Offer to Exchange Outstanding Options For New Options - Oak Technology Inc.


                              OAK TECHNOLOGY, INC.

                   OFFER TO EXCHANGE OUTSTANDING OPTIONS UNDER
                     OAK TECHNOLOGY'S 1994 STOCK OPTION PLAN
                     HELD BY ELIGIBLE EMPLOYEES THAT HAVE AN
           EXERCISE PRICE OF $15.00 PER SHARE OR MORE FOR NEW OPTIONS
     =====================================================================

                     THIS OFFER AND WITHDRAWAL RIGHTS EXPIRE
                  AT 11:59 P.M., PACIFIC DAYLIGHT SAVINGS TIME,
                             ON SEPTEMBER 13, 2001,
                          UNLESS THE OFFER IS EXTENDED
     =====================================================================

     Oak Technology, Inc., which we refer to as "we," "Oak Technology" or "Oak,"
is offering eligible employees holding outstanding options to purchase shares of
our common stock granted under the Oak Technology, Inc. 1994 Stock Option Plan,
as amended (the " Plan"), that have an exercise price of at least $15.00 per
share, the opportunity to exchange those options for new options that we will
grant under the Plan. We are extending this offer upon the terms and subject to
the conditions set forth in this offer to exchange and in the related acceptance
letter (which together, as each may be amended or supplemented from time to
time, constitute the "offer"). We intend to grant options to acquire the same
number of shares as are covered by the options you tender. We will grant the new
options on a date that is at least six months and one day following the date we
cancel the options accepted for exchange.

     This offer is not conditioned upon a minimum number of options being
tendered, but is subject to conditions that we describe in Section 6 of this
offer to exchange, including our right to accept or reject any options tendered
in response to this offer. Participation in this offer is completely voluntary.
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properly tendered options that have not been validly withdrawn.

     If you tender options for exchange and we accept them, we will grant you
new options under the Plan and a new option agreement between us and you, all as
more fully described in the offer. The exercise price per share of the new
options will equal the fair market value of our common stock on the date of the
grant. The new options will vest on the same schedule as the options you elect
for exchange and have other terms and conditions that are substantially the same
as those of the cancelled options.

     ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER, NEITHER WE NOR OUR
BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD
TENDER YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER TO
TENDER YOUR OPTIONS.

     Shares of our common stock are quoted on the NASDAQ National Market under
the




symbol "OAKT." On August 10, 2001, the last reported sale price of the common
stock on the NASDAQ National Market was $9.05 per share. WE RECOMMEND THAT YOU
OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO
TENDER YOUR OPTIONS.

     THIS TRANSACTION 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 FAIRNESS OR MERITS OF
SUCH TRANSACTION OR 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 this offer or requests for assistance or
for additional copies of the offer to exchange or the acceptance letter to Karen
Pereira, Stock Administrator, at Oak Technology, Inc., 139 Kifer Court,
Sunnyvale, California 94086 (telephone number: (408) 328-6881).

                                    IMPORTANT

     HOW TO PARTICIPATE; HOW TO ACCEPT THE OFFER. To participate and accept the
offer to exchange your eligible options for new options, you must be an eligible
employee. If you wish to tender your eligible options for exchange, you must
complete and sign the acceptance letter in accordance with its instructions, and
mail, fax or hand deliver it and any other required documents to us before 11:59
p.m., Pacific daylight savings time, on September 13, 2001, at Oak Technology,
Inc, 139 Kifer Court, Sunnyvale, California 94086, Attn: Karen Pereira, Stock
Administrator, Fax (408) 523-6623.

     WITHDRAWAL OF ACCEPTANCE. You can withdraw your acceptance of our offer to
exchange by delivering, by mail, fax or hand delivery, the notice of withdrawal,
properly completed and signed, to us at the same address as the acceptance
letter. You must withdraw all tendered options; you may not withdraw only a
portion of tendered options.

     DEADLINE TO ACCEPT THE OFFER OR TO WITHDRAW A PREVIOUS ACCEPTANCE;
"EXPIRATION DATE". Your acceptance letter and any notice of withdrawal must be
received by us before 11:59 p.m., Pacific daylight savings time, on September
13, 2001, unless we extend the expiration date for the offer. If we extend this
offer beyond that time, you may tender your eligible options or withdraw a
previous acceptance of the offer to tender eligible options by delivering the
signed acceptance letter or notice of withdrawal, as the case may be, so long as
we receive your signed letter or notice before the extended expiration of this
offer.

     OFFER SUBJECT TO LEGAL REQUIREMENTS OF JURISDICTIONS. We are not making
this offer to, nor will we accept any tender of options from or on behalf of,
eligible employees in any jurisdiction in which the offer to exchange or the
acceptance of any tender of options would not be in compliance with the laws of
such jurisdiction. However, we may, at our discretion, take any actions
necessary for us to make this offer to eligible employees in any such
jurisdiction.

     WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF
AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE OFFER. YOU
SHOULD RELY




                                       ii


ONLY ON THE INFORMATION CONTAINED 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 THIS OFFER OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED ACCEPTANCE LETTER.
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.
























                                      iii



                                TABLE OF CONTENTS


SUMMARY TERM SHEET..........................................................  1
INTRODUCTION................................................................ 13
THE OFFER................................................................... 13
1.     Number Of Options; Eligible Employees; Expiration Date .............. 13
2.     Purpose Of The Offer ................................................ 15
3.     Procedures For Tendering Options..................................... 17
4.     Withdrawal Rights.................................................... 18
5.     Acceptance Of Options For Exchange And Issuance Of New Options ...... 18
6.     Conditions Of The Offer.............................................. 19
7.     Price Range Of Common Stock Underlying The Options................... 21
8.     Source And Amount Of Consideration; Terms Of New Options............. 22
9.     Information Concerning Oak Technology................................ 27
10.    Interests Of Directors And Officers; Transactions And Arrangements
       Concerning The Options............................................... 27
11.    Status Of Options Acquired By Us In The Offer; Accounting
       Consequences Of The Offer ........................................... 29
12.    Legal Matters; Regulatory Approvals.................................. 30
13.    Material Federal Income Tax Consequences ............................ 30
14.    Extension Of Offer; Termination; Amendment .......................... 31
15.    Fees And Expenses.................................................... 32
16.    Additional Information............................................... 32
17.    Forward Looking Statements........................................... 33
18.    Miscellaneous........................................................ 34


SCHEDULE A:       Information concerning the directors and executive
                  officers of Oak Technology


                                       iv




                               SUMMARY TERM SHEET

     Below we provide answers to some of the questions that you may have about
this offer. We urge you to read carefully the summary of this offer to exchange,
the remainder of this offer to exchange and the accompanying acceptance letter
because the information in this summary is not complete and additional important
information is contained in the remainder of this offer to exchange and the
other documents. 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.

WHY ARE WE MAKING THE OFFER?

     We implemented this offer to exchange because a considerable number of our
employees have stock options, whether or not they are currently exercisable,
that are priced significantly above the current and recent trading prices of our
common stock. We believe these options are unlikely to be exercised in the
foreseeable future. For our stock option program to provide the intended
retention and performance incentives for employees, they must feel that our
options provide them with an opportunity to realize value within a reasonable
period of time. With the uncertainty of current market conditions, we believe
that employees may feel that the opportunity for realizing value is limited with
their existing options. This program is voluntary and will allow employees to
choose whether to keep their current eligible options at their current exercise
price, or to rescind those options in exchange for a new option for the same
number of shares to be granted on a date which is at least six months and one
day from the date we cancel the options accepted for exchange. By making this
offer to exchange, we hope to provide our employees with the benefit of owning
options that over time may have a greater potential to increase in value thereby
encouraging our employees to remain with us, and ultimately maximize shareholder
value. While it is hoped that this program will ameliorate the current
underwater options issue, this cannot be guaranteed considering the ever-present
risks associated with a volatile and unpredictable stock market. (Page 15)

WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?

     We are offering to exchange all stock options granted to eligible employees
having an exercise price of $15.00 per share or more, that are outstanding under
the Oak Technology, Inc. 1994 Stock Option Plan, as amended, which we refer to
as the Plan. (Page 13)

WHO IS ELIGIBLE TO PARTICIPATE IN THE OFFER?

     The offer is available to eligible employees of Oak Technology who hold
options under the Plan that have an exercise price of $15.00 per share or more.
As of August 10, 2001, there were outstanding options to purchase 808,080 shares
of our common stock that have an exercise price of $15.00 per share or more.

     "Eligible employees" are all employees, including executive officers, of
Oak Technology or one of its subsidiaries who are actively employed or on an
authorized short-term leave of absence on August 15, 2001 and on the date the
offer expires and whose services are performed in the United States, the United
Kingdom, Germany, Korea, Taiwan or Japan. Also, an




employee will not be considered an "eligible employee" and accordingly, will not
be eligible to participate in this offer if, on or before the date the offer
expires, the employee is no longer employed by Oak Technology or any of its
subsidiaries, for any reason, including the employee:

     o    receives a notice of involuntary termination (including, without
          limitation, redundancy), with or without cause, from Oak Technology or
          one of its subsidiaries;

     o    resigns or gives notice of resignation from such employment, whether
          voluntarily or involuntarily or with or without good reason;

     o    enters into an agreement with Oak Technology or any of its
          subsidiaries with respect to the employee's resignation, whether
          voluntarily or involuntarily or with or without good reason;

     o    takes a long-term leave of absence (over six months in duration) or if
          currently on a short-term leave of absence, does not return within the
          authorized six month period, resulting in a recategorization of the
          leave as long-term; or

     o    dies.

