Agreement and Plan of Merger

EXHIBIT 2.1


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AGREEMENT AND PLAN OF MERGER
AND
REORGANIZATION


AMONG


CLARENT CORPORATION,
A DELAWARE CORPORATION;


COPPER ACQUISITION SUB, INC.,
A DELAWARE CORPORATION;


AND


ACT NETWORKS, INC.,
A DELAWARE CORPORATION


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DATED AS OF MAY 1, 2000


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2


TABLE OF CONTENTS


PAGE SECTION 1. DESCRIPTION OF TRANSACTION ...................................................2


1.1 Merger of Merger Sub into the Company.........................................2


1.2 Closing; Effective Time.......................................................2


1.3 Effect of the Merger..........................................................2


1.4 Subsequent Action.............................................................2


1.5 Certificate of Incorporation and Bylaws; Directors and
Officers......................................................................2


1.6 Conversion of Shares..........................................................3


1.7 Stock Options.................................................................4


1.8 Closing of the Company's Transfer Books.......................................4


1.9 Exchange of Certificates......................................................4


1.10 Tax Consequences..............................................................6


1.11 Accounting Consequences.......................................................6


SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................................6


2.1 Due Organization; Subsidiaries; Etc...........................................6


2.2 Certificate of Incorporation and Bylaws.......................................7


2.3 Capitalization, Etc...........................................................7


2.4 SEC Filings; Financial Statements.............................................9


2.5 Absence of Changes...........................................................10


2.6 Leasehold; Real Property; Equipment..........................................11


2.7 Receivables; Customers.......................................................12


2.8 Proprietary Assets...........................................................12


2.9 Contracts....................................................................15


2.10 Sale of Products; Performance of Services....................................17


2.11 Liabilities..................................................................18


2.12 Compliance with Legal Requirements...........................................18


2.13 Certain Business Practices...................................................18


2.14 Governmental Authorizations..................................................19


2.15 Tax Matters..................................................................19


2.16 Employee and Labor Matters; Benefit Plans....................................20


2.17 Environmental Matters........................................................23


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TABLE OF CONTENTS
(CONTINUED)
PAGE
2.18 Insurance....................................................................23


2.19 Transactions with Affiliates.................................................23


2.20 Legal Proceedings; Orders....................................................24


2.21 Authority; Inapplicability of Anti-takeover Statutes;
Binding Nature of Agreement..................................................24


2.22 Inapplicability of Section 2115 of California Corporations
Code.........................................................................25


2.23 Vote Required................................................................25


2.24 Non-Contravention; Consents..................................................25


2.25 Fairness Opinion.............................................................26


2.26 Financial Advisor............................................................26


2.27 Disclosure...................................................................26


SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB .....................26


3.1 Organization, Standing and Power.............................................27


3.2 Capitalization, Etc..........................................................27


3.3 SEC Filings; Financial Statements............................................27


3.4 Disclosure...................................................................28


3.5 Authority; Binding Nature of Agreement.......................................28


3.6 Non-Contravention; Consents..................................................29


3.7 Absence of Changes...........................................................30


3.8 Financial Advisor............................................................30


3.9 Valid Issuance...............................................................30


SECTION 4. CERTAIN COVENANTS OF THE COMPANY ............................................30


4.1 Access and Investigation.....................................................30


4.2 Operation of the Company's Business..........................................31


4.3 No Solicitation..............................................................34


4.4 Company Stockholders' Meeting................................................36


4.5 Letter of the Company's Accountants..........................................37


SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES .........................................37


5.1 Registration Statement; Proxy Statement/Prospectus...........................37


5.2 Regulatory Approvals.........................................................38


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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.3 Stock Options................................................................39


5.4 Form S-8.....................................................................41


5.5 Indemnification of Officers and Directors....................................41


5.6 Reorganization...............................................................41


5.7 Additional Agreements........................................................41


5.8 Confidentiality..............................................................42


5.9 Disclosure...................................................................42


5.10 Tax Matters..................................................................42


5.11 Nasdaq Listing...............................................................43


5.12 Access to Information........................................................43


5.13 Advice of Changes............................................................43


SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB ................44


6.1 Accuracy of Representations..................................................44


6.2 Performance of Covenants.....................................................44


6.3 Effectiveness of Registration Statement......................................44


6.4 Stockholder Approval.........................................................44


6.5 Consents.....................................................................44


6.6 Agreements and Documents.....................................................45


6.7 No Material Adverse Effect...................................................45


6.8 HSR Act......................................................................45


6.9 Listing......................................................................45


6.10 No Restraints................................................................45


6.11 No Governmental Litigation...................................................45


SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY ...........................46


