of the extension no later than 9:00 a.m., New York City Time,
on the next business day following the previously scheduled expiration of
the offer period. (Page 14)

Q. How do you tender your options?

A. If you decide to tender your options, you must deliver, before 12:00
midnight, New York City Time, on June 8, 2001 (or such later date and time
as we may extend the expiration of the offer), a properly completed and
executed Election Form and any other documents required by the Election
Form via fax (fax # (000) 000-0000) or hand delivery to Shareholder
Services, Attention: Xxxx Xxxxxx. This is a one-time offer, and we will
strictly enforce the tender offer period. We reserve the right to reject
any or all tenders of options that we determine are not in appropriate form
or that we determine are unlawful to accept. Subject to our rights to
extend, terminate and amend the offer, we currently expect that we will
accept all properly tendered options promptly after the expiration of the
offer. Tut will e-mail a confirmation of receipt within 48 hours of
receiving your Election Form. This receipt does not constitute acceptance
of the options for exchange. We will be sending a Promise to Grant New
Option to each option holder from whom we accept properly tendered options.
(Page 17 and 20)

Q. During what period of time may you withdraw previously tendered options?

A. You may withdraw your tendered options at any time before the offer expires
at 12:00 midnight, New York City Time, on June 8, 2001. If we extend the
offer beyond that time, you may withdraw your tendered options at any time
until the extended expiration of the offer. In addition, although we
currently intend to accept validly tendered options promptly

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after the expiration of this offer, if we have not accepted your tendered
options by July 9, 2001, you may withdraw your tendered options at any time
after July 9, 2001. To withdraw tendered options, you must deliver to us
via fax (fax # (000) 000-0000) or hand delivery to Shareholder Services,
Attention: Xxxx Xxxxxx a signed Notice to Change Election From Accept to
Reject, with the required information while you still have the right to
withdraw the tendered options. Once you have withdrawn options, you may re-
tender options only by again following the delivery procedures described
above prior to the expiration of the offer. (Page 18)

Q. Can you change your election regarding particular tendered options?

A. Yes, you may change your election regarding particular tendered options at
any time before the offer expires at 12:00 midnight, New York City Time, on
June 8, 2001. If we extend the offer beyond that time, you may change your
election regarding particular tendered options at any time until the
extended expiration of the offer. In order to change your election, you
must deliver to us via (fax # (000) 000-0000) or hand delivery to
Shareholder Services, Attention: Xxxx Xxxxxx a new Election Form, which
includes the information regarding your new election, and is clearly dated
after your original Election Form. (Page 18)

Q. Do we and the Board of Directors recommend that you take the offer?

A. Although our Board of Directors has approved the offer, neither we nor our
Board of Directors makes any recommendation as to whether you should tender
or not tender your options. You must make your own decision whether or not
to tender options. For questions regarding tax implications or other
investment-related questions, you should talk to your own legal counsel,
accountant and/or financial advisor. (Page 17)

Q. Who can you talk to if you have questions about the offer?

A. For additional information or assistance, you should contact:

Xxxx Xxxxxx
Shareholder Services
Tut Systems, Inc.
0000 Xxxx Xxx Xxxxxxx Xxxx.
Xxxxxxxxxx, Xxxxxxxxxx 00000
(000) 000-0000

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CERTAIN RISKS
OF PARTICIPATING IN THE OFFER

Participation in the offer involves a number of potential risks, including
those described below. This list and the risk factors, beginning on page 23 in
Tut's Annual Report on Form 10-K filed on April 2, 2001 and on page 19 in Tut's
Quarterly Report on Form 10-Q filed on May 11, 2001, highlight the material
risks of participating in this offer. Eligible participants should carefully
consider these risks and are encouraged to speak with an investment and tax
advisor as necessary before deciding to participate in the offer. In addition,
we strongly urge you to read the rest of this Offer to Exchange, along with the
memorandum from Xxxxxx Xxxxxx dated May 11, 2001, the Election Form, the Notice
to Change Election from Accept to Reject, and the Promise to Grant New Option
for a xxxxxx discussion of the risks which may apply to you, before deciding to
participate in this exchange offer.

ECONOMIC RISKS
--------------

Participation in the offer will make you ineligible to receive new options until
December 13, 2001 at the earliest.

Employees are generally eligible to receive option grants at any time that
the Board of Directors or Compensation Committee chooses to make them. However,
if you participate in the offer, you will not be eligible to receive any new
options until December 13, 2001 at the earliest.

If the stock price increases after the date your tendered options are cancelled,
your cancelled options might have been worth more than the new options that you
have received in exchange for them.

We cannot predict the exercise price of the new options. Because we will
not grant new options until on or after the first business day that is at least
six months and two days after the Cancellation Date, the new options may have a
higher exercise price than some or all of your current options. For example, if
you cancel options with a $35 strike price, and Tut's stock appreciates to $50
when the new option grants are made, your new option will have a higher strike
price than the cancelled option.

If your employment terminates prior to the grant of the new option, you will
receive neither a new option nor the return of your cancelled option.

Once your option is cancelled, it is gone for good. Accordingly, if your
employment terminates for any reason prior to the grant of the new option, you
will have the benefit of neither the cancelled option nor the new option.

If we are prohibited by applicable law or regulations from granting new options,
you will receive neither a new option nor the return of your cancelled option.

We will not grant new options to you if we are prohibited by applicable law
or regulations from doing so. Such a prohibition could result from changes in
SEC rules, regulations or policies or

-9-

Nasdaq listing requirements. We are unaware of such prohibition at this time,
and we will use reasonable efforts to effect the grant, but if the grant is
prohibited as of the date of grant we will not grant you any new options and you
will not get any other compensation for the options you tendered. We do not
anticipate any such prohibitions and are referring to the possibility in an
abundance of caution.

TAX-RELATED RISKS FOR U.S. RESIDENTS
------------------------------------

Your new option may be a nonstatutory stock option, whereas your cancelled
option may have been an incentive stock option.

If your cancelled option was an incentive stock option, your new option
will be an incentive stock option, but only to the extent that it qualifies
under the Internal Revenue Code of 1986, as amended. One requirement for
options to qualify as incentive stock options is that the value of shares
subject to options that first become exercisable by the option holder in any
calendar year cannot exceed $100,000, as determined using the option exercise
price. It is possible that by participating in this exchange, your options will
exceed this limit and will be treated as nonstatutory stock options. In
general, nonstatutory stock options are less favorable to you from a tax
perspective. For more detailed information, please read the rest of the Offer
to Exchange, and see the tax disclosure set forth in the prospectuses for the
1998 Stock Plan and the 1999 Nonstatutory Stock Option Plan.

Even if you elect not to participate in the option exchange program, your
incentive stock options may be affected.

We believe that you will not be subject to current U.S. federal income tax
if you do not elect to participate in the option exchange program. We also
believe that the option exchange program will not change the U.S. federal income
tax treatment of subsequent grants and exercises of your incentive stock options
(and sales of shares acquired upon exercises of such options) if you do not
participate in the option exchange program.

However, the IRS may characterize the option exchange program as a
"modification" of those incentive stock options, even if you decline to
participate. In 1991, the IRS issued a private letter ruling in which another
company's option exchange program was characterized as a "modification" of the
incentive stock options that could be exchanged. This does not necessarily mean
that our offer to exchange options will be viewed the same way. Private letter
rulings issued by the IRS contain the IRS's opinion regarding only the specific
facts presented by a specific person or company. The person or company
receiving the letter may rely on it, but no other person or company may rely on
the letter ruling or assume the same opinion would apply to their situation,
even if the facts at issue are similar to those in the letter. While such
letters do not provide certainty, they may indicate how the IRS will view a
similar situation. We therefore do not know if the IRS will assert the position
that our offer constitutes a "modification" of incentive stock options that can
be tendered. A successful assertion by the IRS of this position could extend
the options' holding period to qualify for favorable tax treatment.
Accordingly, to the extent you dispose of your incentive stock option shares
prior to the lapse of the new extended holding period, your incentive stock
option could be taxed similarly to a nonstatutory stock option.

