CLARENT CORP/CA, S-1/A, 1999-06-11

CLARENT CORP/CA
S-1/A, 1999-06-11
PREPACKAGED SOFTWARE

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<PAGE>

As filed with the Securities and Exchange Commission on June 11, 1999
Registration No. 333-76051
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CLARENT CORPORATION
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<C> <C> <S>
Delaware 7372 77-0433687
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
----------------
700 Chesapeake Drive
Redwood City, California 94063
(650) 306-7511
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Jerry Shaw-Yau Chang
Chief Executive Officer
Clarent Corporation
700 Chesapeake Drive
Redwood City, California 94063
(650) 306-7511
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------

Copies to:
Patrick A. Pohlen, Esq. Jeffrey D. Saper, Esq.
COOLEY GODWARD LLP Donna M. Petkanics, Esq.
Five Palo Alto Square WILSON SONSINI GOODRICH & ROSATI
3000 El Camino Real Professional Corporation
Palo Alto, CA 94306-2155 650 Page Mill Road
(650) 843-5000 Palo Alto, CA 94304-1050
(650) 493-9300
----------------

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
----------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

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- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JUNE 11, 1999

4,000,000 Shares

[LOGO OF CLARENT(TM) CORPORATION]

Common Stock

--------

Prior to this offering, there has been no public market for our common stock.
We expect the initial public offering price to be between $13.00 and $15.00 per
share. We have applied to list our common stock on The Nasdaq National Market
under the symbol "CLRN."

The underwriters have an option to purchase up to 600,000 additional shares
of common stock to cover over-allotments of shares.

Investing in the common stock involves risks. See "Risk Factors" on page 8.

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Clarent
-------------- -------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about , 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

BancBoston Robertson Stephens

Thomas Weisel Partners LLC

U.S. Bancorp Piper Jaffray

This prospectus is dated , 1999.
<PAGE>

[A bar chart comparing us and other IP telephony service providers placed over
a graphic featuring a world map]

More minutes travel over Clarent IP telephony

technology worldwide than that of any other supplier.*

IP telephone technology permits the simultaneous transmission of voice, fax and
data over Internet protocol-based data networks, such as the Internet.

*Global IP Voice/Fax Market 1999,
March 1999
iLocus (Industry Analysts)

Notes:

1) Less than 1% of all call minutes, including voice, fax and data, are
currently transmitted using IP telephony.

2) This illustration shows market share based on minutes travelling over
different vendors' technology. This data was one of four market share measures
reported by iLocus. The other three measures were: a) number of service
providers using the vendor equipment; b) vendor ports operational in the
service market; and c) vendor ports operational in the corporate market.
<PAGE>

[Artwork illustrating the connection between our customers and our technology]

Enabling IP telephony service providers worldwide.

Clarent: Cutting-edge Technology

. Simultaneous voice, fax and data transmission with traditional telephone
voice quality

. Dynamic routing of calls, real-time billing and network management

. Robust architecture designed for growth and delivery of advanced features

Clarent: Global Customers

. Approximately 100 telecommunications companies in 50 countries

. A number of the world's leading long distance service providers

. Worldwide network coverage by partnering with each other
<PAGE>

------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................ 33
Management.......................... 45
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Transactions............. 55
Principal Stockholders........... 56
Description of Capital Stock..... 58
Shares Eligible for Future Sale.. 60
Underwriting..................... 62
Notice to Canadian Residents..... 64
Legal Matters.................... 65
Experts.......................... 65
Where You Can Find More
Information..................... 65
Index to Consolidated Financial
Statements...................... F-1
</TABLE>

------------

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

"Clarent" is a registered trademark and the Clarent logo and the Clarent
Command Center are trademarks of Clarent Corporation in the United States and
other jurisdictions. All other trademarks or service marks appearing in this
prospectus are trademarks or service marks of the respective companies that use
them.

Dealer Prospectus Delivery Obligation

Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

3
<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus and does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including "Risk Factors" and the Consolidated Financial Statements
and the related Notes before making an investment decision.

Clarent Corporation

We are a leading provider of Internet protocol or IP telephony systems. IP
telephony systems permit the simultaneous transmission of voice, fax and data
over the Internet and similar communications networks. Using our technology to
simultaneously transmit voice, fax and data, our customers are able to more
efficiently and cost-effectively use the available capacity of their networks.
These customers are service providers, including traditional, local,
international and wholesale long distance telephone companies, as well as new
telecommunications service providers. The IP telephony market is relatively
new. Less than 1% of all voice calls worldwide are currently transmitted using
IP telephony. According to Frost & Sullivan, between 1997 and 2002, the number
of call minutes, including voice, fax and data, transmitted using IP telephony
is expected to have a compound annual growth rate of 325%.

IP telephony technology and the technology used by traditional telephone
services differ fundamentally in the way the information travels from point to
point through their networks. Using IP telephony, a dedicated connection, or
circuit, between the callers is not required. Instead, the caller's voice is
divided into numerous small packages of information called packets. These
packets are sent over the network intermixed with other packets of data, such
as fax, email or Internet content, to be reassembled at the destination of the
call. In contrast, traditional telephone technology requires that a circuit
between the callers be established and maintained during the length of the
call, and voice, fax and data cannot be transmitted simultaneously over this
circuit.

Using our IP telephony product, the Clarent system, service providers can
deliver a level of voice quality that is indistinguishable from the voice
quality over the traditional telephone system. In addition, the Clarent system
enables the simultaneous transmission of voice, fax and data. The Clarent
system features a modular architecture that enables service providers to
provide their customers with communications services at a lower cost than
traditional telephone companies and also permits our customers to add new
product and service features without extensive product cost or development
time.

The Clarent system consists of three distinct components:

. the Clarent Gateway, an integrated hardware and software product that
includes network server software that is based on industry standards;

. the Clarent Command Center, a proprietary client/server software package;
and

. a relational database, which is supplied by a third party.

The Clarent Gateway converts voice, fax and data into packets that can be
transmitted over an IP network, then converts them back into a form recognized
by the traditional telephone system. The Clarent Command Center is the software
that processes the data stored in the third-party relational database. The
Clarent Command Center supports all network management and administration
functions, including the routing and pricing of calls, authentication of
callers and billing, as well as network diagnostic and maintenance functions.

4
<PAGE>

Our strategic objective is to be the leading provider of comprehensive IP
telephony solutions to telecommunications service providers worldwide.

Key elements of our strategy include:

. provide the core technology enabling the delivery of a broad range of IP
telephony services;

. increase our penetration of the service provider market;

. target key growth markets worldwide;

. promote strategic relationships between our customers;

. extend our technology leadership position; and

. deliver added value through customer support and services.

We began commercial shipment of the Clarent system in March 1997. As of
March 31, 1999, we had shipped the Clarent system to approximately 100
telecommunications companies in 50 countries worldwide. The Clarent system has
been installed in some of the world's leading service provider networks,
including those of AT&T Corporation, Chunghwa Telecom (Taiwan), Ji-Tong
Communications (People's Republic of China), KDD (Japan), Korea Telecom (South
Korea), KPN Telecom Netherlands, Singapore Telecom, Star Telecom (United
States) and Telia Telecom (Sweden). In 1998, sales to these customers
represented approximately 48% of our $14.6 million in revenue. As of March 31,
1999, we had an accumulated deficit of $13.6 million.

We were originally incorporated under the name NetiPhone, Incorporated in
California in July 1996. We changed our name to Clarent Corporation in May
1997, and we reincorporated in Delaware in 1999. Our headquarters are
located at 700 Chesapeake Drive, Redwood City, California 94063, and our
telephone number is (650) 306-7511. The address of our web site is
"www.clarent.com." Information contained on our web site should not be
considered a part of this prospectus.