7.1 Accuracy of Representations..................................................46


7.2 Performance of Covenants.....................................................46


7.3 Effectiveness of Registration Statement......................................46


7.4 Stockholder Approval.........................................................46


7.5 Agreements and Documents.....................................................47


7.6 HSR Act......................................................................47


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TABLE OF CONTENTS
(CONTINUED)
PAGE
7.7 Listing......................................................................47


7.8 No Restraints................................................................47


SECTION 8. TERMINATION .................................................................47


8.1 Termination..................................................................47


8.2 Notice of Termination; Effect of Termination.................................49


8.3 Expenses; Termination Fees...................................................49


SECTION 9. MISCELLANEOUS PROVISIONS ....................................................49


9.1 Amendment....................................................................49


9.2 Waiver.......................................................................50


9.3 No Survival of Representations and Warranties................................50


9.4 Entire Agreement; No Third-Party Beneficiaries...............................50


9.6 Applicable Law; Jurisdiction.................................................50


9.7 Disclosure Letter............................................................51


9.8 Attorneys' Fees..............................................................51


9.9 Assignability................................................................51


9.10 Notices......................................................................51


9.11 Cooperation..................................................................52


9.12 Heading......................................................................52


9.13 Severability.................................................................52


9.14 Construction.................................................................53


iv. 6


AGREEMENT AND PLAN
OF
MERGER AND REORGANIZATION


THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is made and entered into as of May 1, 2000, by and among: CLARENT CORPORATION, a Delaware corporation ("PARENT"); COPPER ACQUISITION SUB, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("MERGER SUB"); and ACT NETWORKS, INC., a Delaware corporation (the "COMPANY"). Certain capitalized terms used in this Agreement are defined in Exhibit A.


RECITALS


A. Parent, Merger Sub and the Company intend to effect a merger (the "MERGER") of Merger Sub with and into the Company in accordance with this Agreement and General Corporation Law of the State of Delaware, as amended (the "DGCL"). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent.


B. It is intended that the Merger qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"). For accounting purposes, it is intended that the Merger be treated as a purchase.


C. The Board of Directors of the Company has (i) determined that the Merger is consistent with and in furtherance of the long-term strategy of the Company and fair to, and in the best interests of, the Company and its stockholders, (ii) approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) determined to recommend that the stockholders of the Company adopt this Agreement.


D. The respective Boards of Directors of Parent and Merger Sub have approved this Agreement and the Merger.


E. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, each of the stockholders of the Company listed on Exhibit B hereto is entering into a voting agreement substantially in the form attached hereto as Exhibit C ("VOTING AGREEMENT").


F. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, each of the Persons identified on Exhibit D hereto is entering into an affiliate agreement substantially in the form attached hereto as Exhibit E ("AFFILIATE AGREEMENT").


G. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, the Company is entering into a stock option agreement substantially in the form attached hereto as Exhibit F ("STOCK OPTION AGREEMENT"), pursuant to which the Company grant to Parent the right to purchase up to 19.9%


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of the Company Common Stock on a primary basis prior to the Effective Time (as defined hereunder).


AGREEMENT


The parties to this Agreement, intending to be legally bound, agree as follows:


SECTION 1. DESCRIPTION OF TRANSACTION.


1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to the conditions set forth in this Agreement and the DGCL, at the Effective Time (as defined in Section 1.2), Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the "SURVIVING CORPORATION").


1.2 CLOSING; EFFECTIVE TIME. The consummation of the transactions contemplated by this Agreement (the "CLOSING") shall take place at the offices of Cooley Godward LLP, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m. on a date to be designated by Parent (the "CLOSING DATE"), which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Sections 6 and 7. Contemporaneously with or as promptly as practicable after the Closing, a properly executed certificate of merger conforming to the requirements of the DGCL shall be filed with the Secretary of State of the State of Delaware (the date and time of such filing being the "EFFECTIVE TIME").


1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. As of the Effective Time, the Surviving Corporation shall be a direct wholly owned subsidiary of Parent.


1.4 SUBSEQUENT ACTION. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either the Company or Merger Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name an on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.


1.5 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless otherwise determined by Parent prior to the Effective Time:


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(a) the Certificate of Incorporation and Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws substantially in the form attached hereto as Exhibits G-1 and G-2, respectively; and


(b) the directors and officers of the Surviving Corporation immediately after the Effective Time shall be the directors and officers of Merger Sub immediately prior to the Effective Time, until their respective successors are elected and qualified or duly appointed, as the case may be.