-10-

BUSINESS-RELATED RISKS
----------------------

For a description of risks related to Tut's business, please see Section 21
of this Offer to Exchange.

-11-

INTRODUCTION

Tut Systems, Inc. ("Tut", "we" or "us") is offering eligible employees the
opportunity to exchange all outstanding options to purchase shares of Tut common
stock granted under the Tut Systems, Inc. 1992 Stock Plan (the "1992 Stock
Plan") the Tut Systems, Inc. 1998 Stock Plan (the "1998 Stock Plan") and the Tut
Systems, Inc. 1999 Nonstatutory Stock Option Plan ("1999 Nonstatutory Stock
Option Plan") for new options we will grant under either the 1998 Stock Plan or
the 1999 Nonstatutory Stock Option Plan, as determined by the Board of Directors
in their sole discretion. An "eligible employee" refers to all employees of Tut
or one of our U.S. subsidiaries, who are employees as of the date the offer
commences and as of the date the tendered options are cancelled, except
executive officers, vice-presidents, members of the Board of Directors and
employees receiving Workers' Adjustment and Retraining Notification ("WARN") Act
pay are not eligible to participate in the exchange offer. We are making the
offer upon the terms and the conditions described in this Offer to Exchange, the
related memorandum from Xxxxxx Xxxxxx dated May 11, 2001, the Election Form, the
Notice to Change Election from Accept to Reject and the Promise to Grant New
Option (which together, as they may be amended from time to time, constitute the
"offer" or "program").

The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the
unexercised options tendered by the eligible employee and accepted for exchange.
Subject to the terms and conditions of this offer, we will grant the new options
on or about the first business day which is at least six months and two days
after the date we cancel the options accepted for exchange. The grant date for
the new options will be December 13, 2001, unless the offer is extended, in
which case the grant date of the new options will be at least six months and two
days after the cancellation of the options accepted for exchange. You may only
tender options for all or none of the unexercised shares subject to an
individual option grant. All tendered options accepted by us through the offer
will be cancelled as promptly as practicable after 12:00 midnight New York City
Time on the date the offer ends. The offer is currently scheduled to expire on
June 8, 2001 (the "Expiration Date") and we expect to cancel options on June 11,
2001, or as soon as possible thereafter (the "Cancellation Date"). If you
tender any option grant for exchange, you will be required to also tender all
option grants that you received during the six month period prior to the
Cancellation Date. Since we currently expect to cancel all tendered options on
June 11, 2001, this means that if you participate in the offer, you will be
required to tender all options granted to you since December 11, 2000.

If you tender options for exchange as described in the offer, and we accept
your tendered options, then, subject to the terms of this offer, we will grant
you new options under either the 1998 Stock Plan or the 1999 Nonstatutory Stock
Option Plan. In order to receive a new option pursuant to this offer, you must
continue to be an employee as of the date on which the new options are granted,
which will be at least six months and two days after the Cancellation Date.

-12-

Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options.

Each new option granted will vest in accordance with the vesting schedule
of the cancelled options. Each new option granted will vest as follows:

. all shares equal to the number of shares that were fully vested under
the cancelled option on the Expiration Date will be fully vested;

As of May 10, 2001, options to purchase 2,864,530 of our shares were issued
and outstanding, of which options to purchase approximately 1,456,114 of our
shares, constituting approximately 50.8%, were held by eligible employees.

-13-

THE OFFER

1. Eligibility.
-----------

Employees are "eligible employees" if they are employees of Tut Systems,
Inc. ("Tut", "we" or "us") or one of our U.S. subsidiaries as of the date the
offer commences and the date on which the tendered options are cancelled, except
members of the Board of Directors, all executive officers and vice-presidents
and employees receiving WARN Act pay are not eligible to participate in the
---
offer. These executive officers and Board of Directors are listed in Schedule A
to this Offer to Exchange.

In order to receive a new option, you must remain an employee as of the
date the new options are granted, which will be at least six months and two days
after the date we cancel the options accepted for exchange. Thus, subject to
the terms and conditions of this offer, if Tut does not extend the offer and
your options are properly tendered by June 8, 2001 you will be granted new
options on or about December 13, 2001.

2. Number of options; Expiration date.
----------------------------------

Subject to the terms and conditions of the offer, we will exchange all
outstanding, unexercised options held by eligible employees that are properly
tendered and not validly withdrawn in accordance with Section 5 before the
"expiration date," as defined below, in return for new options. We will not
accept partial tenders of options for any portion of the shares subject to an
individual option grant. Therefore, you may tender options for all or none of
the shares subject to each of your eligible options. In addition, if you tender
any option grant for exchange, you will be required to also tender all option
grants that you received during the six month period prior to the date the
tendered option was cancelled. We currently expect to cancel all tendered
options on June 11, 2001, which means that if you participate in the offer, you
will be required to tender all options granted to you since December 11, 2000.

If your options are properly tendered and accepted for exchange, the
options will be cancelled and, subject to the terms of this offer, you will be
entitled to receive one or more new options to purchase the number of shares of
common stock equal to the number of shares subject to the options tendered by
you and accepted for exchange, subject to adjustments for any stock splits,
stock dividends and similar events. All new options will be subject to the
terms of the plan under which the particular new option is granted (either our
1998 Stock Plan or our 1999 Nonstatutory Stock Option Plan, at the discretion of
our Board of Directors), and to a new option agreement between you and us. If,
for any reason, you do not remain an employee of Tut or one of our U.S.
subsidiaries through the date we grant the new options, you will not receive any
new options or other compensation in exchange for your tendered options that
have been accepted for exchange. This means that if you resign, with or without
a good reason, or die or we terminate your employment, with or without cause,
prior to the date we grant the new options, you will not receive anything for
the options that you tendered and we cancelled.

The term "expiration date" means 12:00 midnight, New York City Time, on
June 8, 2001, unless and until we, in our discretion, have extended the period
of time during which the offer will remain open, in which event the term
"expiration date" refers to the latest time and date at which the

-14-

offer, as so extended, expires. See Section 18 of this Offer to Exchange for a
description of our rights to extend, delay, terminate and amend the offer.

If we decide to take any of the following actions, we will publish notice
or otherwise inform you in writing of such action:

. we increase or decrease the amount of compensation offered for the
options,

. we decrease the number of options eligible to be tendered in the offer,
or

. we increase the number of options eligible to be tendered in the offer
by an amount that exceeds 2% of the shares issuable upon exercise of the
options that are subject to the offer immediately prior to the increase.

If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of the increase or
decrease is first published, sent or given in the manner specified in Section 18
of this Offer to Exchange, we will extend the offer so that the offer is open at
least ten (10) business days following the publication, sending or giving of
notice.

We will also notify you of any other material change in the information
contained in this Offer to Exchange.

For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City Time.

3. Purpose of the offer.
--------------------

We issued the options outstanding under our 1992 Stock Plan, 1998 Stock
Plan and 1999 Nonstatutory Stock Option Plan to:

. attract and retain the best available personnel for positions of
substantial responsibility, and

. provide our eligible employees with additional incentive and to
promote the success of our business.

One of the keys to our continued growth and success is the retention of our
most valuable asset, our employees. The offer provides an opportunity for us to
offer our eligible employees a valuable incentive to stay with Tut. Some of our
outstanding options, whether or not they are currently exercisable, have
exercise prices that are significantly higher than the current market price of
our shares. By making this offer to exchange outstanding options for new
options that will have an exercise price equal to the market value of the shares
on the grant date, we intend to provide our eligible employees with the benefit
of owning options that over time may have a greater potential to increase in
value, create better performance incentives for employees and thereby maximize
stockholder value. Because we will not grant new options until at least six
months and two days after the date we cancel the options accepted for exchange,
the new options may have a higher exercise price than some or all of our current
outstanding options.