     Non-employee directors of Oak Technology are not eligible to participate in
the offer.

     IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF OAK TECHNOLOGY OR ANY OF OUR
SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER
EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION IN
THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF OAK
TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. (Page 14)

IF I TENDER OPTIONS IN THIS OFFER, ARE THERE ANY ELIGIBILITY REQUIREMENTS I MUST
SATISFY AFTER THE EXPIRATION DATE OF THE OFFER IN ORDER TO RECEIVE THE NEW
OPTIONS?

     To receive a grant of new options pursuant to the offer, you must be
eligible to receive options pursuant to the Plan from the date you tender
options through the date we grant the new options. You must be continuously and
actively employed by or on an authorized short-term leave of absence from Oak
Technology or one of its subsidiaries from the date you tender eligible options
for exchange through, and including, the date of grant of the new options. An
employee who is on an authorized short-term leave of absence of six months or
less, including a short-term disability leave, is considered to be an employee
of Oak Technology or its subsidiaries. You will not be eligible to receive the
new options on the new option grant date if you are not employed by Oak
Technology or any of its subsidiaries at any time between the date you tender
options and the date of grant of the new options, for any reason, including the
following:

     o    you receive a notice of involuntary termination (including, without
          limitation, redundancy), with or without cause, from Oak Technology or
          one of its subsidiaries;

     o    you resign or give notice of resignation from such employment, whether


                                       2


          voluntarily or involuntarily or with or without good reason;

     o    you enter into an agreement with Oak Technology or one of its
          subsidiaries with respect to your resignation, whether voluntarily or
          involuntarily or with or without good reason;

     o    you take a long-term leave of absence (lasting more than six months)
          or if you are currently on a short-term leave of absence, you do not
          return to active employment within the authorized six month period,
          resulting in a recategorization of the leave as long-term; or

     o    you die.

     IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN
EMPLOYEE OF OAK TECHNOLOGY OR ANY OF OUR 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 CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE
HAVE ACCEPTED FOR EXCHANGE.

     PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN
THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY OAK
TECHNOLOGY OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL
EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF OAK
TECHNOLOGY OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY
ASSURANCES THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU
WILL OTHERWISE REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES
UNTIL THE NEW OPTION GRANT DATE. (Page 25)

IS THIS A REPRICING?

     No, this is not a stock option repricing in the traditional sense. Under a
traditional stock option repricing, the exercise price of a holder's current
options would be immediately repriced to the then current fair value of the
company's common stock and that company would have a variable accounting charge
against earnings. (Page 29)

WHY CAN'T OAK TECHNOLOGY SIMPLY REPRICE MY OPTIONS, AS I HAVE SEEN DONE AT OTHER
COMPANIES?

     In 1998, the Financial Accounting Standards Board adopted unfavorable
accounting charge consequences for companies that reprice options. As a result
of this action, many companies have ceased "repricing" options to avoid this
negative consequence. If we were to simply reprice options, this would result in
"variable" accounting treatment for such options. This would require us, for
financial reporting purposes, to record additional compensation expense each
quarter until the repriced options are exercised, canceled or expired. This
would reduce our reported earnings for each fiscal quarter that the repriced
options remained outstanding. This could have a negative impact on our stock
price performance and would be unfavorable to Oak Technology and its
shareholders. (Page 29)


                                       3


WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE
OFFER?

     If we were to grant the new options on any date that is earlier than six
months and one day after the date we cancel the options accepted for exchange
and the new options had an exercise price that was lower than the exercise price
of the cancelled eligible options, we would be required to employ what is called
variable accounting, which, as described above, is an unfavorable accounting
treatment for financial reporting purposes. This would reduce our reported
earnings for each fiscal quarter that the new options remained outstanding. This
could have a negative impact on our stock price performance. (Page 29)

WHY CAN'T I JUST BE GRANTED MORE OPTIONS WITHOUT HAVING MY OPTIONS CANCELLED?

     We have a limited pool of options available for grant to our employees and
directors. The grant of supplemental options, without the cancellation of
outstanding eligible options, would reduce the number of options that are
currently available for grant to our employees and directors under the Plan.
Because the outstanding options under the Plan are, to a large extent,
"underwater" (i.e., the exercise prices of such options are greater than the
current trading price for our common stock), we have determined that it is in
the best interest of Oak Technology and our shareholders (including our employee
shareholders) to offer this exchange program as designed. This offer attempts to
minimize the future dilutive impact of our ongoing stock option program. Options
that are cancelled in this offer will become available for new option grants and
future option grants under the Plan. (Page 29)

WHAT ARE THE CONDITIONS TO THE OFFER?

     The offer is not conditioned upon a minimum number of options being
tendered. Participation in this offer is completely voluntary. However, the
offer is subject to a number of other conditions with regard to events that
could occur prior to the expiration of the offer. These events include, among
other things, a change in accounting principles, a lawsuit challenging the
tender offer, a third-party tender offer for our common stock or other
acquisition proposal, or a change in your employment status with us. These and
various other conditions are more fully described in Section 6 of this offer to
exchange. Once the offer has expired and the tendered options have been accepted
and cancelled in the offer, the conditions will no longer apply, even if the
specified events occur during the period between the expiration date and the
date of grant of the new options. However, as described herein, a change in your
employment status during that period could result in you not receiving a grant
of new options. (Page 20)

IF I TENDER OPTIONS IN THIS OFFER, HOW MANY NEW OPTIONS WILL I RECEIVE IN
EXCHANGE FOR MY TENDERED OPTIONS?

     Provided you meet the eligibility requirements and subject to the terms of
this offer, we will grant to you new options to purchase a number of shares of
our common stock equal to the number of shares of common stock subject to the
options that you tender and that we accept for exchange. All new options will be
granted under, and will be subject to the terms and conditions of, the Plan and
of a new option agreement between you and us. The new option agreement will be
in substantially the same form as the option agreement or agreements for your
current options,



                                       4


except for the exercise price and the term of the option. You must execute the
new option agreement prior to receiving new options. (Page 15)

IF I TENDER OPTIONS IN THIS OFFER, WHEN WILL I RECEIVE MY NEW OPTIONS?

     We expect to grant the new options on a business day that is at least six
months and one day after the date we cancel the options accepted for exchange.
Our board of directors or compensation committee will select the actual grant
date of the new options after the expiration of the offer, in accordance with
the Plan. If we cancel tendered options on September 14, 2001, the business day
following the scheduled expiration date, the grant date of the new options will
be no earlier than March 16, 2002. However, if the expiration date of the offer
is extended by us, the grant date for the new options may also be extended. You
must be an employee, or otherwise be eligible to receive options pursuant to the
Plan on the grant date to receive the new options.

     The date on which the new options are granted may fall within certain
"black out" periods designated by Oak Technology during which its officers,
directors and employees are restricted from trading in our securities. These
trading restrictions normally go into effect at the close of market on the
fifteenth day of the last month of each fiscal quarter and are lifted three days
after Oak Technology issues its earnings release for that quarter. Accordingly,
you may not be able to exercise the new options granted to you on the grant date
until the expiration of any applicable black out periods. (Page 15)

WILL THE TERMS OF THE NEW OPTIONS BE THE SAME AS THE TERMS OF THE OPTIONS
TENDERED FOR EXCHANGE?

     The new options will be issued under the Plan, which is the same option
plan as the related options cancelled in the offer, and will be issued pursuant
to a new option agreement that is substantially similar to the option agreement
pursuant to which the related options tendered and cancelled in the offer were
issued. The new options will have substantially the same terms and conditions as
the related options cancelled in the offer, except for the following:

     o    EXERCISE PRICE. Although the method for determining the exercise price
          (also known as the grant price) of the new options is the same as the
          method used for determining the exercise price of the options tendered
          for exchange (i.e., based on the fair market value of our common stock
          on the date of grant for options granted), it is likely that the
          exercise price of the new options will be different from the exercise
          price of the tendered options.

     o    TERM. The new options will have a term of ten years from the original
          date of grant of the tendered options (not from the new option grant
          date). However, as with the cancelled options, the new options are
          subject to earlier termination in the event of a termination of the
          eligible employee's employment. In accordance with the terms of the
          Plan or related option agreement, all of the new options will remain
          exercisable for three months following a termination of employment or
          possibly longer in certain circumstances such as death or disability.
          (Page 22)



                                       5


IF I TENDER OPTIONS IN THIS OFFER, WHEN WILL THE NEW OPTIONS VEST?