5
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered.............. 4,000,000 shares
Common stock to be outstanding
after this offering.............. 26,301,128 shares(1)
Use of proceeds................... We intend to use the estimated proceeds for
working capital and general corporate
purposes, including increased research and
development, sales and marketing and
general and administrative expenditures. We
may also use a portion of the proceeds for
acquisitions of products and technologies
or for strategic alliances.
Proposed Nasdaq National Market
symbol........................... CLRN
</TABLE>
- --------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and does
not include the following:

. 7,631,842 shares subject to options outstanding as of March 31, 1999, at
a weighted average exercise price of $0.80 per share;

. 3,200,000 shares that we could issue under stock plans, of which
1,755,170 shares were approved by the board of directors on April 8,
1999, subject to stockholder approval;

. 202,000 shares reserved for issuance on the exercise of warrants
outstanding as of March 31, 1999 to purchase Series C preferred stock and
the automatic conversion of this preferred stock into common stock. These
warrants will not be exercised and will expire upon the completion of
this offering; and

. 600,000 shares that may be purchased by the underwriters to cover over-
allotments, if any.

----------------

Except as otherwise indicated, all information in this prospectus assumes:

. no exercise of the underwriters' over-allotment option;

. the issuance of a total of 1,082,990 shares of common stock immediately
prior to the completion of this offering, upon the exercise of warrants
outstanding as of March 31, 1999, using some of the shares covered by
these warrants to pay the exercise price assuming an initial public
offering price of $14.00 per share; of which

-- 94,860 shares of common stock issued upon the exercise of outstanding
Series C preferred stock warrants; and

-- 988,130 shares of common stock issued upon the exercise of an
outstanding common stock warrant;

. the automatic conversion of each outstanding share of preferred stock
into shares of common stock immediately prior to the completion of this
offering;

. a two-for-one stock split of the common stock to be completed prior to
the effectiveness of this offering; and

. the filing of our amended and restated certificate of incorporation prior
to the closing of this offering.

Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock, options and warrants to purchase common
stock and other related matters.

6
<PAGE>

Summary Consolidated Financial Data
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Year ended Three months
Period from December 31, ended March 31,
July 2, 1996 (inception) ---------------- ----------------
to December 31, 1996 1997 1998 1998 1999
------------------------ ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenue............ $ -- $ 3,359 $14,647 $ 2,396 $ 6,714
Cost of revenue........ -- 1,189 6,653 780 3,281
----- ------- ------- ------- -------
Gross profit........... -- 2,170 7,994 1,616 3,433
Operating expenses:
Research and
development.......... 136 1,044 3,356 540 1,566
Sales and marketing... -- 2,046 7,099 1,182 4,025
General and
administrative....... 140 639 2,484 176 1,357
Amortization of
compensation......... -- -- 879 2 1,980
Settlement expense.... -- 570 -- -- --
----- ------- ------- ------- -------
Total operating
expenses............ 276 4,299 13,818 1,900 8,928
----- ------- ------- ------- -------
Loss from operations... (276) (2,129) (5,824) (284) (5,495)
Other income (expense),
net................... -- 70 32 (40) 16
----- ------- ------- ------- -------
Loss before income
taxes................. (276) (2,059) (5,792) (324) (5,479)
Provision for income
taxes................. -- -- (40) -- --
----- ------- ------- ------- -------
Net loss............... $(276) $(2,059) $(5,832) $ (324) $(5,479)
===== ======= ======= ======= =======
Historical basic and
diluted net loss per
share(1).............. N/A $ (2.14) $ (1.65) $ (0.14) $ (1.00)
===== ======= ======= ======= =======
Shares used to compute
historical basic and
diluted net loss per
share(1).............. -- 962 3,544 2,326 5,481
===== ======= ======= ======= =======
Pro forma basic and
diluted net loss per
share(1).............. $ (0.42) $ (0.03) $ (0.29)
======= ======= =======
Shares used to compute
pro forma basic and
diluted net loss per
share(1).............. 14,048 10,768 19,210
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
March 31, 1999
---------------------
Actual As Adjusted(2)
------ --------------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................ $7,267 $58,247
Working capital.......................................... 6,996 57,976
Total assets............................................. 28,627 79,607
Long term portion of debt................................ 784 784
Total stockholders' equity............................... 10,313 61,293
</TABLE>
- --------
(1) See Note 12 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.
(2) Adjusted to reflect the sale of 4,000,000 shares of common stock in this
offering, assuming no exercise of the underwriters' over-allotment option,
at an assumed initial public offering price of $14.00 per share and the
application of the estimated net proceeds after deducting the underwriting
discounts and commissions and our estimated offering expenses.

7
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. The risks and
uncertainties described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us or that we currently believe
are immaterial also may impair our business operations. If any of the following
risks occurs, our business, operating results and financial condition could be
seriously harmed. In addition, the trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your
investment.

We have a limited operating history, which makes it difficult to evaluate our
prospects.

We are an early-stage company in the emerging IP telephony market. We were
founded in July 1996 and have not generated significant revenue to date.
Because of our limited operating history, we have limited insight into trends
that may emerge in our market and affect our business. The revenue and income
potential of the IP telephony market, and our business in particular, are
unproven. As a result of our limited operating history, we have limited
financial data that you can use to evaluate our business. You must consider our
prospects in light of the risks, expenses and challenges we might encounter
because we are at an early stage of development in a new and rapidly evolving
market.

Unless we generate significant revenue growth, our increasing expenses and
negative cash flow will significantly harm our financial position.

As of March 31, 1999, we had an accumulated deficit of $13.6 million. We
expect to incur operating losses for the foreseeable future, and these losses
may be substantial. Further, we expect to incur negative operating cash flow in
the future. We expect to continue to increase capital expenditures and our
research and development, sales and marketing and general and administrative
expenses. We will need to generate significant revenue growth to achieve
profitability and positive operating cash flow. Even if we do achieve
profitability and positive operating cash flow, we may not be able to sustain
or increase profitability or positive operating cash flow on a quarterly or
annual basis.

We have experienced operating losses in each quarterly and annual period
since inception. The following table shows our operating losses for the periods
indicated:

<TABLE>
<CAPTION>
Period Operating Loss
------ --------------
<S> <C>
July 2, 1996 (inception) to December 31, 1996................. $ (276,000)
Year ended December 31, 1997.................................. (2,129,000)
Year ended December 31, 1998.................................. (5,824,000)
Three months ended March 31, 1999............................. (5,495,000)
</TABLE>

Our operating results are volatile, and an unanticipated decline in revenue may
disproportionately affect our net income or loss in a quarter.

Our quarterly and annual operating results have varied significantly in the
past and will likely vary significantly in the future. As a result, our future
operating results are difficult to predict. Further, we incur expenses in
significant part on our expectations of our future revenue. As a result, we
expect our expense levels to be relatively fixed in the short run. Therefore,
an unanticipated decline in revenue for a particular quarter may
disproportionately affect our net income (loss) in that quarter.

Any of the above factors could harm our business, financial condition and
results of operations. We believe that period-to-period comparisons of our
results of operations are not meaningful, and you should not rely upon them as
indicators of our future performance.

8
<PAGE>

If we do not reduce costs, introduce new products or increase sales volume, our
gross margin may decline.