-15-

From time to time we engage in strategic transactions with business
partners, customers and other third parties. We may engage in transactions in
the future with these or other companies which could significantly change our
structure, ownership, organization or management or the make-up of our Board of
Directors, and which could significantly affect the price of our shares. If we
engage in such a transaction or transactions before the date we grant the new
options, our shares could increase (or decrease) in value, and the exercise
price of the new options could be higher (or lower) than the exercise price of
options you elect to have cancelled as part of this offer. For example, if our
common stock was acquired in a cash merger, the fair market value of our common
stock, and hence the price at which we grant the new options, would likely be at
a price at or near the cash price being paid for our common stock in the
transaction, yielding limited or no financial benefit to a recipient of the new
options for that transaction. In addition, in the event of an acquisition of
our company for stock, tendering option holders might receive options to
purchase shares of a different issuer. As is outlined in Section 10, the
exercise price of any new options granted to you in return for your tendered
options will be the fair market value of the underlying shares on the date of
grant, as determined by the closing price of our common stock reported by the
Nasdaq National Market for the last market trading day prior to the date of
grant. You will be at risk of any such increase in our share price before the
grant date of the new options for these or any other reasons.

Subject to the above, and except as otherwise disclosed in this offer to
exchange or in our filings with the SEC, we presently have no plans or proposals
that relate to or would result in:

. an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving our company,

. any purchase, sale or transfer of a material amount of our assets or
any of our subsidiaries,

. any material change in our present dividend rate or policy, or our
indebtedness or capitalization,

. any change in our present Board of Directors or management, including a
change in the number or term of directors or to fill any existing board
vacancies or to change any executive officer's material terms of
employment,

. any other material change in our corporate structure or business,

. our common stock being delisted from a national securities exchange or
not being authorized for quotation in an automated quotation system
operated by a national securities association,

. our common stock becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act,

. the suspension of our obligation to file reports pursuant to Section
15(d) of the Securities Exchange Act, or

. the acquisition by any person of an amount of our securities or the
disposition of an amount of any of our securities, or

-16-

. any change in charter or bylaws, or any actions which may impede the
acquisition of control of us by any person.

Neither we nor our Board of Directors makes any recommendation as to
whether you should tender or not tender your options, nor have we authorized any
person to make any such recommendation. You are urged to evaluate carefully all
of the information in this Offer to Exchange and to consult your own investment
and tax advisors. You must make your own decision whether or not to tender your
options for exchange.

4. Procedures for tendering options.
--------------------------------

Proper Tender of Options.
------------------------

To validly tender your options through the offer, you must, in accordance
with the terms of the Election Form, properly complete, execute and deliver the
Election Form to us via fax (fax # (000) 000-0000) or hand delivery to
Shareholder Services, Attention: Xxxx Xxxxxx along with any other required
documents. Xxxx Xxxxxx must receive all of the required documents before the
expiration date. The expiration date is 12:00 midnight New York City Time on
June 8, 2001.

The delivery of all documents, including Election Forms and any Notices to
Change Election From Accept to Reject and any other required documents, is at
your risk. If delivery is by mail, we recommend that you use registered mail
with return receipt requested. In all cases, you should allow sufficient time
to ensure timely delivery.

Determination of Validity; Rejection of Options; Waiver of Defects; No
----------------------------------------------------------------------
Obligation to Give Notice of Defects.
------------------------------------

We will determine, in our discretion, all questions as to the form of
documents and the validity, form, eligibility, including time of receipt, and
acceptance of any tender of options. Our determination of these matters will be
final and binding on all parties. We reserve the right to reject any or all
tenders of options that we determine are not in appropriate form or that we
determine are unlawful to accept. Otherwise, we will accept properly and timely
tendered options that are not validly withdrawn. We also reserve the right to
waive any of the conditions of the offer or any defect or irregularity in any
tender of any particular options or for any particular option holder. No tender
of options will be deemed to have been properly made until all defects or
irregularities have been cured by the tendering option holder or waived by us.
Neither we nor any other person is obligated to give notice of any defects or
irregularities in tenders, nor will anyone incur any liability for failure to
give any notice. This is a one-time offer, and we will strictly enforce the
offer period, subject only to an extension which we may grant in our sole
discretion.

Our Acceptance Constitutes an Agreement.
---------------------------------------

Your tender of options pursuant to the procedures described above
constitutes your acceptance of the terms and conditions of the offer. Our
acceptance for exchange of your options tendered by you through the offer will
constitute a binding agreement between us and you upon the terms and subject to
the conditions of the offer.

-17-

Subject to our rights to extend, terminate and amend the offer, we
currently expect that we will accept promptly after the expiration of the offer
all properly tendered options that have not been validly withdrawn.

5. Withdrawal Rights and Change of Election.
----------------------------------------

You may only withdraw your tendered options or change your election in
accordance with the provisions of this Section.

You may withdraw your tendered options at any time before 12:00 midnight,
New York City Time, on June 8, 2001. If we extend the offer beyond that time,
you may withdraw your tendered options at any time until the extended expiration
of the offer. In addition, if we have not accepted your tendered options for
exchange by 12:00 midnight, New York City Time, on July 9, 2001, you may
withdraw your tendered options at any time after July 9, 2001.

To validly withdraw tendered options, you must deliver to Shareholder
Services, Attention: Xxxx Xxxxxx via fax (fax # (000) 000-0000) or hand
delivery, in accordance with the procedures listed in Section 4 above, a signed
and dated Notice to Change Election From Accept to Reject, with the required
information, while you still have the right to withdraw the tendered options.

To validly change your election regarding the tender of particular options,
you must deliver a new Election Form to Shareholder Services, Attention: Xxxx
Xxxxxx via fax (fax # (000) 000-0000) or hand delivery, in accordance with the
procedures listed in Section 4 above. If you deliver a new Election Form that
is properly signed and dated, it will replace any previously submitted Election
Form, which will be disregarded. The new Election Form must be signed and dated
and must specify:

. the name of the option holder who tendered the options,

. the grant number of all options to be tendered,

. the grant date of all options to be tendered,

. the exercise price of all options to be tendered, and

. the total number of unexercised option shares subject to each option to
be tendered.

Except as described in the following sentence, the Notice to Change
Election From Accept to Reject and any new or amended Election Form must be
executed by the option holder who tendered the options to be withdrawn exactly
as the option holder's name appears on the option agreement or agreements
evidencing such options. If the signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or another
person acting in a fiduciary or representative capacity, the signer's full title
and proper evidence of the authority of such person to act in that capacity must
be indicated on the Notice to Change Election From Accept to Reject or any new
or amended Election Form.

You may not rescind any withdrawal, and any options you withdraw will
thereafter be deemed not properly tendered for purposes of the offer, unless you
properly re-tender those options before the expiration date by following the
procedures described in Section 4.

-18-

Neither we nor any other person is obligated to give notice of any defects
or irregularities in any Notice to Change Election From Accept to Reject or any
new or amended Election Form, nor will anyone incur any liability for failure to
give any notice. We will determine, in our discretion, all questions as to the
form and validity, including time of receipt, of Notices to Change Election From
Accept to Reject and new or amended Election Forms. Our determination of these
matters will be final and binding.