     The new options granted in the exchange will have the same vesting schedule
as the related options cancelled in the offer. Accordingly, the new options will
be vested on the date of grant to the extent that the related options cancelled
in this offer would have been vested on that date and the remaining new options
will become vested in accordance with the vesting schedule (based on the same
vesting dates and percentages) applicable to the related grant of options that
were cancelled in the offer. Accordingly, you will not lose the benefit of any
vesting under your tendered options that are accepted for exchange and cancelled
in this offer.

     For example, new options that are granted in exchange for options that are
already vested today or that would have become vested after today and before the
grant date of the new options will be vested on the date of grant of such new
options. The remaining new options will become vested in accordance with the
current vesting schedule and on the same vesting dates applicable to the options
for which such new options are exchanged. The number of new options that are
vested or become vested on the current vesting dates for the related eligible
options will correspond to the number of options that would have vested on such
dates. (Page 24)

WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?

     The exercise price (also known as the grant price) of the new options will
equal the fair market value of our common stock on the date we grant the new
options, determined in accordance with the terms of the Plan. BECAUSE WE WILL
NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE WE
CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, WE CANNOT PREDICT THE EXERCISE PRICE
OF THE NEW OPTIONS. IT IS POSSIBLE THAT THE NEW OPTIONS MAY HAVE A HIGHER
EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS THAT ARE CANCELLED IN
THE OFFER, AND THEREFORE, YOUR NEW OPTIONS COULD BE WORTH LESS THAN YOUR OLD
OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON
STOCK BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS. See Section 7 in the offer
to exchange for information concerning our stock price during the past two
years. (Page 23)

CAN I CANCEL ONLY PART OF MY ELIGIBLE OPTIONS?

     No, we cannot partially cancel your eligible options. If you choose to
cancel options, then you must tender for exchange all of your options that have
an exercise price of $15 or more. This means that an eligible employee may not
tender some of his or her eligible options for cancellation and retain some
eligible options; if an employee wishes to tender any of his or her eligible
options, the eligible employee must tender all of his or her eligible options.
(Page 14)

WHAT HAPPENS TO OPTIONS THAT I TENDER AND ARE ACCEPTED FOR EXCHANGE?

     Tendered options that are accepted for exchange will be cancelled and will
become available for future grants (including the new options) under the Plan,
under which such options were originally granted. (Page 29)



                                       6



WHAT IF I TENDER OPTIONS AND OAK TECHNOLOGY UNDERGOES A CHANGE OF CONTROL, SUCH
AS A MERGER, BEFORE THE NEW OPTIONS ARE GRANTED?

     If we undergo a change of control, such as a merger, prior to the grant of
the new options, it would be our intent to negotiate the terms of that change of
control transaction such that you could receive options to purchase securities
of the acquiror. However, we have the right to take any actions we deem
necessary or appropriate to complete a transaction that our board of directors
believes is in our best interest and our stockholders' best interest, and this
could result in your not being granted the new options. (Page 26)

WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I AM ON AN AUTHORIZED LEAVE OF
ABSENCE ON THE NEW OPTION GRANT DATE?

     An employee who is on an authorized short-term leave of absence, including
a short-term disability leave, is considered to be an employee of Oak Technology
or its subsidiaries. An authorized short-term leave of absence is a leave of
absence that has been approved in accordance with policy or practice by Oak
Technology or its subsidiary that employs you, and that has a duration of six
months or less, at the end of which the employee returns to active employment
with Oak Technology or one of its subsidiaries. Authorized short-term leaves may
include approved bereavement leave, family medical leave, personal medical
leave, including short term disability, jury duty leave, maternity and paternity
leave and military leave.

     If you tender your options and they are cancelled in the offer and you are
on an authorized short-term leave of absence, including a short-term disability
leave, on the new option grant date, you are considered to be an employee of Oak
Technology or its subsidiary that employs you, and will be entitled to a grant
of new options on the new grant date.

     However, you will not be eligible to receive the new options on the new
option grant date if at any time between the date you tender options and the
date of grant of the new option, including on the new option grant date, you are
on a long-term leave of absence (over six months in duration). Similarly, you
will not be eligible to receive the new options on the new option grant date if
you are currently on a short-term leave of absence, but do not return to active
employment within the authorized six month period, resulting in a
recategorization of your short-term leave as a long-term leave. (Page 19)

WHAT HAPPENS IF I TENDER MY OPTIONS AND I RECEIVE A NOTICE OF INVOLUNTARY
TERMINATION AFTER THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION
GRANT DATE?

     If you tender your eligible options and they are cancelled in the offer
and, after the expiration date of the offer and prior to the new option grant
date, you receive a notice of involuntary termination (including, without
limitation, redundancy), with or without cause, from Oak Technology or one of
its subsidiaries, you will not receive a grant of new options or any other
consideration or payment for such tendered and cancelled options. As indicated
earlier, you must be an eligible employee of Oak Technology or any of our
subsidiaries, from the date you tender options through the date we grant the new
options, in order to be eligible to receive new options for your tendered
options that we have accepted for exchange.



                                       7



     PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN
THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY OAK
TECHNOLOGY OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL
EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF OAK
TECHNOLOGY OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY
ASSURANCES THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU
WILL OTHERWISE REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES
UNTIL THE NEW OPTION GRANT DATE. (Page 19, 25)

WHAT HAPPENS IF I TENDER MY OPTIONS AND MY EMPLOYMENT WITH OAK TECHNOLOGY CEASES
AS A DIRECT RESULT OF A BUSINESS TRANSACTION OR THE OUTSOURCING OF MY POSITION
AFTER THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION GRANT DATE?

     If you tender your eligible options and they are cancelled in the offer
and, after the expiration date of the offer and prior to the new option grant
date your employment ceases as a direct result of the divestiture of your
business unit (either through a sale, corporate spin-off, joint venture or
similar business transaction) or the outsourcing of your position, you are not
eligible for new options. You must be an eligible employee of Oak Technology or
any of our subsidiaries, from the date you tender options through the date we
grant the new options, in order to be eligible to receive new options for your
tendered options that we have accepted for exchange.

     PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN
THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY OAK
TECHNOLOGY OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL
EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF OAK
TECHNOLOGY OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY
ASSURANCES THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU
WILL OTHERWISE REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES
UNTIL THE NEW OPTION GRANT DATE. (Page 19, 25)

WHAT HAPPENS IF I TENDER MY OPTIONS AND I RESIGN AFTER THE EXPIRATION DATE OF
THE OFFER AND BEFORE THE NEW OPTION GRANT DATE?

     If you resign after the expiration date of the offer and prior to the new
option grant date and your eligible options have been tendered and cancelled in
the offer, you will not receive a grant of new options or any other
consideration or payment for such tendered and cancelled eligible options. You
must be an eligible employee of Oak Technology or any of our subsidiaries, from
the date you tender options through the date we grant the new options, in order
to be eligible to receive new options for your tendered options that we have
accepted for exchange. (Page 19, 25)



                                       8


WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I DIE AFTER THE EXPIRATION DATE
OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE?

     If you die after the expiration date of the offer and prior to the new
option grant date and your eligible options have been tendered and cancelled in
the offer, neither you nor your beneficiaries will receive a grant of new
options or any other consideration or payment for such tendered and cancelled
eligible options. You must be an eligible employee of Oak Technology or any of
our subsidiaries, from the date you tender options through the date we grant the
new options, in order to be eligible to receive new options for your tendered
options that we have accepted for exchange. (Page 19, 25).

ARE THERE OTHER CIRCUMSTANCES UNDER WHICH I WOULD NOT BE GRANTED NEW OPTIONS?

     It is possible that even if we accept your tendered options, we will not
issue new options to you if we are prohibited by applicable law or regulations
from doing so. We will use reasonable efforts to avoid such prohibition. (Page
30)

WILL WE GRANT OPTIONS TO ELIGIBLE EMPLOYEES DURING THE PERIOD BETWEEN AUGUST 15,
2001, THE DATE THIS OFFER COMMENCES, AND THE DATE TENDERED OPTIONS ARE CANCELLED
(CURRENTLY SCHEDULED TO BE SEPTEMBER 14, 2001)?

     To avoid any possible adverse accounting consequences, we intend not to
grant options to eligible employees during the period starting on August 15,
2001 (the date the offer commences) and ending on the date tendered eligible
options are cancelled (currently scheduled to be September 14, 2001). (Page 19)

IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION
GRANTS BEFORE I RECEIVE MY NEW OPTIONS?

     If we accept options you tender in the offer, we will defer until the grant
date for your new options, our grant to you of other options, such as annual,
bonus or promotional options, for which you may be eligible between the date
hereof and the new option grant date. We will defer the grant to you of these
other options if we determine it is necessary for us to do so to avoid incurring
adverse accounting treatment because of accounting rules that could apply to
these interim option grants as a result of the offer. If you do not tender
options in the offer, however, we may grant you promptly following the
expiration of the offer options that you were eligible to receive between the
date hereof and the expiration date. (Page 19)

WHAT WILL MY NEW OPTION TYPE BE, INCENTIVE STOCK OPTION OR NON-QUALIFIED STOCK
OPTION?