We have experienced significant erosion in the average selling prices of our
products due to a number of factors, including competitive pricing pressures,
rapid technological change and sales discounts. We anticipate that the average
selling prices of our products will decrease and fluctuate in the future in
response to the same factors. Therefore, to maintain or increase our gross
margin, we must develop and introduce new products and product enhancements on
a timely basis. We must also continually reduce our costs of production. As our
average selling prices decline, we must increase our unit sales volume to
maintain or increase our revenue. To date, the erosion in the average selling
prices has not had a material affect on our gross margin. However, we cannot be
certain that the erosion in the average selling prices will not affect our
gross margin in the future. If our average selling prices decline more rapidly
than our costs of production, our gross margin will decline, which could
seriously harm our business, financial condition and results of operations.

Our markets are highly competitive, and we cannot assure you that we will be
able to compete effectively.

We compete in a new, rapidly evolving and highly competitive and fragmented
market. We expect competition to intensify in the future. We cannot assure you
that we will be able to compete effectively. We believe that the main
competitive factors in our market are product quality, features, cost and
customer relationships. Our current principal competitors include 3Com
Corporation, Cisco Systems, Inc., Lucent Technologies Inc., Nortel Networks
Corporation and VocalTec Communications, Ltd. We also expect that other
companies may enter our market with better products and technologies.

We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. To be
competitive, we must continue to invest significant resources in research and
development, sales, marketing and customer support. We cannot be sure that we
will have sufficient resources to make these investments or that we will be
able to make the technological advances necessary to be competitive. Increased
competition is likely to result in price reductions, reduced gross margin and
loss of market share. Our failure to compete successfully against current or
future competitors could seriously harm our business, financial condition and
results of operations.

Our future ability to generate sales depends on the interoperability of our
products with those of other vendors.

While our products currently connect to the traditional system using
standard interfaces, an increasing number of our customers have requested that
our products interoperate with competing IP telephony products from other
vendors. The interoperability standards for IP telephony equipment are
evolving. If we are unable to provide our customers interoperable solutions,
they may seek vendors who provide product interoperability. This could
seriously harm our business, financial condition and results of operations.

If we lose key personnel, we may not be able to successfully operate our
business.

Our future success depends, in large part, on our ability to attract and
retain highly skilled personnel. The loss of the services of any of our key
personnel, the inability to attract or retain qualified personnel in the future
or delays in hiring required personnel, particularly engineers, sales personnel
and marketing personnel, may seriously harm our business, financial condition
and results of operations. We will need to expand our sales operations and
marketing operations in order to increase market awareness of our products and
generate increased revenue. New sales personnel and marketing personnel will
require training and take time to achieve full productivity. In addition, the
design and installation of IP telephony solutions can be complex. Accordingly,
we need highly trained professional services and customer support personnel. We
currently have a small professional services and customer support organization
and will need to increase our staff to support new customers and the expanding
needs of existing customers. Competition for personnel is intense, especially
in the San Francisco Bay Area where we maintain our headquarters. We cannot be
certain that we will successfully attract and retain additional qualified
personnel. In addition, our key person life insurance policy, covering some of
our key employees, may be insufficient to cover the costs associated with the
loss of one of these employees.

9
<PAGE>

Our failure to manage our rapid growth effectively could negatively affect our
results of operations.

Since we began commercial shipment of our products in March 1997, we have
experienced a period of rapid growth and expansion that is significantly
straining all of our resources. From September 30, 1998 to March 31, 1999, the
number of our employees increased from approximately 70 to 155. We expect our
anticipated growth and expansion to continue to place strain on our management,
operational and financial resources. Our inability to manage growth effectively
could seriously harm our business, financial condition and results of
operations. We may not be able to install adequate control systems in an
efficient and timely manner, and our current or planned operational systems,
procedures and controls may not be adequate to support our future operations.
Delays in the implementation of new systems or operational disruptions when we
transition to new systems would impair our ability to accurately forecast sales
demand, manage our product inventory and record and report financial and
management information on a timely and accurate basis.

The IP telephony alternative may not achieve widespread acceptance, which could
cause our business to fail.

The IP telephony market is relatively new and evolving rapidly. Less than 1%
of all voice calls worldwide are currently transmitted over IP-based data
networks. Our ability to increase revenue in the future depends on some of both
existing and future circuit-switched telephone network calls moving to IP-based
data networks. The use of IP telephony for voice calls might be hindered by
the:

. reluctance of service providers that have invested substantial resources
in the existing telephone network infrastructure to replace or expand
their current networks with this new technology; and

. lack of partnerships between service providers, keeping them from having
global IP telephony network coverage.

Accordingly, in order to achieve commercial acceptance, we will have to
educate prospective customers, including large, established telecommunications
companies, about the benefits and uses of IP telephony solutions in general,
our products in particular, and the need to partner with other IP telephony
service providers to extend the coverage of their networks. If these efforts
fail or if IP telephony does not achieve commercial acceptance, our business,
financial condition and results of operations could be seriously harmed.

Our inability to introduce new products and product enhancements could prevent
us from increasing revenue.

We expect that the IP telephony market will be characterized by rapid
technological change. We also expect that the increased use of IP telephony
will require us to rapidly evolve and adapt our products to remain competitive.
The successful operation of our business depends on our ability to develop and
introduce new products and product enhancements that respond to technological
changes or evolving industry standards on a timely and cost-effective basis. We
cannot be certain that we will successfully develop and market these types of
products and product enhancements. Our failure to produce technologically
competitive products in a cost-effective manner and on a timely basis will
seriously harm our business, financial condition and results of operations.

Future regulation or legislation could restrict our business or increase our
cost of doing business.

At present there are few laws or regulations that specifically address
access to or commerce on the Internet, including IP telephony. We are unable to
predict the impact, if any, that future legislation, legal decisions or
regulations concerning the Internet may have on our business, financial
condition and results of operations. Regulation may be targeted towards, among
other things, assessing access or settlement charges, imposing tariffs or
imposing regulations based on encryption concerns or the characteristics and
quality of products and services, which could restrict our business or increase
our cost of doing business. The increasing growth of the IP telephony market
and popularity of IP telephony products and services heighten the risk that
governments will seek to regulate IP telephony and the Internet. In addition,
large, established telecommunications companies may devote substantial lobbying
efforts to influence the regulation of the IP telephony market, which may be
contrary to our interests.

10
<PAGE>

We depend on new entrants in the service provider market to generate a portion
of our revenue and our operating results may be harmed if these new entrants
are not commercially viable.

We expect to generate a portion of our revenue from new entrants in the
telecommunications service provider market. Failure to generate revenue from
these new entrants could have a negative impact on our business. Examples of
these service providers include traditional, local, international and wholesale
long distance companies, competitive local exchange carriers and Internet
telephony service providers. Many of these new entrants are still building
their infrastructures and rolling out their services. We cannot guarantee that
any of these companies will achieve commercial viability. Given that these new
entrants may be start-up operations with uncertain financial resources, we
cannot be sure that these new entrants will be able to pay their obligations to
us for purchase of our products on a timely basis, or at all. Some of our new
entrant customers have been late in making payments to us. To date, late
payments from our customers have not significantly impacted our operations.
However, we cannot be certain that late payments from our customers will not
impact our operations in the future. The failure of these companies to achieve
commercial viability or pay their obligations to us would, in turn, seriously
harm our business, financial condition and results of operations.

A loss of one or more of our key customers could cause a significant decrease
in our net revenue.

We have historically derived the majority of our revenue from a small number
of customers, particularly various entities within AT&T. In 1998 entities
affiliated with AT&T Corporation accounted for 36% and Technet International
accounted for 12% of our net revenue. In the first quarter of 1999, entities
affiliated with AT&T Corporation accounted for 25% and Technet International
accounted for 32% of our net revenue. None of our customers is obligated to
purchase additional products or services. Accordingly, we cannot be certain
that present or future customers will not terminate their purchasing
arrangements with us or significantly reduce or delay their orders. Any
termination, change, reduction or delay in orders could seriously harm our
business, financial condition and results of operations.