6. Acceptance of options for exchange and issuance of new options.
--------------------------------------------------------------

Upon the terms and conditions of the offer and as promptly as practicable
following the expiration date, we will accept for exchange and cancel options
properly tendered and not validly withdrawn before the expiration date. Once
the options are cancelled, you will no longer have any rights with respect to
those options. Subject to the terms and conditions of this offer, if your
options are properly tendered and accepted for exchange, these options will be
cancelled as of the date of our acceptance, which we anticipate to be June 11,
2001, and you will be granted new options on or about the first business day
that is at least six months and two days after the date we cancel the options
accepted for exchange. Our Board of Directors will select the actual grant date
for the new options. Thus, subject to the terms and conditions of this offer,
if your options are properly tendered by June 8, 2001, the scheduled expiration
date of the offer, and accepted for exchange and cancelled on June 11, 2001 you
will be granted new options on or about December 13, 2001. If we accept and
cancel options properly tendered for exchange after June 11, 2001, the period in
which the new options will be granted will be similarly delayed. As promptly as
practicable after we accept and cancel options tendered for exchange, we will
issue to you a Promise to Grant New Option, by which we will commit to grant
stock options to you on a date no earlier than December 13, 2001 covering the
same number of shares as the options cancelled pursuant to this offer, provided
that you remain an eligible employee on the date on which the grant is to be
made.

If we accept options you tender in the offer, you will not receive any
other option grants before the grant date for your new options, such as annual,
bonus or promotional options, for which you may otherwise be eligible before the
new option grant date in order for us to avoid incurring compensation expenses
against our earnings because of accounting rules that could apply to these
interim option grants as a result of the offer.

Your new options will entitle you to purchase the number of shares which is
equal to the number of shares subject to the options you tender, as adjusted for
any stock splits, stock dividends and similar events. If, for any reason, you
are not an employee of Tut or one of our U.S. subsidiaries through the date we
grant the new options, you will not receive any new options or other
compensation in exchange for your tendered options which have been cancelled
pursuant to this offer.

We will not accept partial tenders of your eligible option grants.
However, you may tender the remaining portion of an option which you have
partially exercised. Accordingly, you may tender one or more of your option
grants, but you may only tender all of the unexercised shares subject to that
option or none of those shares. In addition, if you tender any option grant for
exchange, you will be required to also tender all option grants that you
received during the six month period prior to the cancellation of your tendered
options. We currently expect to cancel all tendered options on June 11, 2001,
which means that if you participate in the offer, you will be required to tender
all options granted to you since December 11, 2000.

-19-

Within forty-eight (48) hours of the receipt of your Election Form or your
Notice to Change Election From Accept to Reject, Tut will e-mail you a
confirmation of receipt. However, this is not by itself an acceptance of the
options for exchange. For purposes of the offer, we will be deemed to have
accepted options for exchange that are validly tendered and not properly
withdrawn as of the time when we give oral or written notice to Shareholder
Services or Xxxx Xxxxxx, or to the option holders of our acceptance for exchange
of such options, which notice may be made by press release. Subject to our
rights to extend, terminate and amend the offer, we currently expect that we
will accept promptly after the expiration of the offer all properly tendered
options that are not validly withdrawn. We will send a Promise to Grant New
Option to each option holder from whom we accept properly tendered options.

For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City Time.

7. Conditions of the offer.
-----------------------

Notwithstanding any other provision of the offer, we will not be required
to accept any options tendered for exchange, and we may terminate or amend the
offer, or postpone our acceptance and cancellation of any options tendered for
exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities
Exchange Act, if at any time on or after May 11, 2001, and prior to the
expiration date, any of the following events has occurred, or has been
determined by us to have occurred, and, in our reasonable judgment in any case
and regardless of the circumstances giving rise to the event, including any
action or omission to act by us, the occurrence of such event or events makes it
inadvisable for us to proceed with the offer or with such acceptance and
cancellation of options tendered for exchange:

. there shall have been threatened or instituted or be pending any action
or proceeding by any governmental, regulatory or administrative agency
or authority that directly or indirectly challenges the making of the
offer, the acquisition of some or all of the tendered options pursuant
to the offer, or the issuance of new options, or otherwise relates in
any manner to the offer, or that, in our reasonable judgment, could
materially and adversely affect our business, condition, income,
operations or prospects or materially impair the contemplated benefits
of the offer to Tut;

. there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be eligible to the offer or Tut, by any
court or any authority, agency or tribunal that, in our reasonable
judgment, would or might directly or indirectly:

(1) make the acceptance for exchange of, or issuance of new options
for, some or all of the tendered options illegal or otherwise
restrict or prohibit consummation of the offer or that otherwise
relates in any manner to the offer;

(2) delay or restrict our ability, or render us unable, to accept for
exchange, or issue new options for, some or all of the tendered
options;

(3) materially impair the contemplated benefits of the offer to Tut; or

-20-

(4) materially and adversely affect Tut's business, condition, income,
operations or prospects or materially impair the contemplated
benefits of the offer to Tut;

. there shall have occurred any change, development, clarification or
position taken in generally accepted accounting standards that could or
would require us to record compensation expense against our earnings in
connection with the offer for financial reporting purposes;

. a tender or exchange offer for some or all of our shares, or a merger or
acquisition proposal for Tut, shall have been proposed, announced or
made by another person or entity or shall have been publicly disclosed;
or

. any change or changes shall have occurred in Tut's business, condition,
assets, income, operations, prospects or stock ownership that, in our
reasonable judgment, is or may be material to Tut or may materially
impair the contemplated benefits of the offer to Tut.

The conditions to the offer are for Tut's benefit. We may assert them in
our discretion regardless of the circumstances giving rise to them before the
expiration date. We may waive them, in whole or in part, at any time and from
time to time prior to the expiration date, in our discretion, whether or not we
waive any other condition to the offer. Our failure at any time to exercise any
of these rights will not be deemed a waiver of any such rights. The waiver of
any of these rights with respect to particular facts and circumstances will not
be deemed a waiver with respect to any other facts and circumstances. Any
determination we make concerning the events described in this Section 7 will be
final and binding upon all persons.

8. Source and amount of consideration.
----------------------------------

We will issue new options to purchase shares of common stock under either
our 1998 Stock Plan or our 1999 Nonstatutory Stock Option Plan, as determined by
our Board of Directors in their sole discretion, in exchange for the outstanding
options properly tendered and accepted for exchange by us which will be
cancelled. The number of shares subject to the new options to be granted to
each option holder will be equal to the number of shares subject to the options
tendered by the option holder and accepted for exchange and cancelled by us, as
adjusted for any stock splits, reverse stock splits, stock dividends and similar
events. If we receive and accept tenders of all outstanding options from
eligible employees, subject to the terms and conditions of this offer we will
grant new options to purchase a total of approximately 1,456,114 shares of
common stock. The shares issuable upon exercise of these new options would
equal approximately 8.9% of the total shares of our common stock outstanding as
of March 31, 2001.

9. Effect of a Change of Control Prior to the Granting of New Options.
------------------------------------------------------------------

If we are acquired or involved in a similar transaction before the new
options are granted, we would require the surviving corporation to inherit our
obligation to grant new options. The new options would still be granted on the
new grant date, but they would be options to purchase the shares of the
surviving corporation. The exercise price would be equal to the fair market
value of the surviving company's stock on the date of grant. For example, if we
were acquired by means of a merger, the number of shares that you would have
received, multiplied by the exchange ratio that was used in the merger.

-21-

10. Terms of New Options.
--------------------

The new options will be granted under either our 1998 Stock Plan or our
1999 Nonstatutory Stock Option Plan (together the "Plans"), as determined by our
Board of Directors in their sole discretion. A new option agreement will be
entered into between Tut and each option holder who has tendered options in the
offer for every new option granted. The terms and conditions of the new options
may vary from the terms and conditions of the options tendered for exchange, but
generally will not substantially and adversely affect the rights of option
holders. Because we will not grant new options until at least six months and
two days after the date we cancel the options accepted for exchange, the new
options may have a higher exercise price than some or all of the options,
including as a result of a significant corporate event. The following
description summarizes the material terms of our 1998 Stock Plan and the 1999
Nonstatutory Stock Option Plan and the options granted under each of the Plans.

