Agreement & Plan Of Merger & Reorganization

Exhibit 99.1 --------------------------------------------------------------------------------


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


_____________________________________


Dated as of May 1, 2000


_____________________________________


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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 contemplated by this Section 1.9(b), each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive shares of Parent Common Stock (and cash in lieu of any fractional share of Parent Common Stock) as contemplated by Section 1.6. If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition precedent to the issuance of any certificate representing Parent Common Stock, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, Parent or the Surviving Corporation with respect to such Company Stock Certificate.


(c) Notwithstanding anything to the contrary contained in this Agreement, no shares of Parent Common Stock (or certificates therefor) shall be issued in exchange for any Company Stock Certificate to any Person who may be an "affiliate" (as that term is used in Rule 145 under the Securities Act) of the Company ("Affiliate") until such Person shall have delivered to Parent and the Company a duly executed Affiliate Agreement as contemplated by Section 6.6(a).


(d) No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock represented thereby, until such holder surrenders such Company Stock Certificate in accordance with this Section 1.9 (at which time such holder shall be entitled, subject to the effect of applicable escheat or similar laws, to receive all such dividends and distributions, without interest).


(e) Any portion of the Exchange Fund that remains undistributed to holders of Company Stock Certificates as of the date one hundred and eighty (180) days after the date during which the Effective Time occurs shall be delivered to Parent upon demand, and any


5.


holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in accordance with this Section 1.9 shall thereafter look only to Parent for satisfaction of their claims for Parent Common Stock, cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock.


(f) Each of the Exchange Agent, Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Common Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.


(g) Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of Company Common Stock or to any other Person with respect to any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property, escheat or similar Legal Requirement.


1.10 Tax Consequences. For federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368 of the Code. The parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.


1.11 Accounting Consequences. For accounting purposes, the Merger is intended to be treated as a purchase.


SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.


Except as set forth in the disclosure letter that has been prepared by the Company in accordance with the requirements of Section 9.7 and that has been delivered by the Company to Parent on the date of this Agreement and signed by the President of the Company (the "Company Disclosure Letter"), the Company hereby represents and warrants to Parent and Merger Sub as follows:


2.1 Due Organization; Subsidiaries; Etc.


(a) The Company has no Subsidiaries, except for the Entities identified in Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999 or in Part 2.1(a) of the Company Disclosure Letter; and neither the Company nor any of the other Entities identified in Part 2.1(a) of the Company Disclosure Letter owns any capital stock of, or any equity interest of any nature in, any other Entity, other than short term investments and memberships in trade groups. (The Company and each of its Subsidiaries are referred to collectively in this Agreement as the "Acquired Companies.") None of the Acquired Companies has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.


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None of the Acquired Companies has, at any time, been a general partner of any general partnership, limited partnership or other entity.


(b) Except as set forth in Part 2.1(a) of the Company Disclosure Letter, each of the Acquired Companies is a corporation or other Entity duly organized, validly existing and in good standing (in jurisdiction that recognize such concept) under the laws of the jurisdiction of its organization and has all requisite power and authority and any necessary governmental authority, franchise, license, certificate or permit: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Acquired Company Contracts, except where the failure to be so organized, existing and in good standing or to have such power and authority has not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Companies.


(c) Each of the Acquired Companies is qualified to do business as a foreign Entity, and is in good standing (in jurisdictions that recognize such concept), under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so qualified has not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Companies.


2.2 Certificate of Incorporation and Bylaws. The Company has delivered to Parent accurate and complete copies of the certificate of incorporation, bylaws and other charter and organizational documents of the respective Acquired Companies, including all amendments thereto. None of the Acquired Companies is in violation of any of the provisions of its articles of incorporation or bylaws or equivalent governing instruments.


2.3 Capitalization, Etc.


(a) The authorized capital stock of the Company consists of 40,000,000 shares of Company Common Stock, of which, as of March 31, 2000, 10,482,963 shares (which amount does not materially differ from the amount issued and outstanding as of the date of this Agreement) have been issued and are outstanding. The Company does not have any shares of preferred stock authorized. As of March 31, 2000, there were 88,363 shares of Company Common Stock available for purchase pursuant to the Company's Employee Stock Purchase Plan. All of the outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. As of March 31, 2000, there were no shares of Company Common Stock held in treasury by the Company and no shares of stock held in treasury by any of the other Acquired Companies. Except as set forth in Part 2.3(a)(ii) of the Company Disclosure Letter, (i) none of the outstanding shares of Company Common Stock is entitled or subject to any preemptive right or any similar right; (ii) none of the outstanding shares of Company Common Stock is subject to any right of first refusal in favor of the Company; and (iii) there is no Acquired Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Company Common Stock. Upon consummation of the Merger, (A) the shares of Parent Common Stock issued in exchange for any shares of Company Common Stock that are subject to a Contract pursuant to which the Company has the right to repurchase, redeem or otherwise reacquire any shares of Company Common Stock will,


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without any further act of Parent, the Company or any other Person, become subject to the restrictions, conditions and other provisions contained in such Contract, and (B) Parent will automatically succeed to and become entitled to exercise the Company's rights and remedies under any such Contract. Except as set forth in Part 2.3(a)(ii) of the Company Disclosure Letter, none of the Acquired Companies is under any obligation to repurchase, redeem or otherwise acquire any outstanding shares of Company Common Stock.


(b) As of March 31, 2000, 2,839,491 shares (which amount does not materially differ from the amount subject to options outstanding as of the date of this Agreement) of Company Common Stock were subject to issuance pursuant to outstanding options to purchase Company Common Stock. (Options to purchase shares of Company Common Stock (whether granted by the Company pursuant to the Company's stock option plans, assumed by the Company in connection with any merger, acquisition or similar transaction or otherwise issued or granted) are referred to in this Agreement as "Company Options"). Part 2.3(b) of the Company Disclosure Letter sets forth the following information with respect to each Company Option outstanding as of March 31, 2000: (i) the particular plan pursuant to which such Company Option was granted; (ii) the name of the optionee; (iii) the number of shares of Company Common Stock subject to such Company Option; (iv) the exercise price of such Company Option; (v) the date on which such Company Option was granted; (vi) the applicable vesting schedule and the extent to which such Company Option is vested and exercisable as of the date of this Agreement; and (vii) the date on which such Company Option expires. The Company has delivered to Parent accurate and complete copies of all stock option plans pursuant to which the Company has ever granted stock options and the form of all stock option agreements evidencing such options. There are no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of any Company Option, except that each outstanding Company Option held by an optionee will vest and become exercisable for all the option shares on an accelerated basis should an Involuntary Termination (as such term is defined in the applicable stock option agreement for each such Company Option) of that optionee's service with the Surviving Corporation occur within eighteen months after the Effective Time.


(c) Except as set forth in Part 2.3(c) of the Company Disclosure Letter, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of any of the Acquired Companies; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities any of the Acquired Companies; (iii) stockholder rights plan (or similar plan commonly referred to as a "poison pill") or Contract under which any of the Acquired Companies is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance that would reasonably be expected to give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of any of the Acquired Companies.


(d) All outstanding shares of Company Common Stock, all outstanding Company Options and all outstanding shares of capital stock of each Subsidiary of the Company have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Acquired


8.


Company Contracts, except where the failure to be issued or granted in compliance therewith has not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Companies.


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