     Currently all options granted under the Plan with an exercise price of at
least $15.00 per share and held by eligible employees are non-qualified stock
options. Accordingly, all new options will be granted as non-qualified stock
options. (Page 23)




                                       9


WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?

     If you exchange your current options for new options, we believe you will
not be required under current law 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. Further, at the date of grant of the new
options, we believe that you will not be required under current law to recognize
income for federal income tax purposes.

     Special considerations may apply to employees located in the United
Kingdom, Germany, Korea, Taiwan and Japan. In some of these countries, the
application of local taxation rules may have an impact upon the re-grant.

     We recommend that you consult with your own tax advisor to determine the
tax consequences of tendering options pursuant to the offer, including under the
laws of the country that applies to you. Oak Technology is not responsible for
any personal adverse tax or other financial consequences that may result from
your voluntary participation in the exchange. (Page 30)

AFTER THE RE-GRANT, WHAT HAPPENS IF I AGAIN END UP UNDERWATER?

     We are conducting this offer only at this time, considering the unusual
stock market conditions that have affected many companies throughout the
country. This is therefore considered a one-time offer and is not expected to be
offered again in the future. As your stock options are valid for ten years from
the date of initial grant, subject to continued employment, the price of our
common stock may appreciate over the long term even if your options are
underwater for some period of time after the grant date of the new options.
HOWEVER, WE CAN PROVIDE NO ASSURANCE AS TO THE PRICE OF OUR COMMON STOCK AT ANY
TIME IN THE FUTURE. (Page 16)

WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR
EXCHANGE?

     Nothing. An option that you choose not to tender for exchange or that we do
not accept for exchange remains outstanding until it is exercised or expires in
accordance with its terms and retains its current exercise price and current
exercise schedule. We currently expect that we will accept all properly tendered
eligible options promptly after the expiration of this offer. (Page 17)

WHAT HAPPENS TO ANY CURRENT OPTIONS GRANTED TO ME UNDER THE PLAN THAT DO NOT
HAVE AN EXERCISE PRICE ABOVE $15.00 AND ARE NOT ELIGIBLE FOR TENDER?

     The offer will have no effect on those options that do not have an exercise
price above $15.00 and are therefore, not eligible for tender in this offer.
Those options will remain outstanding in accordance with, and subject to, their
current terms, whether or not you tender your eligible options. (Page 14)



                                       10


HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER OPTIONS IN THE OFFER? CAN THE
OFFER BE EXTENDED, AND IF SO, HOW WILL I BE NOTIFIED IF IT IS EXTENDED?

     You have until at least 11:59 p.m., Pacific daylight savings time, on
September 13, 2001, to tender your options in the offer.

     Although we do not currently intend to do so, we may, in our discretion,
extend the offer at any time. If we extend the offer, we will make a public
announcement of the extension no later than 9:00 a.m., Pacific daylight savings
time, on the next business day following the previously scheduled expiration
date. If the offer is extended, then the cancellation date for tendered eligible
options accepted for exchange and the grant date of the new options may be
extended if necessary to avoid the possibility that we would have to recognize
any charges in our financial statements which would reduce our reported
earnings. Under the accounting rules applicable to us, the new options must be
granted more than six months following the date tendered eligible options are
cancelled. (Page 15, 31)

HOW DO I TENDER MY OPTIONS?

     If you decide to tender your options, you must deliver, before the offer
expires, a properly completed and duly executed acceptance letter and any other
documents required by the acceptance letter to Oak Technology, Inc., 139 Kifer
Court, Sunnyvale, California 94086, Attn: Karen Pereira, Stock Administrator
(facsimile number: (408) 523-6623). We will only accept delivery of the signed
acceptance letter by regular external mail, facsimile or hand delivery. If you
choose to deliver your signature page by external mail, we recommend that you
use registered mail with return receipt requested. Delivery by e-mail will NOT
be accepted. You must allow for delivery time based on the method of delivery
that you choose to ensure we receive your acceptance letter on time.

     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. We also reserve the right to waive any of the conditions of the offer or
any defect or irregularity in any tender. 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. (Page 17)

DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS?

     You may withdraw your tendered options at any time before the offer expires
at 11:59 p.m., Pacific daylight savings time, on September 13, 2001. If we
extend this offer beyond that time, you may withdraw your tendered options at
any time until the extended expiration of this offer. To withdraw tendered
options, you must deliver to us at the address or facsimile number listed above
a written notice of withdrawal with the required information while you still
have the right to withdraw the tendered options. As in the case of delivery of
the acceptance letter, you may deliver the signed notice of withdrawal to us at
the address noted above by regular external mail, facsimile or hand delivery.
Once you have withdrawn options, you may re-tender options only by again
following the delivery procedures described above. (Page 18)



                                       11



IF I CHOOSE NOT TO TENDER MY ELIGIBLE OPTIONS FOR EXCHANGE, WHAT DO I HAVE TO
DO?

     If you choose to keep your eligible options and not participate in the
offer, we ask that you complete the decline letter indicating your intent not to
participate in the exchange and promptly return the letter to us. This will aid
us in our efforts with respect to administration of the option exchange program.
Even if you return the decline letter to us indicating your nonparticipation in
the program, you may subsequently elect to participate in the exchange at any
time prior to the expiration of the offer by delivering to us a properly
completed and signed acceptance letter. (Page 17)

HOW WILL I KNOW IF OAK TECHNOLOGY HAS RECEIVED MY ACCEPTANCE LETTER ELECTING TO
TENDER MY ELIGIBLE OPTIONS?

     We will confirm receipt of your acceptance letter tendering your eligible
options (and any withdrawal) shortly after we receive it. Also, after the
expiration date of the offer, we will advise you whether or not your tender was
accepted. Personalized confirmations of your eligible options that have been
tendered and cancelled in the offer will be sent to you within sixty (60) days
of the expiration of the offer. (Page 20)

WHAT DO WE AND OUR BOARD OF DIRECTORS THINK OF THE OFFER?

     Although our board of directors has approved this offer, neither we nor our
board of directors makes any recommendation as to whether or not you should
tender your options. You must make your own decision whether 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 31, 34)

WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?

     For additional information or assistance, you should contact:

            Karen Pereira
            Stock Administrator
            Oak Technology, Inc.
            139 Kifer Court
            Sunnyvale, California 94086
            (telephone number: (408) 328-6881)



                                       12



                                  INTRODUCTION

     Oak Technology, Inc. ("Oak Technology," "we" or the "Company") is offering
eligible employees holding outstanding options to purchase shares of our common
stock granted under the Oak Technology, Inc. 1994 Stock Option Plan, as amended
(the "Plan"), that have an exercise price of at least $15.00 per share, the
opportunity to exchange those options for new options that we will grant under
the Plan. We are extending this offer upon the terms and subject to the
conditions set forth in this offer to exchange (the "offer to exchange") and in
the related acceptance letter (which together, as each may be amended or
supplemented from time to time, constitute the "offer"). We intend to grant
options to acquire the same number of shares as are covered by the options you
tender. We will grant the new options on a date that is at least six months and
one day following the date we cancel the options accepted for exchange.

     This offer is not conditioned upon a minimum number of options being
tendered, but is subject to conditions that we describe in Section 6 of this
offer to exchange, including our right to accept or reject any options tendered
in response to this offer. 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.

     As of August 10, 2001, options to purchase 8,268,522 shares of our common
stock were issued and outstanding under the Plan. Of these options, options to
purchase 808,080 shares of our common stock, constituting 9.8%, had an exercise
price of $15.00 or more and are eligible to be exchanged in the offer.

     If you tender options for exchange and we accept such options, we will
grant you new options under the Plan and enter into a new option agreement
between us and you, all as more fully described below. The exercise price of the
new options will equal the fair market value of our common stock on the date of
the grant. The vesting schedule for the new options granted will be exactly the
same as the vesting schedule for the cancelled options, and the other terms and
conditions of the new options will be substantially the same as the cancelled
options. Accordingly, the new options will be vested on the date of grant to the
extent that the related options cancelled in this offer would have been vested
on that date and the remaining new options will become vested in accordance with
the vesting schedule (based on the same vesting dates and percentages)
applicable to the related grant of options that were cancelled in the offer.
Accordingly, you will not lose the benefit of any vesting under your tendered
eligible options that are accepted for exchange and cancelled in this offer.

THE OFFER

1.   Number Of Options; Eligible Employees; Expiration Date.

     Upon the terms and subject to the conditions of the offer, including our
right to accept or reject any options tendered in response to this offer, we
will exchange for new options to purchase common stock under the Plan all
outstanding options under the Plan held by eligible employees that have an
exercise price of at least $15.00 per share, that are properly tendered in




                                       13


accordance with Section 3 and not validly withdrawn in accordance with Section 4
before the "expiration date," as defined below. We will not accept partial
tenders of eligible options. Therefore, if you choose to participate, you must
tender all of your eligible options.

     To receive a grant of new options pursuant to the offer and under the terms
of the Plan, an employee must be eligible to receive options pursuant to the
Plan from the date he or she tenders options through the date Oak Technology
grants the new options.