General.
-------

1998 Stock Plan

The maximum number of shares currently reserved for issuance through the
exercise of options granted under our 1998 Stock Plan is 1,733,218, plus an
annual increase added on the first day of each fiscal year equal to the lesser
of 375,000 shares or 3% of our outstanding shares on the first day of our fiscal
year or a lesser number of shares determined by our Board of Directors. As of
May 10, 2001, 687,867 shares are available for grant under our 1998 Stock Plan.
Our 1998 Stock Plan permits the granting of options intended to qualify as
incentive stock options under the Internal Revenue Code and options that do not
qualify as incentive stock options, referred to as nonstatutory stock options.

1999 Non Statutory Stock Option Plan

The maximum number of shares reserved for issuance through the exercise of
options granted under our 1999 Nonstatutory Stock Option Plan is 1,825,000
shares. As of May 10, 2001 413 shares are available for grant under our 1999
Nonstatutory Plan. Our 1999 Nonstatutory Stock Option Plan permits only the
granting of options that do not qualify as incentive stock options, referred to
as nonstatutory stock options.

Administration.
--------------

The Plans are administered by the Board of Directors or a committee
appointed by the Board of Directors (the "Administrator"). Subject to the other
provisions of the Plans, the Administrator has the power to determine the terms
and conditions of the options granted, including the exercise price, the number
of shares subject to the option and the exercisability of the options.

Term.
----

Options generally have a term of ten (10) years. Incentive stock options
granted to an employee who, at the time the incentive stock option is granted,
owns stock representing more than 10% of the voting rights of all classes of
stock of Tut or a subsidiary have a term of no more than five (5) years.

-22-

Termination.
-----------

Except as your option agreement otherwise provides, your options will
terminate following the termination of your employment, unless the options are
exercised, to the extent that they were exercisable immediately before such
termination, within the time frame permitted by your stock option agreement or,
if no time period is specified in your option agreement, within three (3) months
following your termination. In the event that the termination of your
employment is by reason of permanent or total disability or death, you, or your
executors, administrators, legatees or distributees of your estate, may exercise
any option held by you at the date of your employment termination, to the extent
that it was exercisable immediately before such termination, within the time
frame specified in your option agreement or, if no time is specified, for twelve
(12) months following such termination.

The termination of your option under the circumstances specified in this
section will result in the termination of your interests in our Plans. In
addition, your option may terminate, together with our stock option plans and
all other outstanding options issued to other employees, following the
occurrence of certain corporate events, as described below.

Exercise Price.
--------------

The Administrator determines the exercise price at the time the option is
granted. For all eligible employees, the exercise price per share of the new
options will be 100% of the fair market value on the date of grant, as
determined by the closing price of our common stock reported by the Nasdaq
National Market for the last market trading day prior to the date of grant.

However, the exercise price may not be less than 110% of the closing price
per share reported by the Nasdaq National Market on the date of grant for
options intended to qualify as incentive stock options, granted to an employee
who, at the time the incentive stock option is granted, owns stock representing
more than 10% of the voting rights of all classes of stock of Tut or a
subsidiary.

Vesting and Exercise.
--------------------

Each stock option agreement specifies the term of the option and the date
when the option becomes exercisable. The terms of vesting are determined by the
Administrator. Options granted by us generally vest at a rate of 25% of the
shares subject to the option after twelve months, and then 1/48(th) of the
shares subject to the option vest each month thereafter, provided the employee
remains continuously employed by us.

Each new option granted will vest as follows:

. all shares equal to the number of shares that were fully vested under
the cancelled option on the Expiration Date will be fully vested;

-23-

The following is an example:

New Option:
----------
Total number of shares: 1,000
Vesting start date: 12/13/01
Grant date: 12/13/01
Total number of shares vested on grant date: 625

500 (portion of cancelled option that was vested on the Expiration Date)
+125 (portion of cancelled option that would have been fully vested on
the date the new options are granted) = 625

Total number of shares unvested on grant date: 375

Vesting schedule for unvested shares: 1/5 of remaining shares for 5
months (17 months remaining until scheduled full vesting date for
cancelled option shortened by twelve months).

Fully vested: 5/13/02.

Payment of Exercise Price.
-------------------------

You may exercise your options, in whole or in part, by delivery of a
written notice to us together with a share subscription or purchase form which
is accompanied by payment in full of the eligible exercise price. The
permissible methods of payment of the option exercise price are determined by
the Administrator and may include the following:

. cash,

. check,

. promissory note,

. certain other shares of our common stock,

. consideration received by Tut under a cashless exercise program
implemented by Tut in connection with the Plans,

. a reduction in the amount of any Company liability to the optionee,

-24-

. a combination of the foregoing methods, or

. such other consideration to the extent permitted by applicable laws.

Adjustments Upon Certain Events.
-------------------------------

If there is a change in our capitalization, such as a stock split, reverse
stock split, stock dividend or other similar event, and the change results in an
increase or decrease in the number of issued shares without receipt of
consideration by us, an appropriate adjustment will be made to the price of
each option and the number of shares subject to each option.

In the event there is a sale of all or substantially all of our assets, or
we merge with another corporation, your options will be assumed or replaced with
new options of the successor corporation. If the successor corporation does not
assume or substitute your options, they will automatically become fully vested
and exercisable for a period of fifteen (15) days from the date we provide you
with notice of the accelerated vesting and the option will terminate at the end
of the fifteen (15) days.

In the event there is a liquidation or dissolution of Tut, your outstanding
options will terminate immediately prior to the consummation of the liquidation
or dissolution. The Administrator may, however, provide for the exercisability
of any option.

Termination of Employment.
-------------------------

If, for any reason, you are not an employee of Tut or one of our U.S.
subsidiaries from the date you tender options through the date we grant the new
options, you will not receive any new options or any other compensation in
exchange for your tendered options that have been accepted for exchange. This
means that if you resign, with or without good reason, or die, we terminate your
employment, with or without cause, or you transfer employment to a non-U.S.
subsidiary before the date we grant the new options, you will not receive
anything for the options that you tendered and, because we will have cancelled
the options that you tendered, we will not be able to return your old options to
you.

Transferability of Options.
--------------------------

New options, whether incentive stock options or non-qualified stock
options, may not be transferred, other than by will or the laws of descent and
distribution. In the event of your death, options may be exercised by a person
who acquires the right to exercise the option by bequest or inheritance.

Registration of Option Shares.
-----------------------------

1,000,000 shares of common stock issuable upon exercise of options under
our 1998 Stock Plan and 1,000,000 shares issuable upon exercise of options under
our 1999 Nonstatutory Stock Option Plan have been registered under the
Securities Act on registration statements on Form S-8 filed with the SEC. All
the shares issuable upon exercise of all new options to be granted pursuant to
the offer will be registered under the Securities Act. Unless you are one of
our affiliates, you will be able to sell your option shares free of any transfer
restrictions under applicable U.S. securities laws.

-25-

U.S. Federal Income Tax Consequences.
------------------------------------

You should refer to Section 17 of this Offer to Exchange for a discussion
of the U.S. federal income tax consequences of the new options and the options
tendered for exchange, as well as the consequences of accepting or rejecting the
new options under this offer to exchange. We also recommend that you consult
with your own tax advisor to determine the tax and social insurance consequences
of this transaction that apply to your individual circumstances.