We may not be able to expand our direct sales and distribution channels, which
would harm our ability to generate revenue.

We believe that our future success is dependent upon our ability to expand
our direct sales force and establish successful relationships with a variety of
international distribution partners. To date, we have entered into agreements
with only a small number of distribution partners that accounted for
approximately 18% of net revenue for 1998 and 15% of net revenue for the first
quarter of 1999. These distribution agreements typically may be terminated
without cause upon 90 days notice. We cannot be certain that we will be able to
reach agreement with additional distribution partners on a timely basis or at
all, or that these distribution partners will devote adequate resources to
marketing, selling and supporting our products. We must successfully manage our
distributor relationships. In 1997 we settled a dispute with one of our
distributors at a cost to us of $570,000, plus future specified discounts. We
cannot guarantee that we will successfully manage our distributor relationships
in the future. Our inability to generate revenue from distribution partners may
harm our business, financial condition and results of operations.

Sales to customers based outside the United States have historically accounted
for a significant portion of our revenue, which exposes us to risks inherent in
international operations.

International sales represented approximately 94% of net revenue in 1997,
48% in 1998 and 34% in the first quarter of 1999. Our international operations
are subject to a variety of risks associated with conducting business
internationally any of which could seriously harm our business, financial
condition and results of operations. These risks include:

. greater difficulty in accounts receivable collections;

. import or export licensing and product certification requirements;

. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;

. potential adverse tax consequences, including restrictions on
repatriation of earnings;

11
<PAGE>

. fluctuations in currency exchange rates;

. seasonal reductions in business activity in some parts of the world;

. unexpected changes in regulatory requirements;

. burdens of complying with a wide variety of foreign laws, particularly
with respect to intellectual property and license requirements;

. difficulties and costs of staffing and managing foreign operations;

. political instability;

. the impact of recessions in economies outside of the United States; and

. limited ability to enforce agreements, intellectual property and other
rights in some foreign countries.

We may not be able to expand our international operations, which would reduce
our ability to increase revenue.

We currently have offices in Belgium, Germany, Japan, the People's Republic
of China, South Korea, Spain, Taiwan and the United Kingdom. We intend to
expand the scope of our international operations, which will require us to
enhance our communications infrastructure and may include the establishment of
overseas assembly operations. If we are unable to expand our international
operations effectively and quickly, we may be unable to successfully market,
sell, deliver and support our products internationally.

Our sales cycle is typically long and unpredictable, causing us to incur
expenditures prior to the receipt of orders.

We incur research and development, and sales and marketing, including
customer support, expenditures prior to receiving orders for our products from
any given customer. The length of the sales cycle with a particular customer is
influenced by a number of factors, including:

. a customer's experience with sophisticated telecommunications equipment,
such as our product;

. the particular telecommunications market that the customer serves; and

. the cost of purchasing our product, including the cost of converting from
installed equipment, which may be significant.

Before we receive orders, our customers typically test and evaluate our
products for a period of months or, in some cases, over a year.

We cannot be certain that the sales cycle for our products will not lengthen
in the future. In addition, the emerging and evolving nature of the IP
telephony market may cause prospective customers to delay their purchase
decisions as they evaluate new technologies and develop and implement new
systems. As the average order size for our products grows, the process for
approving purchases is likely to become more complex, leading to potential
delays in receipt of these orders. As a result, our long and unpredictable
sales cycle contributes to the uncertainty of our future operating results.

Delays in customer orders could have a negative impact on our results of
operations for any given quarter.

We have historically received a significant portion of our product orders
near the end of a quarter. Accordingly, a delay in an anticipated receipt or
delivery of a given order past the end of a particular quarter may negatively
impact our results of operations for that quarter. These delays may become more
likely given that we expect that the average size of our customer orders may
increase. As a result, a delay in the recognition of revenue, even from just
one customer, may have a significant negative impact on our results of
operations for a given period. Any delay in sales of our products could result
in a significant decrease in cash flow, which, in turn, could severely affect
our ability to make payments as they come due and could cause our operating
results to vary significantly from quarter to quarter.

12
<PAGE>

We may not be able to raise capital as needed to maintain our operations.

We expect the net proceeds from this offering, cash from operations and
borrowings under our credit facility to be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months. After
that, we may need to raise additional funds, and additional financing may not
be available on favorable terms, if at all. We may also require additional
capital to acquire or invest in complementary businesses or products or obtain
the right to use complementary technologies. If we cannot raise needed funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business, financial
condition and results of operations. If we issue additional equity securities
to raise funds, the ownership percentage of our existing stockholders would be
reduced. New investors may demand rights, preferences or privileges senior to
those of existing holders of our common stock.

Our dependence on independent manufacturers may result in product delivery
delays.

We license technology that is incorporated into our products from
independent manufacturers, including AudioCodes, Ltd. and Natural Microsystems.
If these vendors fail to supply us with their components on a timely basis, we
could experience significant delays in shipping our products. Although we
believe there are other sources for this licensed technology, any significant
interruption in the supply or support of any licensed technology could
seriously harm our sales, unless and until we can replace the functionality
provided by this licensed technology. Also, because our products incorporate
software developed and maintained by third parties, we depend on these third
parties to deliver reliable products, support these products, enhance their
current products, develop new products on a timely and cost-effective basis,
and respond to emerging industry standards and other technological changes. The
failure of these third parties to meet these criteria could seriously harm our
business, financial condition and results of operations.

Our business could be harmed if we are unable to forecast our inventory needs
accurately.

Lead times for materials and components used in the assembly of our products
vary significantly. If orders do not match forecasts, we may have excess or
inadequate inventory of some materials and components.

Our strategy to outsource assembly and test functions in the future could delay
our ability to deliver our products on a timely basis.

We assemble and test our products at our facility in Redwood City,
California. Based on volume or customer requirements, we may begin outsourcing
some of our assembly and test functions. This outsourcing strategy involves
risks, including the potential absence of adequate capacity and reduced control
over delivery schedules, manufacturing yields, quality and costs. In the event
that any significant subcontractor were to become unable or unwilling to
continue to manufacture and/or test our products in the required volumes, we
would have to identify and qualify acceptable replacements. This process could
be lengthy, and we cannot be sure that additional sources would be available to
us on a timely basis. Any delay or increase in costs in the assembly and
testing of products by third-party subcontractors, could seriously harm our
business, financial condition and results of operations.

Our facilities are vulnerable to damage from earthquakes and other natural
disasters.

Our assembly facilities are located on or near known earthquake fault zones
and are vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. If such a disaster occurs while
we still assemble our products in-house, our ability to assemble, test and ship
our products would be seriously, if not completely, impaired, which would
seriously harm our business, financial condition and results of operations. We
cannot be sure that the insurance we maintain against fires, floods,
earthquakes and general business interruptions will be adequate to cover our
losses in any particular case.

13
<PAGE>

Fluctuations in the values of foreign currencies could have a negative impact
on our profitability.

Due to our international operations, we incur expenses in a number of
currencies. We do not currently engage in currency hedging activities to limit
the risks of exchange rate fluctuations. Therefore, fluctuations in the value
of foreign currencies could have a negative impact on the profitability of our
global operations, which would seriously harm our business, financial condition
and results of operations. All of our sales, including international sales are
currently denominated in U.S. dollars. However, we do not expect that future
international sales will continue to be denominated in U.S. dollars.
Fluctuations in the value of the U.S. dollar and foreign currencies may make
our products more expensive than local product offerings.

Defects in our products may seriously harm our credibility and harm our
business.