     "Eligible employees" are all employees, including executive officers, of
Oak Technology or one of its subsidiaries who are actively employed or on an
authorized short-term leave of absence on August 15, 2001 and on the date the
offer expires and whose services are performed in the United States, the United
Kingdom, Germany, Korea, Taiwan or Japan. An employee who is on an authorized
short-term leave of absence of six months or less, including a short-term
disability leave, is considered to be an employee of Oak Technology or its
subsidiaries.

     Also, an employee will not be considered an "eligible employee" and
accordingly, will not be eligible to participate in this offer if, on or before
the date the offer expires, the employee is no longer employed by Oak Technology
or any of its subsidiaries, for any reason, including the employee:

     o    receives a notice of involuntary termination (including, without
          limitation, redundancy), with or without cause, from Oak Technology or
          one of its subsidiaries;

     o    resigns or gives notice of resignation from such employment, whether
          voluntarily or involuntarily or with or without good reason;

     o    enters into an agreement with Oak Technology or any of its
          subsidiaries with respect to the employee's resignation, whether
          voluntarily or involuntarily or with or without good reason;

     o    takes a long-term leave of absence (over six months in duration) or if
          currently on a short-term leave of absence, does not return within the
          authorized six month period, resulting in a recategorization of the
          leave as long-term; or

     o    dies.


     Non-employee directors of Oak Technology are not eligible to participate in
the offer.

     IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF OAK TECHNOLOGY OR ANY OF OUR
SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER
EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION IN
THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF OAK
TECHNOLOGY OR ANY OF OUR SUBSIDIARIES.

     The offer is available to eligible employees of Oak Technology who hold
options under the Plan that have an exercise price of $15.00 per share or more.
As of August 10, 2001, there were outstanding options to purchase 808,080 shares
of our common stock under the Plan that have an exercise price of $15.00 per
share or more.


                                       14


     If your options are properly tendered and accepted for exchange, unless we
terminate this offer pursuant to the terms and conditions hereof, you will be
entitled to receive, on a business day that is at least six months and one day
following the date we accept the options tendered for exchange, new options to
purchase the number of shares of our common stock that is equal to the number of
shares subject to the options that you tendered and we accepted, subject to
adjustments for any stock splits, stock dividends and similar events that occur
prior to the grant date of the new options.

     The exercise price (also known as the grant price) on the date of grant of
the new options will be determined in accordance with the terms of the Plan.
Because the new options will be granted at least six months and one day
following the date eligible options are cancelled, we cannot predict the
exercise price of the new options. Accordingly, the new options may have a
higher exercise price than some or all of the eligible options that are
cancelled in the offer. We recommend that eligible employees obtain current
market quotations for our common stock before deciding whether to tender their
eligible options. See section 8 for a description of the determination of market
price and for other terms of the new options.

     The term "expiration date" means 11:59 p.m., Pacific daylight savings time,
on September 13, 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 offer, as so
extended, expires. See Section 14 for a description of our rights to extend,
delay, terminate and amend the offer.

     For purposes of this offer, a "business day" means any day other than a
Saturday, Sunday or United States Federal holiday and consists of the time
period from 12:01 a.m. through 11:59 p.m., Pacific daylight savings time.

2.   Purpose Of The Offer.

     We issued the options outstanding under the Plan to:

     o    provide our employees an opportunity to acquire or increase a
          proprietary interest in us, thereby creating a stronger incentive to
          expend maximum effort for our growth and success; and

     o    encourage our employees to continue their employment with us.

     Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are higher than the current and recent
trading prices of our common stock. We believe many of these options are
unlikely to be exercised in the foreseeable future. We understand that for our
stock option program to provide the intended retention and performance
incentives for our employees, they must feel that our options provide them with
an opportunity to realize value within a reasonable period of time. With the
uncertainty of current market conditions, we believe that our employees may feel
that the opportunity for realizing value is limited with their existing options.
By making this offer to exchange eligible options for new options that will (1)
have an exercise price equal to 100% of the market price of our common



                                       15


stock on the grant date of the new options (determined under and subject to the
terms of the Plan) and (2) vest in accordance with the vesting schedule
applicable to the related eligible options cancelled in this offer, we hope to
provide our employees with the benefit of owning options that over time may have
a greater potential to increase in value thereby encouraging our employees to
remain with us, and ultimately maximize shareholder value. While it is hoped
that this program will ameliorate the current underwater options issue, this
cannot be guaranteed considering the ever-present risks associated with a
volatile and unpredictable stock market.

     Subject to the foregoing, and except as otherwise disclosed in this offer
or in our filings with the Securities and Exchange Commission, and other than
transactions among or between our subsidiaries and our affiliates, we presently
have no plans or proposals that relate to or would result in:


     (a)  any extraordinary corporate transaction, such as a merger,
          reorganization or liquidation, involving us or any of our
          subsidiaries;

     (b)  any purchase, sale or transfer of a material amount of our assets or
          the assets of any of our subsidiaries;

     (c)  any material change in our present dividend rate or policy, or our
          indebtedness or capitalization;

     (d)  any material change in our present board of directors or management,
          other than changes in the number or term of directors or to fill any
          existing board vacancies, or as may otherwise occur in the ordinary
          course of business;

     (e)  any other material change in our corporate structure or business;

     (f)  our common stock not being authorized for quotation in an automated
          quotation system operated by a national securities association;

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

     (h)  the suspension of our obligation to file reports pursuant to Section
          15(d) of the Securities Exchange Act;

     (i)  the acquisition by any person of any material amount of our securities
          or the disposition of any material amount of our securities; or

     (j)  any change in our certificate of incorporation or bylaws, or any
          actions which may impede the acquisition of control of us by any
          person.

     From time to time we entertain proposals from third parties regarding
potential strategic relationships or transactions, which in some cases could
include a merger or sale of Oak Technology. We have no definitive plans with
respect to any such strategic relationship or transaction as of the date hereof.

     Neither we nor our Board of Directors makes any recommendation as to
whether you should 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




                                       16



exchange and to consult your own legal, investment and/or tax advisors. You must
make your own decision whether to tender your options for exchange.

3.   Procedures For Tendering Options.

     PROPER TENDER OF OPTIONS. To validly tender your options pursuant to the
offer, you must, in accordance with the terms of the acceptance letter, properly
complete, duly execute and deliver to us the acceptance letter, or a facsimile
thereof, along with any other required documents. We must receive all of the
required documents at Oak Technology, Inc., 139 Kifer Court, Sunnyvale,
California 94086, Attn: Karen Pereira, Stock Administrator, before the
expiration date.

     The only acceptable methods of delivery are regular external mail,
facsimile and hand delivery. Your eligible options will not be considered
tendered until we receive them. Delivery by e-mail will not be accepted.

     THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE ACCEPTANCE LETTER
AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION AND RISK. IF YOU DELIVER
BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED
AND PROPERLY INSURE THE MATERIALS. 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 sole discretion,
all questions as to 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 with respect to any particular
options or 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 such notice.

     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 PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU
UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER.

     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.



                                       17


4.   Withdrawal Rights.

     You may only withdraw your tendered options in accordance with the
provisions of this Section 4.

     You may withdraw your tendered options at any time before 11:59 p.m.,
Pacific daylight savings time, on September 13, 2001. If the offer is extended
by us beyond that time, you may withdraw your tendered eligible options at any
time until the extended expiration of the offer. You must withdraw all tendered
eligible options; you may not withdraw only a portion of tendered eligible
options.

     To validly withdraw tendered options, an eligible employee must deliver to
us at the address set forth in Section 3 a written notice of withdrawal, or a
facsimile thereof, with the required information, while such employee still has
the right to withdraw the tendered options. The notice of withdrawal must
specify the name of the employee who tendered the options to be withdrawn.
Except as described in the following sentence, the notice of withdrawal must be
executed by the employee who tendered the options to be withdrawn exactly as
such option holder's name appears on the acceptance letter previously submitted
by the employee. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact 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 such capacity must be identified on the
notice of withdrawal.

     You may not rescind any withdrawal. 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 3.

     Neither we nor any other person is obligated to give notice of any defects
or irregularities in any notice of withdrawal, nor will anyone incur any
liability for failure to give any such notice. We will determine, in our
discretion, all questions as to the form and validity, including time of
receipt, of notices of withdrawal. Our determination of these matters will be
final and binding.

5.   Acceptance Of Options For Exchange And Issuance Of New Options.

     Upon the terms and subject to the conditions of this offer and promptly
following the expiration date, we will accept for exchange and cancel options
properly tendered and not validly withdrawn before the expiration date. If we
cancel eligible options accepted for exchange on September 14, 2001, the
business day following the scheduled expiration date of the offer, you will be
granted new options no earlier than March 16, 2002, which is the first business
day that is at least six months and one day following the date we anticipate
accepting options for exchange. If the offer is extended, then the grant date of
the new options will also be extended if necessary to ensure that the new option
grant date is six months and one day following the date eligible options are
cancelled. Our board of directors or compensation committee will select the
actual grant date for the new options after the expiration date of the offer in
accordance with the Plan. The exercise price of the new options will equal the
fair market value of our common stock on the date of grant.