Our statements in this Offer to Exchange concerning our 1998 Stock Plan and
1999 Nonstatutory Stock Option Plan and the new options are merely summaries and
do not purport to be complete. The statements are subject to, and are qualified
in their entirety by reference to, all provisions of our 1998 Stock Plan and
1999 Nonstatutory Stock Option Plan and the forms of option agreement
thereunder. Please contact us at Tut Systems, Inc., 0000 Xxxx Xxx Xxxxxxx
Xxxx., Xxxxxxxxxx, Xxxxxxxxxx, 00000 (telephone: (000) 000-0000), to receive a
copy of our 1998 Stock Plan, 1999 Nonstatutory Stock Option Plan and the form of
option agreements thereunder. We will promptly furnish you copies of these
documents at our expense.

11. Information concerning Tut.
--------------------------

Our principal executive offices are located at 0000 Xxxx Xxx Xxxxxxx Xxxx.,
Xxxxxxxxxx, Xxxxxxxxxx, 00000, and our telephone number (000) 000-0000. We were
incorporated in California in August 1983, began operations in August 1991, and
reincorporated in Delaware in September 1998.

We design, develop and market advanced communications products which enable
high-speed data access over the copper infrastructure of telephone companies, as
well as the copper telephone wires in residential and commercial multi-tenant
buildings. Our products incorporate high-bandwidth access multiplexers,
associated modems and routers, ethernet extension products and integrated
network management software. We use our proprietary FastCopper technologies to
deliver cost-effective, scalable and easy to deploy solutions that exploit the
underutilized bandwidth of copper telephone wires within these buildings. Our
products also provide service providers with enhanced capabilities such as
subscriber management, bandwidth management, plug and play installation, portal
redirection, internet protocol address management, or IP address management,
service authorization and network address translation. In addition, we recently
introduced our IntelliPOP(TM) product which utilizes our proprietary Signature
Switch(TM) technology and is designed to allow service providers to manage and
guarantee bandwidth and service performance across applications such as IP
telephony, virtual private networking, or VPN networking, videoconferencing,
video-on-demand, file transfer and Internet access and to efficiently configure
IntelliPOP for the delivery of these services according to the unique market
requirements of multi-tenant building owners and end-user subscribers on an
individual or collective basis. Our systems and related services are designed
with the specific requirements of the multi-tenant unit, or MTU, market in mind
and enable service providers in this market to increase their revenue by
providing additional services and increase customer retention through bundled
service offerings.

12. Financial Information.
---------------------

The financial information set forth on pages 37 through 60 of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 and on pages 3
through 11 of our Quarterly Report on Form 10-Q for the quarter ending March 31,
2001 are incorporated herein by reference.

-26-

Copies of our Annual Report on Form 10-K for the fiscal year ended December 31,
2000 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
will be distributed with this Offer to Exchange. See "Additional Information"
beginning on page 32 for instructions on how you can obtain additional copies of
these and of other Tut SEC filings, including filings that contain our financial
statements.

13. Price range of shares underlying the options.
--------------------------------------------

The shares underlying your options are currently traded on the Nasdaq
National Market under the symbol "TUTS". The following table shows, for the
periods indicated, the high and low sales prices per share of our common stock
as reported by the Nasdaq National Market, as adjusted for stock dividends and
stock splits.

High Low
------- ------

Fiscal Year 2001
Quarter ended March 31, 2001.................................... $ 8.03 $ 2.94
Fiscal Year 2000
Quarter ended December 31, 2000................................. $ 79.25 $ 6.16
Quarter ended September 30, 2000................................ $115.50 $55.44
Quarter ended June 30, 2000..................................... $ 63.13 $31.38
Quarter ended March 31, 2000.................................... $ 72.38 $39.00
Fiscal Year 1999
Quarter ended December 31,1999.................................. $ 56.50 $24.94
Quarter ended September 30, 1999................................ $ 47.25 $22.44
Quarter ended June 30, 1999..................................... $ 70.19 $38.00
Quarter ended March 31, 1999.................................... $ 76.13 $39.75

As of May 10, 2001, the last reported sale price during regular trading
hours of our common stock, as reported by the Nasdaq National Market was $3.20
per share.

We recommend that you evaluate current market quotes for our common stock,
among other factors, before deciding whether or not to tender your options.

14. Interests of directors and officers; transactions and arrangements
------------------------------------------------------------------
concerning the options.
----------------------

A list of our directors and executive officers is attached to this Offer to
Exchange as Schedule A. As of May 10, 2001, our executive officers and non-
employee directors (fourteen (14) persons) as a group owned options outstanding
under our 1992 Stock Plan to purchase a total of 152,198 of our shares, which
represented approximately 59.1% of the shares subject to all options outstanding
under that plan as of that date. Directors and executive officers as a group
owned options outstanding under our 1998 Stock Plan to purchase a total of
639,837 of our shares, which represented approximately 67.5% of the shares
subject to all options outstanding under that plan as of that date. Directors
and executive officers as a group owned options outstanding under our 1999
Nonstatutory Stock Option Plan to purchase a total of 124,000 of our shares,
which represented approximately 7.1% of the shares subject to all options
outstanding under that plan as of that date. Directors and executive officers,
as a group owned options outstanding under all of our stock plans to purchase a
total of 916,035 of our shares, which represented approximately 31.0% of the
shares

-27-

subject to all options outstanding under the plans as of that date.
These options to purchase our shares owned by directors and executive officers
are not eligible to be tendered in the offer.

In the sixty (60) days prior to and including May 10, 2001, the executive
officers and directors of Tut had the following transactions involving options
to purchase our common stock or in our common stock:

. On March 19, 2001, Xxxx Xxxxxxxxx was granted two options to purchase a
total of 90,000 shares at $3.75 per share.

. On March 19, 2001, Xxx Xxxx was granted two options to purchase a total
of 50,000 shares at $3.75 per share.

. On March 19, 2001, Xxxxx Xxxxxx was granted an option to purchase 25,000
shares at $3.75 per share.

. On March 19, 2001, Xxxxxx Xxxxxxxx was granted an option to purchase
75,000 shares at $3.75 per share.

. On March 19, 2001, Xxxxxxx Xxxxx was granted an option to purchase
30,000 shares at $3.75 per share.

. On March 19, 0000, Xxxxx Xxxxxx was granted an option to purchase 30,000
shares at $3.75 per share.

. On April 30, 2001, Xxxxx Xxxxxx purchased 1,223 shares at $2.125
pursuant to our 1998 Employee Stock Purchase Plan.

. On April 30, 2001, Avi Caspi purchased 1,089 shares at $2.125 pursuant
to our 1998 Employee Stock Purchase Plan.

. On April 30, 2001, Xxx X'Xxxxx purchased 738 shares at $2.125 pursuant
to our 1998 Employee Stock Purchase Plan.

. On April 30, 2001, Xxxxxxx Xxxxx purchased 738 shares at $2.125
pursuant to our 1998 Employee Stock Purchase Plan.

Except as otherwise described above, there have been no transactions in
options to purchase our shares or in our shares which were effected during the
60 days prior to and including May 10, 2001 by Tut or, to our knowledge, by any
executive officer or director of Tut.

15. Status of options acquired by us in the offer; accounting
---------------------------------------------------------
consequences of the offer.
-------------------------

Options we acquire through the offer will be cancelled and the shares
subject to those options will be returned to the pool of shares (other than
those acquired from our 1992 Stock Plan) available for grants of new options
under the plans pursuant to which they were originally granted. To the extent
these shares are not fully reserved for issuance upon exercise of the new
options to be granted in connection with the offer, the shares will be available
for future awards to employees and other eligible plan participants without
further stockholder action, except as required by applicable law or

-28-

the rules of the Nasdaq National Market or any other securities quotation system
or any stock exchange on which our shares are then quoted or listed.

We believe that we will not incur any compensation expense solely as a
result of the transactions contemplated by the offer because:

. we will not grant any new options until a business day that is at least
six months and two days after the date that we accept and cancel options
tendered for exchange, and

. the exercise price of all new options will equal the market value of the
shares of common stock on the date we grant the new options.