We have detected and may continue to detect errors and product defects in
connection with new product releases and product upgrades. These problems may
affect network uptime and cause us to incur significant warranty and repair
costs and cause significant customer relations problems. Service providers
require a strict level of quality and reliability from telecommunications
equipment suppliers. Traditional telecommunications equipment is expected to
provide a 99.999% level of reliability. IP telephony products are inherently
complex and frequently contain undetected software or hardware errors when
first introduced or as new versions are released. In addition, the detection of
errors in software products requires an unknown level of effort to correct and
may delay the release of new products or upgrades or revisions to existing
products, which could materially affect the market acceptance and sales of our
products. If we deliver products or upgrades with undetected material software
errors or product defects, our credibility and market acceptance and sales of
our products may be harmed. In some of our contracts, we have agreed to
indemnify our customers against certain liabilities arising from defects in our
products. While we carry insurance policies covering this type of liability,
these policies may not provide sufficient protection should a claim be
asserted. To date, product defects have not had a material negative affect on
our results of operations. However, we cannot be certain that product defects
will not have a material negative affect on our results of operations in the
future. A material product liability claim may have significant consequences on
our ability to compete effectively and generate positive cash flow and may
seriously harm our business, financial condition and results of operations.

We may have difficulty identifying the source of the problem when there is a
problem in a network.

Our products must successfully integrate with products from other vendors,
such as traditional telephone systems. As a result, when problems occur in a
network, it may be difficult to identify the source of the problem. The
occurrence of hardware and software errors, whether caused by our products or
another vendor's products, may result in the delay or loss of market acceptance
of our products and any necessary revisions may force us to incur significant
expenses. The occurrence of some of these types of problems may seriously harm
our business, financial condition and results of operations.

We may not have adequate protection for our intellectual property, which may
make it easier for others to sell competing products.

We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult, and we cannot be certain that
the steps we have taken will prevent misappropriation of our technology. The
laws of some foreign countries do not protect our proprietary rights to as
great an extent as the laws of the United States, and many United States
companies have encountered substantial infringement problems in these
countries, some of which are countries in which we have sold and continue to
sell products. If we fail to adequately protect our intellectual property
rights, it would be easier for our competitors to sell competing products.

Our products may infringe on the intellectual property rights of third parties,
which may result in lawsuits and prohibit us from selling our products.

We believe there is a risk that third parties have filed, or will file
applications for, or have received or will receive, patents or obtain
additional intellectual property rights relating to materials or processes that
we use or

14
<PAGE>

propose to use. As a result, from time to time, third parties may assert
exclusive patent, copyright, trademark and other intellectual property rights
to technologies that are important to us. In addition, third parties may assert
claims or initiate litigation against us or our manufacturers, suppliers or
customers with respect to existing or future products, trademarks or other
proprietary rights. Any claims against us or customers that we indemnify
against intellectual property claims, with or without merit, may be time-
consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology. If a
claim is successful, we may be required to obtain a license or royalty
agreement under the intellectual property rights of those parties claiming the
infringement. If we are unable to obtain the license, we may be unable to
market our products. Limitations on our ability to market our products and
delays and costs associated with monetary damages and redesigns in compliance
with an adverse judgment or settlement could harm our business, financial
condition and results of operations.

Our failure and the failure of our key suppliers and customers to be Year 2000
compliant may negatively impact our business and results of operations.

The Year 2000 computer issue creates a significant risk for us in at least
four areas:

. potential warranty or other claims arising from our products for failure
to be Year 2000 compliant;

. systems we use to run our business may fail or produce inaccurate
results;

. systems used by our suppliers may fail or produce inaccurate results,
causing operational difficulties for us; and

. potential customers may reduce spending on IP telephony products as a
result of significant information systems spending on Year 2000
remediation or to limit additional changes to their networks during the
current year.

If any of these risks materialize, it may seriously harm our business,
financial condition and results of operations.

Our existing stockholders have voting control over Clarent.

On completion of this offering, executive officers and directors and their
affiliates will beneficially own, in the aggregate, approximately 68% of our
outstanding common stock. As a result, these stockholders will be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which may have the effect of delaying or preventing a third party
from acquiring control over us.

New investors in our common stock will experience immediate and substantial
dilution.

The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $11.67 in net tangible
book value per share of common stock. Investors will incur additional dilution
upon the exercise of outstanding stock options and warrants.

Our stock price may be volatile after this offering.

Although the initial public offering price will be determined based on
several factors, the market price for our common stock will vary from the
initial offering price after this offering. The market price of our common
stock may fluctuate significantly in response to a number of factors, some of
which are beyond our control.

We may in the future be the target of securities class action litigation, which
could be costly and time consuming to defend.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation may result in substantial costs and divert management's
attention and resources, which may seriously harm our business, financial
condition and results of operations.

15
<PAGE>

Our certificate of incorporation and bylaws and Delaware law contain provisions
that could delay or prevent a change of control of Clarent.

Certain provisions of our certificate of incorporation and bylaws and
Delaware law may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:

. authorizing the board of directors to issue additional preferred stock;

. prohibiting cumulative voting in the election of directors;

. limiting the persons who may call special meetings of stockholders;

. prohibiting stockholder action by written consent; and

. establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

We are also subject certain provisions of Delaware law which could delay,
deter or prevent us from entering into an acquisition, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in a business combination with an interested stockholder unless
specific conditions are met.

Substantial future sales of our shares in the public market may cause our stock
price to fall.

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market during a short period of time, our stock price may decline
significantly. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. After completion of this offering, we will have outstanding
26,301,128 shares of common stock. All of the shares sold in this offering will
be freely tradeable. All of the remaining shares are subject to lock-up
arrangements between the stockholders and us or the underwriters. Of the
remaining shares of common stock outstanding after this offering all will be
eligible for sale in the public market 180 days following the date of this
prospectus. Of these shares, 18,299,214 shares will be subject to volume
limitations, under federal securities laws.

In addition, on the date 180 days following the date of this prospectus,
2,163,852 shares will be subject to vested options.

We do not intend to pay dividends.

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth. In addition,
pursuant to our bank credit facility, we cannot pay dividends without our
bank's consent, with limited exceptions. Therefore, we do not expect to pay any
dividends in the foreseeable future.

Special note regarding forward-looking statements.

Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These statements involve known and
unknown risks and uncertainties, such as our plans, objectives, expectations
and intentions, and other factors that may cause our, or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking statements. These
factors are listed under "Risk Factors" and elsewhere in this prospectus.

In some cases, you can identify forward-looking statements by terminology
such as "expects," "anticipates," "intends," "may," "should," "plans,"
"believes," "seeks," "estimates" or the negative of such terms or other
comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Our actual results and the

16
<PAGE>

timing of certain events could differ materially from those anticipated in
these forward-looking statements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
You should not place undue reliance on these forward-looking statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform these statements to actual results.

17
<PAGE>

USE OF PROCEEDS

We expect to receive net proceeds of approximately $50,980,000 from the sale
of 4,000,000 shares of common stock, and an additional $7,812,000 from the sale
of 600,000 shares if the underwriters' over-allotment option is exercised in
full, at an assumed initial public offering price of $14.00 per share.

We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
research and development expenditures, sales and marketing expenditures, and
general and administrative expenditures. We have not yet determined our
expected use of these proceeds, but we currently estimate that we will incur
approximately $11,000,000 in research and development expenditures,
approximately $30,000,000 in sales and marketing expenditures and approximately
$8,000,000 in general and administrative expenditures during the next 12
months.

The amounts and timing of these expenditures will vary depending on a number
of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies, to lease additional
facilities, or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
acquisition or joint venture.

The amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate
from operations. As a result, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending the uses described above, we will
invest the net proceeds in short-term, interest bearing, investment-grade
securities. We cannot predict whether the proceeds will be invested to yield a
favorable return.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of the our business. In addition, under our bank credit facility, we
cannot pay dividends without our bank's consent, with limited exceptions.
Therefore, we currently do not anticipate paying any cash dividends in the
foreseeable future.

18
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999:

. on an actual basis;

. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into common stock; and

. the pro forma capitalization as adjusted to give effect to (a) the sale
of 4,000,000 shares of common stock offered in this offering and to give
effect to the receipt of the estimated net proceeds from the sale of the
shares at an assumed initial public offering price of $14.00 per share
and the application of the net proceeds from the sale and (b) the
issuance of 1,082,990 shares of common stock upon the net exercise of
outstanding warrants immediately prior to the completion of this
offering.

The capitalization information set forth in the table below is qualified by,
and you should read it in conjunction with, the more detailed Consolidated
Financial Statements and Notes of Clarent and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.

<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long term portion of debt....................... $ 784 $ 784 $ 784
Stockholders' equity:
Preferred stock: $0.001 par value, 8,000,000
shares authorized, 6,864,241 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and as adjusted....... 21,024 -- --
Common stock: $0.001 par value, 50,000,000
shares authorized; 7,489,656 issued and
outstanding, actual; 21,218,138 shares issued
and outstanding, pro forma; 26,301,128 shares
issued and outstanding, pro forma as
adjusted..................................... 14,622 35,646 86,626
Deferred compensation......................... (11,645) (11,645) (11,645)
Accumulated other comprehensive loss(1)....... (42) (42) (42)
Accumulated deficit........................... (13,646) (13,646) (13,646)
------- ------- -------
Total stockholders' equity.................. 10,313 10,313 61,293
------- ------- -------
Total capitalization........................ $11,097 $11,097 $62,077
======= ======= =======
</TABLE>
- ---------------------
(1)See Note 1 to the Consolidated Financial Statements for an explanation of
accumulated other comprehensive loss.

This table excludes the following shares as of March 31, 1999:

. 7,631,842 shares subject to options outstanding as of March 31, 1999, at
a weighted average exercise price of $0.80 per share;

. 3,200,000 additional shares that could be issued under our stock plans,
of which 1,755,170 shares were approved by the board of directors on
April 8, 1999, subject to stockholder approval; and

. 202,000 shares reserved for issuance on the exercise of warrants
outstanding as of March 31, 1999, to purchase Series C preferred stock
and the automatic conversion of this preferred stock into common stock.
These warrants will not be exercised and will expire upon the completion
of this offering.

19
<PAGE>

DILUTION

Our pro forma net tangible book value as of March 31, 1999, was $10,313,000,
or approximately $0.46 per share after giving effect to the issuance of
1,082,990 shares of common stock upon the net exercise of outstanding warrants
and the conversion of all outstanding preferred stock into common stock on a
pro forma basis for the period immediately prior to the completion of this
offering. Pro forma net tangible book value per share represents the amount of
our total assets less total liabilities, divided by the number of shares of
common stock outstanding. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the sale of the 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $14.00 per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value at March 31, 1999, would have been $61,293,000, or approximately $2.33
per share. This represents an immediate increase in pro forma net tangible book
value of $1.87 per share to existing stockholders and an immediate dilution in
net tangible book value of $11.67 per share to new investors of common stock in
this offering. The following table illustrates this dilution on a per share
basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Pro forma net tangible book value per share as of March 31,
1999....................................................... $0.46
Increase in net tangible book value per share attributable
to new investors........................................... 1.87
-----
Pro forma net tangible book value per share after offering.... 2.33
------
Dilution in net tangible book value per share to new
investors.................................................... $11.67
======
</TABLE>

The following table sets forth, on a pro forma basis as of March 31, 1999,
after giving effect to the conversion of all outstanding preferred stock into
common stock, the difference between the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by existing holders of common stock and by the new investors, before
deducting underwriting discounts and commissions and estimated offering
expenses payable by us, at an assumed initial public offering price of $14.00
per share.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 22,301,128 84.8% $21,237,000 27.5% $ 0.95
New investors............... 4,000,000 15.2 56,000,000 72.5 $14.00
---------- ----- ----------- -----
Total..................... 26,301,128 100.0% $77,237,000 100.0%
========== ===== =========== =====
</TABLE>

This table excludes the following shares as of March 31, 1999:

. 7,631,842 shares subject to options outstanding as of March 31, 1999, at
a weighted average exercise price of $0.80 per share;

. 3,200,000 additional shares that could be issued under our stock plans,
of which 1,755,170 shares were approved by the board of directors on
April 8, 1999, subject to stockholder approval; and

20
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated balance sheet data as of December 31,
1996 has been derived from consolidated financial statements not included in
this prospectus, which were audited by Ernst & Young LLP, independent auditors.
The selected consolidated statement of operations data for the period from July
2, 1996 (inception) to December 31, 1996 and the two years in the period ended
December 31, 1998, and the related consolidated balance sheet data as of
December 31, 1997 and 1998, are derived from the consolidated financial
statements of the company which have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this prospectus. The data
should be read in conjunction with the consolidated financial statements. The
selected consolidated balance sheet data at March 31, 1999 and the selected
statement of operations data for the three month periods ended March 31, 1998
and 1999 have been derived from unaudited consolidated financial statements
included elsewhere in this prospectus. The unaudited consolidated financial
statements include, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments, that management considers necessary for a
fair statement of the results for those periods. The operating results for the
three months ended March 31, 1999 are not necessarily indicative of results
that may be expected for the year ending December 31, 1999 or any other interim
period or future fiscal year.

<TABLE>
<CAPTION>
Three months
Year ended ended March
Period from December 31, 31,
July 2, 1996 (inception) ---------------- ---------------
to December 31, 1996 1997 1998 1998 1999
------------------------ ------- ------- ------ -------
(unaudited)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenue............. $ -- $ 3,359 $14,647 $2,396 $ 6,714
Cost of revenue......... -- 1,189 6,653 780 3,281
----- ------- ------- ------ -------
Gross profit............ -- 2,170 7,994 1,616 3,433
Operating expenses:
Research and
development.......... 136 1,044 3,356 540 1,566
Sales and marketing... -- 2,046 7,099 1,182 4,025
General and
administrative....... 140 639 2,484 176 1,357
Amortization of
compensation......... -- -- 879 2 1,980
Settlement expense.... -- 570 -- -- --
----- ------- ------- ------ -------
Total operating
expenses........... 276 4,299 13,818 1,900 8,928
----- ------- ------- ------ -------
Loss from operations.... (276) (2,129) (5,824) (284) (5,495)
Other income (expense),
net.................... -- 70 32 (40) 16
----- ------- ------- ------ -------
Loss before income
taxes.................. (276) (2,059) (5,792) (324) (5,479)
Provision for income
taxes.................. -- -- (40) -- --
----- ------- ------- ------ -------
Net loss................ $(276) $(2,059) $(5,832) $ (324) $(5,479)
===== ======= ======= ====== =======
Historical basic and
diluted net loss
per share(1)........... N/A $ (2.14) $ (1.65) $(0.14) $ (1.00)
===== ======= ======= ====== =======
Shares used to compute
historical basic and
diluted net loss per
share(1)............... -- 962 3,544 2,326 5,481
===== ======= ======= ====== =======
Pro forma basic and
diluted net loss per
share(1)............... $ (0.42) $(0.03) $ (0.29)
======= ====== =======
Shares used to compute
pro forma basic and
diluted net loss
per share(1)........... 14,048 10,768 19,210
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1996 1997 1998 1999
---- ------ ------- -----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $147 $ 474 $11,903 $7,267
Working capital................................. 146 781 11,531 6,996
Total assets.................................... 244 2,818 25,177 28,627
Long term portion of debt....................... -- -- -- 784
Total stockholders' equity...................... 242 1,334 13,764 10,313
</TABLE>
- --------
(1) See Note 12 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading provider of IP telephony systems. We were incorporated in
July 1996 and commenced sales of our products in March 1997. Prior to March
1997, we had no sales and our operations consisted primarily of various start-
up activities, such as research and development, recruiting personnel and
raising capital. We first recognized revenue from product sales in March 1997.
We generated net revenue of $3.4 million in 1997, $14.6 million in 1998 and
$6.7 million in the three months ended March 31, 1999. We incurred net losses
of $276,000 in 1996, $2.1 million in 1997, $5.8 million in 1998 and $5.5
million in the three months ended March 31, 1999. As of March 31, 1999, we had
an accumulated deficit of $13.6 million.