                                       18


     To be entitled to the new options after your tendered eligible options have
been cancelled in the offer, you must be eligible to receive options pursuant to
the Plan from the date you tender options through the date Oak Technology grants
the new options. You must be continuously and actively employed by or on an
authorized short-term leave of absence from Oak Technology or one of its
subsidiaries from the date you tender eligible options for exchange through, and
including, the date of grant of the new options. An employee who is on an
authorized short-term leave of absence of six months or less, including a
short-term disability leave, is considered to be an employee of Oak Technology
or its subsidiaries. You will not be eligible to receive the new options on the
new option grant date if you are not employed by Oak Technology or any of its
subsidiaries at any time between the date you tender options and the date of
grant of the new options, for any reason, including the following:

     o    you receive a notice of involuntary termination (including, without
          limitation, redundancy), with or without cause, from Oak Technology or
          one of its subsidiaries;

     o    you resign or give notice of resignation from such employment, whether
          voluntarily or involuntarily or with or without good reason;

     o    you enter into an agreement with Oak Technology or one of its
          subsidiaries with respect to your resignation, whether voluntarily or
          involuntarily or with or without good reason;

     o    you take a long-term leave of absence (lasting more than six months)
          or if you are currently on a short-term leave of absence, you do not
          return to active employment within the authorized six month period,
          resulting in a recategorization of the leave as long-term; or

     o    you die.

     IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN
EMPLOYEE OF OAK TECHNOLOGY OR ANY OF OUR 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 CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE
HAVE ACCEPTED FOR EXCHANGE.

     PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN
THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY OAK
TECHNOLOGY OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL
EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF OAK
TECHNOLOGY OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY
ASSURANCES THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU
WILL OTHERWISE REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES
UNTIL THE NEW OPTION GRANT DATE.

     If we accept options you tender in the offer, we will defer until the grant
date for your new options our grant to you of other options, such as annual,
bonus or promotional options, for which you may be eligible between the date
hereof and the new option grant date. We will defer the grant to you of these
other options if we determine it is necessary for us to do so to avoid incurring
adverse accounting treatment because of accounting rules that could apply to
these



                                       19


interim option grants as a result of the offer. If you do not tender options in
the offer, however, we may grant you promptly following the expiration of the
offer options that you were eligible to receive between the date hereof and the
expiration date.

     For purposes of the offer, we will be deemed to have accepted for exchange
options that are validly tendered and not properly withdrawn as, if and when we
give oral or written notice to the option holders of our acceptance for exchange
of such options. 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. Promptly
after we accept tendered options for exchange, we will send each tendering
option holder a letter indicating the number of shares subject to the options
that we have accepted for exchange.

6.   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 August 15, 2001 and prior to the
expiration date (1) any of the following events has occurred, or has been
determined by us to have occurred, and, (2) in our reasonable judgment in any
such case and regardless of the circumstances giving rise thereto, 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:

     (a)  there shall have been threatened or instituted or be pending any
          action or proceeding by any government or governmental, regulatory or
          administrative agency, authority or tribunal or any other person,
          before any court, authority, agency or tribunal that directly or
          indirectly challenges the making of the offer, the acquisition of some
          or all of the tendered options pursuant to the offer, 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 the
          business, condition (financial or other), income, operations or
          prospects of Oak Technology or our subsidiaries, or otherwise
          materially impair in any way the contemplated future conduct of our
          business or the business of any of our subsidiaries or materially
          impair the contemplated benefits of the offer to us;

     (b)  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 applicable to the offer or
          Oak Technology or any of our subsidiaries, 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 otherwise
               relates in any manner to the offer;



                                       20



          (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 us;
               or

          (4)  materially and adversely affect the business, condition
               (financial or other), income, operations or prospects of Oak
               Technology or our subsidiaries, or otherwise materially impair in
               any way the contemplated future conduct of our business or the
               business of any of our subsidiaries or materially impair the
               contemplated benefits of the offer to us.

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

     (d)  a tender or exchange offer with respect to some or all of our common
          stock, or a merger or acquisition proposal for us, shall have been
          proposed, announced or made by another person or entity or shall have
          been publicly disclosed; or

     (e)  any change or changes shall have occurred in the business, condition
          (financial or other), assets, income, operations, prospects or stock
          ownership of Oak Technology or our subsidiaries that, in our
          reasonable judgment, is or may be material to Oak Technology or our
          subsidiaries or materially impairs or may materially impair the
          contemplated benefits of the offer to us.

     The conditions to the offer are for our benefit. We may assert them in our
discretion regardless of the circumstances giving rise to them prior to 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 6 will be
final and binding upon all persons.

7.   Price Range Of Common Stock Underlying The Options.

     Our common stock is quoted on the NASDAQ National Market under the symbol
"OAKT." The following table shows, for the periods indicated, the high and low
closing prices per share of our common stock as reported by the NASDAQ National
Market.