If we were to grant the new options on any date which is earlier than six
months and two days after the date we cancel the options accepted for exchange,
we would be subject to onerous accounting charges. We would be required for
financial reporting purposes to treat the new options as variable awards. This
means that we would be required to record the non-cash accounting impact of
decreases and increases in the company's share price as a compensation expense
for the new options issued under this offer. We would have to continue this
variable accounting for these new options until they were exercised, forfeited
or terminated. The higher the market value of our shares, the greater the
compensation expense we would have to record. By deferring the grant of the new
options for at least six months and two days, we believe we will not have to
treat the new options as variable awards.

16. Legal matters; regulatory approvals.
-----------------------------------

We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We cannot assure you that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for exchange and to issue
new options for tendered options is subject to the conditions described in
Section 7.

If we are prohibited by applicable laws or regulations from granting new
options during the period beginning immediately after the day that is six months
and two days from the date that we cancel the options accepted for exchange, in
which period we currently expect to grant the new options, we will not grant any
new options. Such a prohibition could result from changes in SEC rules,
regulations or policies or Nasdaq listing requirements. We are unaware of any
such prohibition at this time, and we will use reasonable efforts to effect the
grant, but if the grant is prohibited throughout the period we will not grant
any new options and you will not get any other compensation for the options you
tendered. We do not anticipate any such prohibitions and are referring to the
possibility in an abundance of caution.

-29-

17. Material U.S. Federal Income Tax Consequences.
----------------------------------------------

The following is a general summary of the material U.S. federal income tax
consequences of the exchange of options pursuant to the offer. This discussion
is based on the Internal Revenue Code, its legislative history, Treasury
Regulations thereunder and administrative and judicial interpretations thereof
as of the date of the offer, all of which are subject to change, possibly on a
retroactive basis. This summary does not discuss all of the tax consequences
that may be relevant to you in light of your particular circumstances, nor is it
intended to be applicable in all respects to all categories of option holders.

Option holders who exchange outstanding options for new options should not
be required to recognize income for federal income tax purposes at the time of
the exchange. We believe that the exchange will be treated as a non-taxable
exchange. We advise all option holders considering exchanging their options to
meet with their own tax advisors with respect to the federal, state, and local
tax consequences of participating in the offer.

Incentive Stock Options
-----------------------

Under current law, an option holder will not realize taxable income upon
the grant of an incentive stock option under our 1998 Stock Plan. In addition,
an option holder generally will not realize taxable income upon the exercise of
an incentive stock option. However, an option holder's alternative minimum
taxable income will be increased by the amount that the aggregate fair market
value of the shares underlying the option, which is generally determined as of
the date of exercise, exceeds the aggregate exercise price of the option.
Except in the case of an option holder's death or disability, if an option is
exercised more than three months after the option holder's termination of
employment, the option ceases to be treated as an incentive stock option and is
subject to taxation under the rules that apply to nonstatutory stock options.

If an option holder sells the option shares acquired upon exercise of an
incentive stock option, the tax consequences of the disposition depend upon
whether the disposition is qualifying or disqualifying. The disposition of the
option shares is qualifying if it is made:

. more than two years after the date the incentive stock option was
granted, and

. more than one year after the date the incentive stock option was
exercised.

If the disposition of the option shares is qualifying, any excess of the
sale price of the option shares, over the exercise price of the option will be
treated as long-term capital gain taxable to the option holder at the time of
the sale. Any such capital gain will be taxed at the long-term capital gain
rate in effect at the time of sale.

If the disposition is not qualifying, which we refer to as a "disqualifying
disposition," the excess of the fair market value of the option shares on the
date the option was exercised, over the exercise price will be taxable income to
the option holder at the time of the disposition. Of that income, the amount up
to the excess of the fair market value of the shares at the time the option was
exercised over the exercise price will be ordinary income for income tax
purposes and the balance, if any, will be long-term or short-term capital gain,
depending upon whether or not the shares were sold more than one year after the
option was exercised.

-30-

Unless an option holder engages in a disqualifying disposition, we will not
be entitled to a deduction with respect to an incentive stock option. If an
option holder engages in a disqualifying disposition, we will be entitled to a
deduction equal to the amount of compensation income taxable to the option
holder.

If you tender incentive stock options and those options are accepted for
exchange, the new options will be granted as incentive stock options to the
maximum extent they qualify. One requirement for options to qualify as
incentive stock options is that the value of shares subject to options that
first become exercisable in any calendar year cannot exceed $100,000, as
determined using the option exercise price. The excess value is deemed to be a
nonstatutory stock option. You should note that there is a risk that any
incentive stock options you hold may be affected, even if you do not participate
in the exchange. We believe that you will not be subject to current U.S.
federal income tax if you do not elect to participate in the option exchange
program. We also believe that the option exchange program will not change the
U.S. federal income tax treatment of subsequent grants and exercises of your
incentive stock options (and sales of shares acquired upon exercise of such
options) if you do not participate in the option exchange program.

However, the IRS may characterize the option exchange program as a
"modification" of those incentive stock options, even if you decline to
participate. In 1991, the IRS issued a private letter ruling in which another
company's option exchange program was characterized as a "modification" of the
incentive stock option that could be exchanged. This does not necessarily mean
that our offer to exchange options will be viewed the same way. Private letter
rulings issued by the IRS contain the IRS's opinion regarding only the specific
facts presented by a specific person or company. The person or company
receiving the letter may rely on it, but no other person or company may rely on
the letter ruling or assume the same opinion would apply to their situation,
even if the facts at issue are similar. While such letters do not provide
certainty, they may indicate how the IRS will view a similar situation. We
therefore do not know if the IRS will assert the position that our offer
constitutes a "modification" of incentive stock options that can be tendered. A
successful assertion by the IRS of this position could extend the options'
holding period to qualify for favorable tax treatment. Accordingly, to the
extent you dispose of your incentive stock option shares prior to the lapse of
the new extended holding period, your incentive stock option could be taxed
similarly to a nonstatutory stock option.

Nonstatutory Stock Options.
--------------------------

Under current law, an option holder will not realize taxable income upon
the grant of an option which is not qualified as an incentive stock option, also
referred to as a nonstatutory stock option. However, when an option holder
exercises the option, the difference between the exercise price of the option,
and the fair market value of the shares subject to the option on the date of
exercise will be compensation income taxable to the option holder.

We will be entitled to a deduction equal to the amount of compensation
income taxable to the option holder if we comply with eligible reporting
requirements.

We recommend that you consult your own tax advisor with respect to the
federal, state and local tax consequences of participating in the offer.

-31-

18. Extension of offer; termination; amendment.
------------------------------------------

We expressly reserve the right, in our discretion, at any time and from
time to time, and regardless of whether or not any event listed in Section 7 has
occurred or is deemed by us to have occurred, to extend the period of time
during which the offer is open and thereby delay the acceptance for exchange of
any options by giving oral or written notice of such extension to the option
holders or making a public announcement thereof.

We also expressly reserve the right, in our reasonable judgment, prior to
the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options tendered for exchange, regardless of
whether any event listed in Section 7 has occurred or is deemed by us to have
occurred, by giving oral or written notice of such termination or postponement
to you or by making a public announcement thereof. Our reservation of the right
to delay our acceptance and cancellation of options tendered for exchange is
limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act, which
requires that we must pay the compensation offered or return the options
tendered promptly after termination or withdrawal of a tender offer.

Subject to compliance with applicable law, we further reserve the right, in
our discretion, and regardless of whether any event listed in Section 7 has
occurred or is deemed by us to have occurred, to amend the offer in any respect,
including, without limitation, by decreasing or increasing the compensation
offered in the offer to option holders or by decreasing or increasing the number
of options being sought in the offer.