We generate revenue from sales of our integrated hardware and software
products and from maintenance and support of those products. Revenue derived
from product sales, largely sales of our Clarent Gateway products measured in
the number of ports, constituted 99% of net revenue in 1997, 94% of net revenue
in 1998 and 91% of net revenue in the three months ended March 31, 1999. A port
is the connection between the traditional telephone system and the IP telephony
system. Each port handles a single call. Although service revenue does not
currently constitute a material portion of our revenue, we believe service
revenue will become an increasing portion of our revenue. Product revenue is
generally recognized upon shipment. Service revenue includes revenue from
implementation and integration services, system management services, warranty
coverage and customer support. Revenue from implementation and system
integration services is recognized as the services are performed, while revenue
from system management services, warranty coverage and customer support is
recognized ratably over the period of the contract.

We sell our products primarily through our direct sales force and, to a
lesser extent, through distribution channels. We have sales and support offices
in Belgium, Germany, Japan, the People's Republic of China, South Korea, Spain,
Taiwan, the United Kingdom and the United States. We intend to increase sales
through distribution channels. In 1998, we expanded the breadth of our support
services by establishing a professional services group to provide product
installation and customization, technical support, customer training and
product maintenance.

Net revenue from international sales totaled $3.1 million or approximately
94% of net revenue in 1997, $7.1 million or approximately 48% of net revenue in
1998 and $2.3 million or approximately 34% of net revenue in the three months
ended March 31, 1999. We expect that over time we may derive a majority of our
revenue from foreign-based service providers, subjecting our revenue stream to
risks from economic uncertainties, currency fluctuations, political instability
and uncertain cultural and regulatory environments.

Cost of revenue consists of component and material costs, direct labor
costs, warranty costs, royalties, overhead related to manufacturing our
products and customer support costs, as well as materials, travel and labor
costs related to personnel engaged in our service operations. Our gross margin
is affected by changes in the average selling price of our products and the
proportion of our net revenue derived from the sale of software and services.
Software sales, which typically carry higher gross margin than hardware sales,
currently make up only a fraction of our net revenue. However, we expect that
the proportion of software sales will increase in the future. Service sales,
which typically carry a lower gross margin than product sales, currently make
up a small proportion of our net revenue. We expect the proportion of service
revenue to increase in the future. The net impact that the increased proportion
of sales of both software and services will have on our total gross margin
cannot be determined at this time. Furthermore, we expect to derive an
increasing proportion of our net revenue from the sale of our products through
distribution channels. Revenue derived from indirect sales typically carries a
lower gross margin than direct sales. As a result, we expect the increased
proportion of net revenue derived from indirect sales to have a negative impact
on our total gross margin in the future.

Research and development expenses consist primarily of compensation and
related costs for research and development personnel and expenses for testing
facilities and equipment. We also make separate investments in

22
<PAGE>

engineering personnel and equipment to assure timely response to problems and
correction of stability issues in our products. We expect to continue to make
substantial investments in research and development and anticipate that
research expenses will continue to increase in absolute dollars.

Sales and marketing expenses consist primarily of compensation and related
costs for sales personnel, marketing personnel, sales commissions, marketing
programs, public relations, promotional materials, travel expenses and trade
show exhibit expenses. We expect to incur substantial expenditures related to
sales and marketing activities, the recruitment of additional sales and
marketing personnel and the expansion of our domestic and international
distribution channels.

General and administrative expenses consist primarily of salaries and
related expenses, finance, accounting and human resources expenses,
professional fees, bad debt expenses and other general corporate expenses. We
expect general and administrative expenses to increase in absolute dollars as
we add personnel and incur additional costs related to the anticipated growth
of our business and operation as a public company, and increase our exposure to
bad debt expenses arising from obligations to us from our customers,
particularly new entrants.

We expect each of these operating expense categories, research and
development, sales and marketing and general and administrative, to increase in
absolute dollars. However, the percentage of net revenue that each of these
categories represents will vary depending on the rate of our revenue growth and
investments that may be required to support the development of new products and
our penetration of new markets.

We have a limited operating history and face a number of risks encountered
by early stage companies. These risks include, among others:

. the market acceptance of IP telephony solutions;

. our ability to anticipate and respond to changing market conditions,
including competition;

. our ability to retain key customers; and

. our dependence upon key personnel.

Also, we had stability issues when we released Version 3.0 of the Clarent
Gateway. These issues have been resolved. To date, product defects have not had
a material impact on our results of operations. We cannot be certain that
product defects will not occur in the future. Management has significantly
increased product development resources and quality assurance test processes to
address stability issues.

In addition, although our revenue has grown in recent quarters, we cannot be
certain that our revenue will continue to grow or that we will achieve or
maintain profitability in the future. We expect to continue to experience
significant growth in research and development, sales and marketing and general
and administrative expenses as we attempt to expand our business and maintain
or improve our market position. We cannot accurately predict the future growth
rate, if any, or the ultimate size of our market. In addition, our ability to
increase revenue and achieve or maintain profitability depends on a number of
factors outside our control, including the extent to which:

. our products are able to gain market acceptance;

. our competitors develop competing products; and

. our distributors and other marketing partners dedicate resources to
selling our products.

Furthermore, we have experienced significant erosion of average selling
prices due to a number of factors, including competitive pricing pressures,
rapid technological change and increases in sales discounts. We anticipate that
the average selling prices of our products will decrease in the future in
response to the same factors. Therefore, to maintain or increase our gross
margin, we must develop and introduce new products and product enhancements to
stabilize our existing products, on a timely basis and continually reduce our
product costs. Our failure to do so will cause our revenue to grow more slowly
and our gross margin to decline, which will seriously harm our business,
financial condition and results of operations.

23
<PAGE>

Because of continuing and substantial capital expenditures and increasing
research and development, sales and marketing and general and administrative
expenses, we will need to generate significant revenue growth to achieve
profitability and positive operating cash flow. Even if we do achieve
profitability and positive cash flow, we may not be able to sustain or increase
profitability or positive operating cash flow on a quarterly or annual basis.

Results of Operations

Prior to the first quarter of 1997, our operations were limited and
consisted primarily of start-up activities. Expenses of $276,000 for 1996 were
comprised of payroll and related costs for research and development and general
and administrative personnel. Accordingly, we believe that year-to-year
comparisons of 1996 against 1997, and 1997 against 1998, are not meaningful.

The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.