1.6 CONVERSION OF SHARES.


(a) Subject to Section 1.6(d), at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any stockholder of the Company:


(i) any shares of Company Common Stock then held by the Company or any subsidiary of the Company (or held in the Company's treasury) shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;


(ii) any shares of Company Common Stock then held by Parent, Merger Sub or any other subsidiary of Parent shall be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor;


(iii) except as provided in clauses "(i)" and "(ii)" above and subject to Sections 1.6(b) and 1.6(d), each share of Company Common Stock then outstanding shall be converted into the right to receive that fraction of a share of Parent Common Stock equal to the Exchange Ratio. The "EXCHANGE RATIO" shall be 0.2546 (the "INITIAL FRACTION"); provided, however, that:


(1) if the result of the multiplication of the Initial Fraction by the Closing Price is greater than $18.00 per share, then the Exchange Ratio shall be the fraction (calculated to four decimal places) having a numerator equal to $18.00 and a denominator equal to the Closing Price; or


(2) if the result of the multiplication of the Initial Fraction by the Closing Price is less than $14.00 per share, then the Exchange Ratio shall be the fraction (calculated to four decimal places) having a numerator equal to $14.00 and a denominator equal to the Closing Price.


(iv) each share of the common stock, $.001 par value per share, of Merger Sub then outstanding shall be converted into one share of common stock, $.001 par value per share, of the Surviving Corporation.


(b) If, between the date of this Agreement and the Effective Time, the outstanding shares of Company Common Stock or Parent Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, reclassification, recapitalization or other similar transaction,


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then the Exchange Ratio shall be appropriately adjusted to reflect the economic effects intended by Section 1.6(a).


(c) If any shares of Company Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with the Company or under which the Company has any rights, then the shares of Parent Common Stock issued in exchange for such shares of Company Common Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends. The Company shall take all action that may be necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement.


(d) No fractional shares of Parent Common Stock shall be issued in connection with the Merger, and no certificates for any such fractional shares shall be issued. In lieu of such fractional shares, any holder of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock issuable to such holder) shall, upon surrender of such holder's Company Stock Certificate(s) (as defined in Section 1.8), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the 4:00 p.m. (Eastern Time) closing price of a share of Parent Common Stock as reported on Nasdaq on the Effective Date.


1.7 STOCK OPTIONS. At the Effective Time, all Company Options (as defined in Section 2.3(b)) shall be assumed by Parent in accordance with Section 5.3.


1.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a) all shares of Company Common Stock outstanding immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, and all holders of certificates representing shares of Company Common Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company; and (b) the stock transfer books of the Company shall be closed at the close of business on the day during which the Effective Time occurs. No further transfer of any such shares of Company Common Stock shall be made on such stock transfer books after such date and time. If, after the Effective Time, a valid certificate previously representing any of such shares of Company Common Stock (a "COMPANY STOCK CERTIFICATE") is presented to the Exchange Agent (as defined in Section 1.9), to the Surviving Corporation or to Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.9.


1.9 EXCHANGE OF CERTIFICATES.


(a) On or prior to the Closing Date, Parent shall select a reputable bank or trust company reasonably acceptable to the Company to act as exchange agent in the Merger (the "EXCHANGE AGENT"). Promptly after the Effective Time, Parent shall deposit with the Exchange Agent (i) certificates representing the shares of Parent Common Stock issuable pursuant to this Section 1 and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with


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Section 1.6(d). The shares of Parent Common Stock and cash amounts so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the "EXCHANGE FUND."


(b) As soon as reasonably practicable after the Effective Time, the Exchange Agent will mail to the registered holders of Company Stock Certificates (i) a letter of transmittal in customary form and containing such provisions as Parent and the Company shall reasonably agree upon (including a provision confirming that delivery of Company Stock Certificates shall be effected, and risk of loss and title to Company Stock Certificates shall pass, only upon delivery of such Company Stock Certificates to the Exchange Agent), and (ii) instructions for use in effecting the surrender of Company Stock Certificates in exchange for certificates representing Parent Common Stock. Subject to Section 1.6(d), upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as are customarily required by the Exchange Agent, (A) the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the number of shares of Parent Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.6(a)(iii) together with any cash in lieu of fractional share(s) pursuant to the provisions of Section 1.6(d), and (B) the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemp ...