Tut Systems to Acquire CoSine

Stock deal valued at $24.1 million

January 8, 2005

2 Min Read

LAKE OSWEGO, Ore. -- Tut Systems, Inc. (Nasdaq: TUTS), today announced that it has signed a definitive merger agreement to acquire all of the outstanding shares of common stock of Cosine Communications, Inc. (Nasdaq: COSN) in a stock-for-stock transaction valued at approximately $24.1 million. Upon closing, Tut Systems will issue approximately 6.0 million shares of its common stock to the shareholders of Cosine. Approximately 25.2 million shares of Tut Systems common stock are currently outstanding. The transaction is expected to result in net cash to Tut Systems of approximately $22.75 million, and is expected to close by March 31, 2005. The transaction is subject to approval by the stockholders of both companies, and to other customary closing conditions. Tut Systems is acquiring Cosine primarily to provide additional financial resources. Tut Systems will honor Cosine's existing customers' support agreements, but does not expect to offer its products for sale to new customers. Tut Systems will incorporate Cosine's intellectual property into its growing IP portfolio. Tut Systems will not have any additional employees or facilities as a result of the transaction.

"We believe that the Telco TV revolution is accelerating more quickly than we previously predicted, especially with regard to the largest North American carriers," said Sal D'Auria, Chairman, President and CEO of Tut Systems. "Our product line, leading edge technology and real world IOC deployment leadership uniquely position us to be a significant player in this market. This transaction with Cosine provides additional financial resources for accelerating our plans for industry leadership."

2004 Preliminary Revenue Results Based on a preliminary analysis of its results for the quarter ended December 31, 2004, the company currently expects revenue for the fourth quarter to be $7.0 million, in line with the company's previous revenue guidance. The company anticipates its revenue for the fiscal year ended December 31, 2004, to be $25.0 million.

"During the fourth quarter, we increased the number of major digital TV headend and remote headend wins. While we have passed a number of milestones for our first multimillion dollar MPEG-4 contract, we did not recognize any revenue from MPEG-4 sales during the fourth quarter of 2004," said Randy Gausman, Chief Financial Officer. "The opportunities for MPEG-4 orders grew during the quarter, but were limited, in part by the availability of MPEG-4 set-top boxes. We also recorded our first sale of Astria product to a top tier North American carrier for further lab trials and an anticipated Telco TV field trial."

Tut Systems Inc.

CoSine Communications Inc.

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