FISCAL YEAR ENDED JUNE 30, 2001 HIGH LOW ---- --- First Quarter $ 30.500 $ 20.375 Second Quarter 28.313 6.133 Third Quarter 10.250 4.531 Fourth Quarter 11.940 4.344
21
FISCAL YEAR ENDED JUNE 30, 2000 HIGH LOW ---- --- First Quarter $ 5.688 $ 3.625 Second Quarter 10.438 4.438 Third Quarter 19.938 8.813 Fourth Quarter 22.875 11.875
As of August 10, 2001, the last reported sale price of our common stock, as reported by the NASDAQ National Market, was $9.05 per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS. 8. Source And Amount Of Consideration; Terms Of New Options. CONSIDERATION. We will issue new options to purchase common stock under the Plan in exchange for outstanding eligible options properly tendered and accepted for exchange by us. We will grant the new options on a business day that is at least six months and one day following the date we cancel the options accepted for exchange. The number of shares of common stock subject to new options to be granted to each employee will be equal to the number of shares subject to the options tendered by such employee and accepted for exchange, subject to adjustments for any stock splits, stock dividends and similar events that occur prior to the grant date of the new options. However, we will not issue any options exercisable for fractional shares. Instead, we will round down to the nearest whole number. As of August 10, 2001, approximately 8,268,522 options were issued and outstanding under the Plan. Of these options, approximately 1,244,360 options (representing 15% of all such options) were held by eligible employees. The eligible options that we are offering to exchange represent approximately 9.8% of all options outstanding as of August 10, 2001. If we receive and accept tenders of all outstanding eligible options, we will grant new options to purchase a total of approximately 808,080 shares of our common stock and the common stock issuable upon exercise of the new options will equal approximately 1.5% of the total shares of our common stock outstanding as of August 10, 2001. TERMS OF NEW OPTIONS. The new options will be issued under the Plan and pursuant to new option agreements that are substantially similar to those used for the options tendered for exchange. Accordingly, except as otherwise noted in the offer and except with respect to the exercise price and the term, we expect that the terms and conditions of the new options will be the same as the terms and conditions of the options tendered for exchange. On the date the new options are granted, we will deliver a new option agreement to each tendering employee whose tendered options were accepted for exchange and canceled by us. After receipt of the new option agreement, the employee will be expected to execute and deliver to us their option agreements as soon as practical. The following description summarizes the material terms of the Plan and the options granted under the Plan. 22 The following description of the Plan and the new options is only a summary and may not be complete. For complete information please refer to the copy of the Plan and the form of new option agreement that have been filed with the SEC as exhibits to the Tender Offer Statement on Schedule TO. You may also contact us to request copies of the Plan or the form of the new option agreement, which will be provided at our expense. o GENERAL. The number of shares of common stock subject to the Plan is 13,900,000. There are currently options to purchase 8,268,522 shares of our common stock outstanding under the Plan. The Plan permits the granting of stock options that are incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) and non-qualified stock options (i.e., stock options that do not qualify as incentive stock options). All eligible options subject to this offer are non-qualified options. All new options that may be granted pursuant to this offer will also be non-qualified options. Under the Plan, officers and other employees of Oak Technology and its parent or subsidiaries, non-employee members of the board and the board of directors of its parent or subsidiaries and consultants and independent advisors of Oak Technology and its parent and subsidiaries are eligible to participate in the Plan. o ADMINISTRATION. The compensation committee of the board and the board have separate but concurrent authority to administer the Plan, with broad discretion to fashion the terms of grants of options, including type, size and exercise price, as it deems appropriate. The Plan administrator (either the compensation committee or the board to the extent each such entity is administering the Plan) also selects the persons to whom options are granted. o EXERCISE PRICE. The exercise price of each option is determined by the Plan administrator. To the extent that the exercise price of an option grant is less than the fair market value of our common stock on the date of grant, we would incur compensation expense. Consistent with our prior grants under the Plan, the exercise price of the new non-qualified options to be granted pursuant to the offer will equal the fair market value of our common stock on the date of the grant to avoid recognizing compensation expense. In accordance with the terms of the Plan, the fair market value per share of common stock on any relevant date under the Plan will be the closing sale price per share on the day preceding that date on the NASDAQ National Market. BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, IT IS POSSIBLE THAT THE NEW OPTIONS MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS, AND THEREFORE, YOUR NEW OPTIONS COULD BE WORTH LESS THAN YOUR OLD OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS. 23 o VESTING AND EXERCISE. The Plan administrator determines at what time or times each option may be exercised. The term of the new options granted under the Plan will commence on the date of grant of the related eligible options tendered and cancelled in the exchange and, subject to the applicable vesting requirements, will be exercisable during the period beginning on the effective date of grant of the new options and ending on the day before the tenth anniversary of the date of grant of the related eligible options, except that the period for exercise of the new options will end on an earlier date in the event of the termination of an eligible employee's employment. In accordance with the terms of the Plan and the option agreement, all of the new options will remain exercisable for three months following a termination of employment, or possibly longer in certain circumstances such as termination of employment due to death or disability. The new options will have the same vesting schedule and vesting dates as the related eligible options cancelled in the exchange. Accordingly, the new options will be vested on the date of grant to the extent that the related eligible options tendered for exchange would have been vested on that date and the remaining new options will become vested in accordance with the vesting schedule as the related eligible options that were cancelled in the exchange. For example, new options that are granted in exchange for options that are already vested today or that would have become vested after today and before the grant date of the new options will be vested on the date of grant of such new options. The remaining new options will become vested in accordance with the current vesting schedule and on the same vesting dates applicable to the options for which such new options are exchanged. The number of new options that are vested or become vested on the current vesting dates for the related eligible options will correspond to the number of options that would have vested on such dates. o METHOD OF EXERCISING OPTIONS. After the new options are exercisable, the option holder may exercise the options in accordance with the terms of the Plan and the option holder's option agreement by providing to us (1) a written notice identifying the option and stating the number of shares of common stock that the option holder desires to purchase and (2) payment in full of the option price per share for the shares of common stock then being acquired by check payable to the order of Oak Technology in full payment for the shares of common stock being purchased. o PROHIBITION AGAINST TRANSFER, PLEDGE AND ATTACHMENT. The options, and the rights and privileges conferred by them, are personal to the option holder and may not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and during the option holder's lifetime shall be exercisable only by the option holder. The option holder may transfer the options, and the rights and privileges conferred by it, upon the option holder's death, either by will or under the laws of descent and distribution. All transferees shall be subject to all of the terms and conditions of the options to the same extent as the option holder. 24 o TERMINATION OF EMPLOYMENT. An eligible employee who tenders eligible options that are cancelled pursuant to this offer will receive a grant of new options only if such eligible employee is eligible to receive options pursuant to the Plan from the date he or she tender options through, and including, the date Oak Technology grants the new options. You will not be eligible to receive the new options on the new option grant date if you are not employed by Oak Technology or any of its subsidiaries at any time between the date you tender options and the date of grant of the new options, for any reason, including the following: - you receive a notice of involuntary termination (including, without limitation, redundancy), with or without cause, from Oak Technology or one of its subsidiaries; - you resign or give notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; - You enter into an agreement with Oak Technology or one of its subsidiaries with respect to your resignation, whether voluntarily or involuntarily or with or without good reason; - you take a long-term leave of absence (lasting more than six months) or if you are currently on a short-term leave of absence, you do not return to active employment within the authorized six month period, resulting in a recategorization of the leave as long-term; or - You die IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN EMPLOYEE OF OAK TECHNOLOGY OR ANY OF OUR 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 CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE ACCEPTED FOR EXCHANGE. PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY OAK TECHNOLOGY OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF OAK TECHNOLOGY OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCES THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN IN THE EMPLOY OF OAK TECHNOLOGY OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE. After the grant date of the new options, if the option holder ceases to be an employee of Oak Technology for any reason other than disability or death, then the option holder shall have until three months from the date of termination to exercise the options to the extent to which the option holder would otherwise have been entitled to exercise the option on or prior to the date of such termination. To the extent the option holder is not entitled to exercise the options prior to the date of the 25 option holder's termination, such outstanding and unexercised option shall immediately lapse and the option holder shall have no further rights with respect to it, effective as of the date of termination of the option holder's employment. After the date of grant of the new options, if the option holder's employment with Oak Technology is terminated due to disability or death, the options shall be exercisable until twelve months from the date of termination due to such disability or death to the extent to which the option holder would otherwise be entitled to exercise the options on or prior to the date of such termination. To the extent the option holder is not entitled to exercise any portion of the options prior to the date of the option holder's termination due to disability or death, such unexercised portion of the options shall immediately lapse, effective as of the date of termination of the option holder's employment, on account of disability or death. o REGISTRATION OF OPTION SHARES. All shares of common stock issuable upon exercise of options under the Plan, including the shares that will be issuable upon exercise of all new options, have been registered under the Securities Act on a registration statement on Form S-8 filed with the SEC. Unless you are one of our affiliates, you will be able to sell your common stock issued upon exercise of new options free of any transfer restrictions under applicable securities laws. o EFFECT OF CHANGE OF CONTROL. If we merge or are consolidated with, or sell substantially all of our assets or stock to, another entity before we grant the new options, it would be our intent to negotiate the terms of that change of control transaction such that eligible employees who tender options pursuant to the offer would receive options to purchase securities of the acquiror. However, we have the right to take any actions we deem necessary or appropriate to complete a transaction that our board of directors believes is in our best interest and our stockholders' best interest. This could include terminating the offer and any obligation to grant the new options. If we were to terminate the offer in connection with a change of control transaction, tendering option holders would not receive options to purchase securities of the acquiror or any other consideration for their tendered options. o AMENDMENT OF PLAN. The board may amend or modify the Plan in any or all respects whatsoever, subject to any required stockholder approval. Option holders have no stockholder rights with respect to any of our common stock subject to outstanding options until such shares are purchased in accordance with the provisions of the Plan and option agreement. Nothing in the Plan confers upon any option holder any right to continued employment. You should refer to sections 13 for a discussion of the U.S. Federal income tax consequences of accepting or rejecting this offer to tender eligible options for cancellation and of the grant of the new options under this offer to exchange. In addition, in certain countries other than the United States, the new options may be subject to different tax rules than the rules applicable to the tendered options. Whether you are an employee based inside or outside of the 26 United States, we recommend that you consult with your own tax advisor to determine the tax consequences of the offer under the laws of the country or countries in which you are a taxpayer. Our statements in this offer concerning the 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 the Plan and the form of option agreement under the Plan, each of which is filed as an exhibit to the Tender Offer Statement on Schedule TO, of which this offer to exchange is a part. See Section 16 for a discussion of how to obtain copies of the Plan and form of option agreement. 9. Information Concerning Oak Technology. Oak Technology designs, develops and markets high performance embedded software and integrated semiconductor solutions to original equipment manufacturers worldwide that serve the optical storage and imaging markets. Our products consist primarily of embedded software, integrated circuits and supporting software and firmware to provide a complete solution for customers, thereby enabling them to deliver cost effective, powerful systems to end users for home and business use. Our mission is to be a leading solutions provider for the storage and distribution of digital content. We were originally incorporated in California in 1987 and were reincorporated in Delaware in 1994. Our principal executive offices and principal marketing, sales and product development operations are located at 139 Kifer Court, Sunnyvale, California 94086 and our telephone number is (408) 737-0888. Our web site is located at www.oaktech.com. The information on our web site is not a part of this offer to exchange. For additional information regarding Oak Technology, we recommend that you also review the materials which we have filed with the SEC. 10. Interests Of Directors And Officers; Transactions And Arrangements Concerning The Options. A list of our directors and executive officers as of August 10, 2001 is attached to this offer to exchange as SCHEDULE A. As of August 10, 2001, our executive officers and non-employee directors as a group beneficially owned options to purchase a total of approximately 3,964,000 shares of our common stock, which represented approximately 37% of all options outstanding as of that date. Of these options held by executive officers, only 60,000 options, constituting 1.5% of their total options, are eligible to be tendered in the offer. None of our non-employee directors are eligible to participate in the offer. 27 The following table sets forth the beneficial ownership by each of our executive officers and directors of options outstanding under the Plan as of August 10, 2001:
NUMBER OF PERCENTAGE OF NUMBER OF OPTIONS TO PURCHASE TOTAL OPTIONS ELIGIBLE NAME OF BENEFICIAL OWNERS COMMON STOCK OUTSTANDING OPTIONS ------------------------- ---------------------- ------------------- ----------------- Young K. Sohn......................... 2,660,000 25 % 0 John S. Edmunds....................... 250,000 2 0 David J. Power ....................... 100,000 * 60,000 Simon P. Dolan........................ 230,000 2 0 Shlomo Waser.......................... 200,000 2 0 Richard B. Black...................... 294,000 0 David Rynne........................... 50,000 * 0 Peter Simone.......................... 26,000 * 0 Timothy Tomlinson..................... 84,000 * 0 Albert Y.C. Yu........................ 70,000 * 0 All directors and executive officers as a group (10 persons)............. 3,964,000 37 % 60,000
------------------------------------ * Represents less than 1% of our outstanding options We do not know to what extent our executive officers will exchange their options in this offer. We anticipate that each executive officer will exchange all eligible options in the offer. On June 13, 2001, David Rynne received an option to purchase 50,000 shares of common stock at an exercise price of $10.41 per share, in connection with his appointment as a director of Oak Technology. During the 60 days prior to August 15, 2001, no officers or directors have exercised options to acquire any shares of our common stock. Except as otherwise described above, there have been no transactions in options to purchase our common stock or in our common stock which were effected during the 60 days prior to August 15, 2001 by Oak Technology or, to our knowledge, by any executive officer, director, affiliate or subsidiary of Oak Technology. 28 11. Status Of Options Acquired By Us In The Offer; Accounting Consequences Of The Offer. Many of our employees hold options with exercise prices significantly higher than the current market price of our common stock. We believe it is in our best interest to invite these option holders to exchange these options to provide an opportunity to more effectively participate in the potential growth in our stock price. We could accomplish this goal by repricing existing options, which would enable option holders to immediately receive new options with a lower exercise price. However, the repriced options would be subject to variable accounting, which would require us to record additional compensation expense each quarter until the repriced options were exercised, canceled or expired. Furthermore, if we were to cancel a stock option and issue another option with an exercise price that is lower than the exercise price of the canceled option within the shorter of (1) the six-month period immediately prior to the date on which the option was required to be tendered for cancellation or (2) the period from the date of grant of the canceled option to the date on which the option was required to be tendered for cancellation, the cancellation and exchange would be deemed a repricing that results in variable accounting. The cancellation of an existing option and the issuance of another option within this time period will be deemed a repricing even if the issuance of the second option occurs before the cancellation of the first option. We believe that we can accomplish our goals of providing option holders the benefit of choosing whether they want to receive options that over time may have a greater potential to increase in value, without incurring additional current or future compensation expense because: o we will not grant any new options until a day that is at least six months and one day after the date that we accept and cancel options tendered for exchange; o the exercise price of all new options will equal the fair market value of our common stock on the future date we grant the new options; and o we will not grant any other options to an eligible employee who tenders eligible options in the offer that are cancelled in the exchange until after the date on which we grant the new options. If we were to grant any options to any eligible employee before the scheduled new grant date, our grant of those options to the electing employee would be treated for financial reporting purposes as a variable award to the extent that the number of shares subject to the newly granted options is equal to or less than the number of the option holder's option shares elected for exchange and the exercise price of those awards is less than the exercise price of those cancelled options. In this event, we would be required to record as compensation expense the amount by which the market value of the shares subject to the newly granted options exceeds the exercise price of those shares. This compensation expense would accrue as a variable accounting charge to our earnings over the period when the newly granted options are outstanding. We would have to adjust this compensation expense periodically during the option term based on increases or decreases in the market value of the shares subject to the newly granted options. Options we accept for exchange and acquire pursuant to this offer will be cancelled and will be returned to the pool of options available for future option grants under the Plan. To the 29 extent such options are not granted in connection with this offer, the options will be available for future grants to employees and other eligible plan participants without further stockholder action, except as may be required by applicable law or the rules of NASDAQ Stock Market or any other stock exchange on which our common stock is then quoted or listed. 12. 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 6. 13. Material Federal Income Tax Consequences. The following is a general summary of the material U.S. federal income tax consequences of the exchange of eligible options and the grant of the new options pursuant to this offer applicable to those eligible employees who are U.S. citizens or residents of the U.S. This discussion is based on the now applicable provisions of the U.S. Internal Revenue Code and the regulations thereunder, 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. Eligible employees who are U.S. citizens or residents of the U.S. who exchange eligible options for new options will not be required to recognize income for U.S. Federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange for U.S. federal income tax purposes. At the date of grant of the new options, eligible employees who are U.S. citizens or residents of the U.S. will not be required to recognize income for U.S. federal income tax purposes. The grant of options is not recognized as taxable income for U.S. federal income tax purposes. Upon the exercise of a new option for cash, the eligible employee will recognize compensation income, taxable as ordinary income, in an amount equal to the excess of (i) the fair market value of the shares purchased upon such exercise, on the date such option is exercised, over (ii) the exercise price of the shares purchased upon such exercise. The tax basis of any share received upon the exercise of a new option will be equal to the fair market value of such share on the date of exercise of such option. Upon any subsequent sale of such share, the eligible employee will realize a capital gain (or loss) in an amount equal to the 30 difference between the amount realized on the sale and such tax basis. An eligible employee's holding period for Federal income tax purposes for such share will commence on the date following the date of exercise of the option. The employer generally will be entitled to a tax deduction in an amount equal to the amount of compensation income, taxable as ordinary income, recognized by the eligible employee as a result of the exercise of a new option, in the year of recognition by the eligible employee. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. 14. 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 set forth in Section 6 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 and 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 upon the occurrence of any of the conditions specified in Section 6, by giving oral or written notice of such termination or postponement to the option holders and 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 of 1934, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of the offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in Section 6 has occurred or is deemed by us to have occurred, to amend this offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in this offer to eligible employees 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., Pacific daylight savings time, on the next business day after the last previously scheduled or announced expiration date. Any announcement made pursuant to the offer will be disseminated promptly to eligible employees in a manner reasonably designated to inform eligible employees of such change. 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 of 1934. These rules require that the minimum period during which an offer must remain open following material 31 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. 15. 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. Nor will we pay any fees for professional services you may incur from your tax, financial planning or other advisors. 16. Additional Information. With respect to the offer, we have filed with the SEC a Tender Offer Statement on Schedule TO, as amended, of which this offer to exchange is a part. 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 eligible options: (a) Our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2000, filed with the SEC on September 28, 2000; (b) Our Quarterly Report on Form l0-Q for the quarter ended March 31, 2001, filed with the SEC on May 15, 2001; (c) Our Form S-8 (registering shares to be issued under the Oak Technology, Inc. 1994 Stock Option Plan) filed with the SEC on January 6, 1999; (d) Our Form S-8 (registering shares to be issued under the Oak Technology, Inc. 1994 Stock Option Plan) filed with the SEC on June 16, 2001; (e) The description of our common stock contained in our registration statement on Form 8-A (No. 000-25298), as filed with the SEC on December 16, 1994, including all amendments or reports updating this description; and (f) Our Reports on Form 8-K, dated June 12, 2001 and July 24, 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 public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 2120, Washington D.C. 20549; and at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661- 2511 and at 7 World Trade Center, New York, New York 10048. Copies of such materials may also be obtained (1) at no charge from our web site at http://www.oaktech.com or (2) by mail, upon payment of the SEC's customary charges, from the SEC's Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Information about the operation of this public reference room can be obtained by calling 32 the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy statements and information statements and other information regarding registrants, including Oak Technology, that file electronically with the SEC. Our common stock is listed for trading on NASDAQ National Market under the symbol "OAKT." We will also provide without charge to each person to whom a copy of this offer to exchange is delivered, upon the written or oral request of any such person, 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). Requests should be directed to: Oak Technology, Inc. Investor Relations 139 Kifer Court Sunnyvale, California 94086 (telephone number: (408) 328-6899) between the hours of 9:00 a.m. and 4:00 p.m., Pacific daylight savings time. As you read the documents listed in Section 16, you may find some inconsistencies in information from one document to another. Should 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 Oak Technology should be read together with the information contained in the documents to which we have referred you. 17. Forward Looking Statements. This offer to exchange and our SEC reports referred to above, include forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "will," "expects," "anticipates," "believes," "intends", "could", "should" and "estimates" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2001 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. For information about risks, uncertainties and other factors that may affect our business, please review the disclosure included under the captions "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended June 30, 2000 and in our quarterly report on Form 10-Q for the fiscal period ended March 31, 2001. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as 33 a result of new information, future events, changed circumstances or any other reason after the date of this offer to exchange. 18. Miscellaneous. 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 eligible employees residing in such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED ACCEPTANCE LETTER. 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. Oak Technology, Inc. August 15, 2001 34 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF OAK TECHNOLOGY, INC. The directors and executive officers of Oak Technology and their positions and offices as of August 10, 2001, are set forth in the following table:
Name Age Position --------- --------------------------------- Young K. Sohn 45 President, Chief Executive Officer and Director John S. Edmunds 44 Senior Vice President of Finance and Chief Financial Officer Simon P. Dolan 42 Senior Vice President and General Manager, Imaging Group Shlomo Waser 56 Senior Vice President and General Manager, Optical Storage David J. Power 44 Vice President of Legal, General Counsel and Secretary Richard B. Black 68 Director David Rynne (1)(2) 60 Director Peter Simone (1) 54 Director Timothy Tomlinson (1) 51 Director Albert Y.C. Yu (2) 60 Director
-------------------------------- (1) Member of the Audit Committee (2) Member of the Compensation Committee The address of each director and executive officer is: c/o Oak Technology, 139 Kifer Court, Sunnyvale, California 94086. 35