Amendments to the offer may be made at any time and from time to time by
public announcement of the amendment. In the case of an extension, the
amendment must be issued no later than 9:00 a.m., New York City Time, on the
next business day after the last previously scheduled or announced expiration
date. Any public announcement made through the offer will be disseminated
promptly to option holders in a manner reasonably designated to inform option
holders of the change. Without limiting the manner in which we may choose to
make a public announcement, except as required by applicable law, we have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a press release to the Dow Xxxxx News Service.

If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the Securities Exchange Act. These rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer, other than a change in price
or a change in percentage of securities sought, will depend on the facts and
circumstances, including the relative materiality of such terms or information.

If we decide to take any of the following actions, we will publish notice
or otherwise inform you in writing of these actions:

. we increase or decrease the amount of compensation offered for the
options,

. we decrease the number of options eligible to be tendered in the offer,
or

-32-

If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of such increase
or decrease is first published, sent or given in the manner specified in this
Section, we will extend the offer so that the offer is open at least ten (10)
business days following the publication, sending or giving of notice.

For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City Time.

19. Fees and expenses.
-----------------

We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of options pursuant to this Offer to Exchange.

20. Additional information.
----------------------

This Offer to Exchange is part of a Tender Offer Statement on Schedule TO
that we have filed with the SEC. This Offer to Exchange does not contain all of
the information contained in the Schedule TO and the exhibits to the Schedule
TO. We recommend that you review the Schedule TO, including its exhibits, and
the following materials which we have filed with the SEC before making a
decision on whether to tender your options:

1. Tut's annual report on Form 10-K for our fiscal year ended December 31,
2000, filed with the SEC on April 2, 2001;

2. The description of our common stock contained in our Registration
Statement on Form 8-A, filed with the SEC on January 22, 1999 and

3. Tut's definitive proxy statement on Schedule 14A filed with the SEC on
April 3, 2001.

4. Tut's quarterly report on Form 10-Q for the quarter ended March 31,
2001, filed with the SEC on May 11, 2001.

These filings, our other annual, quarterly and current reports, our proxy
statements and our other SEC filings may be examined, and copies may be
obtained, at the following SEC public reference rooms:

000 Xxxxx Xxxxxx, X.X. 7 World Trade Center 000 Xxxx Xxxxxxx Xxxxxx
Xxxx 0000 Suite 1300 Suite 1400
Washington, D.C. 20549 Xxx Xxxx, Xxx Xxxx 00000 Xxxxxxx, Xxxxxxxx 00000

You may obtain information on the operation of the public reference rooms
by calling the SEC at 1-800-SEC-0330.

-33-

Our SEC filings are also available to the public on the SEC's Internet site
at xxxx://xxx.xxx.xxx.

Our common stock is quoted on the Nasdaq National Market under the symbol
"TUTS" and our SEC filings can be read at the following Nasdaq address:

Nasdaq Operations
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000

Each person to whom a copy of this Offer to Exchange is delivered may obtain a
copy of any or all of the documents to which we have referred you, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents) at no cost, by writing to us at Tut Systems,
Inc., 0000 Xxxx Xxx Xxxxxxx Xxxx., Xxxxxxxxxx, Xxxxxxxxxx, 00000, or telephoning
us at (000) 000-0000.

As you read the foregoing documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this Offer to Exchange, you should rely
on the statements made in the most recent document.

The information contained in this Offer to Exchange about Tut should be
read together with the information contained in the documents to which we have
referred you.

21. Miscellaneous.
-------------

This Offer to Exchange and our SEC reports referred to above include
"forward-looking statements." When used in this Offer to Exchange, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Tut or our management are intended to identify these forward-looking
statements. All statements by us regarding our expected future financial
position and operating results, our business strategy, our financing plans and
expected capital requirements, forecasted trends relating to our services or the
markets in which we operate and similar matters are forward-looking statements.
The documents we filed with the SEC, including our Annual Report on Form 10-K
for the fiscal year ended December 31, 2000 and our Quarterly Report on Form 10-
Q for the quarter ended March 31, 2001, discuss some of the risks that could
cause our actual results to differ from those contained or implied in the
forward-looking statements. These risks include, but are not limited to:

. our history of losses which we expect to continue in the future;

. our ability to attract and retain our personnel may be negatively
impacted by the drop in our stock price;

. our quarterly operating results being subject to fluctuations, which may
affect our stock price;

. the dramatic decrease in purchases by past customers and our need to
establish a new base of customers;

-34-

. our substantial risks in launching our new IntellPOP product and the
continued acceptance of our Expresso products;

. the loss of any key personnel, or any inability to attract and retain
additional personnel, could affect our ability to successfully grow our
business;

. the market in which we sell our products and services may not grow as we
anticipate and our revenues may be harmed;

. our need to reduce our accumulation of inventory;

. our difficulty in forecasting product sales could negatively impact our
business;

. our revenues may be harmed if general economic conditions continue to
worsen;

. our reliance upon third parties to test substantially all of our
products and any failure to adequately quality control them could harm
our business;

. our stock price is susceptible to our operating results and to stock
market fluctuations;

. our market is subject to rapid technological change and if we do not
address these changes, our products will become obsolete, harming our
business and ability to compete;

. our markets are highly competitive and competition could harm our
ability to sell products and services and reduce our market share;

. our success depends on our ability to continually introduce new
products that achieve broad market acceptance;

. failure to effectively manage operations in light of our changing
revenue base will adversely affect our business;

. if we fail to protect our intellectual property, or if others use our
proprietary technology without authorization, our competitive position
may suffer; and

. we depend on international sales for a significant portion of our
revenue, which could subject our business to a number of risks.

We are not aware of any jurisdiction where the making of the offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the offer is not in compliance with any valid applicable law, we
will make a good faith effort to comply with such law. If, after such good
faith effort, we cannot comply with such law, the offer will not be made to, nor
will tenders be accepted from or on behalf of, the option holders residing in
such jurisdiction.

-35-

memorandum from Xxxxxx Xxxxxx dated May 11, 2001, the Election Form, the Notice
to Change Election from Accept to Reject and the Promise to Grant New Option. If
anyone makes any recommendation or representation to you or gives you any
information, you must not rely upon that recommendation, representation or
information as having been authorized by us.

May 11, 2001 Tut Systems, Inc.

-36-

SCHEDULE A

INFORMATION CONCERNING THE DIRECTORS AND
EXECUTIVE OFFICERS OF TUT SYSTEMS, INC.

The directors and executive officers of Tut Systems, Inc. and their
positions and offices as of May 10, 2001, are set forth in the following table:

Name Position and Offices Held
--------------------- ----------------------------------------------------------------

Xxxxxxxxx X'Xxxxx President, Chief Executive Officer and Chairman of the Board

Xxxxxx Xxxxxxxx Vice President of Finance, Chief Financial Officer and Secretary

Xxxxx Xxxxxx Vice President of Marketing Development

Xxxx Xxxxxxxxx Executive Vice President, Products

Avi Caspi Vice President of Operations

Xxx Xxxx Vice President of Technology

Xxxxxxx Xxxxx Vice President and Controller

Xxxxx Xxxxxx Vice President and General Counsel

Xxxxx Xxxxx Director

Xxxx Xxxxxxxxxx Director

Xxxxxxxx X. Xxxxxxxxx Director

Xxxxx Xxxxxx Director

Xxxx Xxxxxxx Director

Xxxxxx Xxxxxxxxx Director

The address of each director and executive officer is: c/o Tut Systems,
Inc., 0000 Xxxx Xxx Xxxxxxx Xxxx., Xxxxxxxxxx, Xxxxxxxxxx, 00000.

A-1

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EXHIBIT (a)(1) ================================================================ ================ OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS (THE "OFFER TO EXCHANGE") This document constitutes part of a prospectus relating to the Tut...

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