<TABLE>
<CAPTION>
Three
Year ended months
December ended March
31, 31,
------------- -------------
1997 1998 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
As a Percentage of Net Revenue:
Net revenue................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................. 35.4 45.4 32.6 48.9
----- ----- ----- -----
Gross margin................................ 64.6 54.6 67.4 51.1
Operating expenses:
Research and development.................. 31.1 22.9 22.5 23.3
Sales and marketing....................... 60.9 48.4 49.4 60.0
General and administrative................ 19.0 17.0 7.3 20.2
Amortization of compensation.............. -- 6.0 -- 29.5
Settlement expense........................ 17.0 -- -- --
----- ----- ----- -----
Total operating expenses................ 128.0 94.3 79.2 133.0
----- ----- ----- -----
Loss from operations........................ (63.4) (39.7) (11.8) (81.9)
Other income (expense), net................. 2.1 0.2 (1.6) 0.3
----- ----- ----- -----
Loss before income taxes.................... (61.3) (39.5) (13.4) (81.6)
Provision for income taxes.................. -- (0.3) -- --
----- ----- ----- -----
Net loss.................................... (61.3)% (39.8)% (13.4)% (81.6)%
===== ===== ===== =====
</TABLE>

Comparison of Three Months Ended March 31, 1998 and 1999

Net Revenue

Net revenue consists of sales of both our integrated hardware and software
products, as well as revenue generated from the maintenance and support of
those products. Net revenue increased from $2.4 million in the three months
ended March 31, 1998 to $6.7 million in the three months ended March 31, 1999.
The increase in net revenue was largely due to a 608% increase in port volume
of our Clarent Gateway products sold partially offset by a decrease of
approximately 73% in our average per port selling prices for those products.
Entities affiliated with AT&T Corporation accounted for 61% and no revenue was
generated from Technet International in the three months ended March 31, 1998.
Entities affiliated with AT&T Corporation accounted for 25% and Technet
International accounted for 32% of net revenue in the three months ended March
31, 1999.

Cost of Revenue

Cost of revenue increased from $780,000 in the three months ended March 31,
1998 to $3.3 million in the three months ended March 31, 1999. Gross margin
decreased from 67% in the three months ended March 31,

24
<PAGE>

1998 to 51% in the three months ended March 31, 1999. The decline was a result
of decreases in the average selling prices of our products, offset to a slight
degree by a decrease in the material cost of our products.

The mix of products we sell will significantly impact our gross margin. We
expect a negative impact on our gross margin from the introduction of new
integrated hardware and software products and new versions of existing
integrated hardware and software products. However, we expect that increased
sales of our software products both in absolute dollars and as a percentage of
net revenue to positively impact our gross margin. The net impact that the
increased proportion of sales of both software and services will have on our
gross margin cannot be determined at this time.

Research and Development Expenses

Research and development expenses increased from $540,000 in the three
months ended March 31, 1998 to $1.6 million in the three months ended March 31,
1999. Research and development expenses consist of payroll and related expenses
for research and development personnel, costs related to systems infrastructure
and third-party consultants. The absolute dollar increases in research and
development expenses from period to period were attributable to increases in
the number of research and development personnel. Research and development
expenses remained consistent as a percentage of net revenue at 23% in the three
months ended March 31, 1998 and March 31, 1999.

Sales and Marketing Expenses

Sales and marketing expenses increased from $1.2 million in the three months
ended March 31, 1998 to $4.0 million in the three months ended March 31, 1999.
Sales and marketing expenses consist primarily of payroll and related expenses
for personnel engaged in sales and marketing, as well as public relations and
marketing communications expenditures. The absolute dollar increase in sales
and marketing expenses from period to period were primarily attributable to a
58% increase in personnel and related expenses required to implement our sales
and marketing strategy and, to a lesser extent, increased public relations and
other promotional expenses. Sales and marketing expenses increased as a
percentage of net revenue from 49% in the three months ended March 31, 1998 to
60% in the three months ended March 31, 1999 because the growth rate of sales
and marketing expenses exceeded the growth rate of net revenue for the period.

General and Administrative Expenses

General and administrative expenses increased from $176,000 in the three
months ended March 31, 1998 to $1.4 million in the three months ended March 31,
1999. General and administrative expenses consist primarily of payroll and
related costs for general corporate functions, including finance, accounting,
business development, human resources, facilities and administration, as well
as legal fees and fees for professional services. The absolute dollar increases
in general and administrative expenses from period to period were due to a 47%
increase in general and administrative personnel expenses, a 16% increase in
professional service fees and a 29% increase in the charge for the allowance
for doubtful accounts. General and administrative expenses increased as a
percentage of net revenue from 7% in the three months ended March 31, 1998 to a
20% in the three months ended March 31, 1999 because the growth rate of general
and administrative expenses exceeded the growth in net revenue for the period.

Amortization of Compensation

In connection with stock option grants in 1999, an additional $11.1 million
of deferred compensation was recorded for the three months ended March 31,
1999. Amortization of compensation expense includes the amortization of stock
compensation charges resulting from the granting of stock options at prices
below the deemed fair value of our common stock. These amounts are being
amortized using the accelerated method over the vesting period of the stock
options. Of the total deferred compensation, approximately $1,271,000 was

25
<PAGE>

amortized during the first quarter of 1999. Including those amounts recorded in
the first quarter of 1999, we expect to amortize approximately $7.0 million of
this deferred compensation expense in 1999, $3.8 million in 2000, $1.7 million
in 2001 and $537,000 in 2002.

Amortization of compensation also includes compensation charges associated
with the granting of a warrant for advisory services to an investor.
Amortization of compensation totaled $709,000 for the three months ended March
31, 1999. We terminated the advisory services arrangement in June 1999 which
caused the unvested portion of the warrant to become fully vested. In
connection with this termination, we will record a compensation charge totaling
approximately $10.6 million in the quarter ending June 30, 1999.

Fiscal Years Ended December 31, 1997 and 1998

Net Revenue

We began generating net revenue in the first quarter of 1997. Net revenue
increased from $3.4 million in 1997 to $14.6 million in 1998. The increase in
net revenue was due to a 667% increase in port volume of our Clarent Gateway
products sold partially offset by a decrease of approximately 52% in our
average per port selling prices for those products. A limited number of
customers have historically accounted for a substantial portion of our net
revenue. Entities affiliated with AT&T Corporation accounted for 46% and
Wherever Computer Technology Company Limited accounted for 35% of net revenue
in 1997. Entities affiliated with AT&T Corporation accounted for 36% and
Technet International accounted for 12% of net revenue in 1998.

Cost of Revenue

Cost of revenue increased from $1.2 million in 1997 to $6.7 million in 1998.
Gross margin declined from 65% in 1997 to 55% in 1998. The decline was a result
of decreases in average selling prices in our products, offset to a slight
degree by a decrease in the material cost of our products.

Research and Development Expenses

Research and development expenses increased from $1.0 million in 1997 to
$3.4 million in 1998. The absolute dollar increases in research and development
expenses from period to period were attributable to increases in the number of
research and development personnel. Research and development expenses decreased
as a percentage of net revenue from 31% in 1997 to 23% in 1998 because the
growth rate of net revenue exceeded the growth rate of research and development
expenses for the period.

Sales and Marketing Expenses

Sales and marketing expenses increased from $2.0 million in 1997 to $7.1
million in 1998. The absolute dollar increases in sales and marketing expenses
from period to period were primarily attributable to a 67% increase in
personnel and related expenses required to implement our sales and marketing
strategy and, to a lesser extent, increased public relations, advertising and
other promotional expenses. Sales and marketing expenses decreased as a
percentage of net revenue from 61% in 1997 to 49% in 1998 primarily due to
increased productivity of our sales personnel and increased net revenue in such
periods.

General and Administrative Expenses

General and administrative expenses increased from $639,000 in 1997 to $2.5
million in 1998. The absolute dollar increases in general and administrative
expenses from period to period were due to an 11% increase in the number of
general and administrative personnel, a 20% increase in professional services
fees, a 39% increase in the charge for the allowance for doubtful accounts and,
to a lesser extent, increased facility

26
<PAGE>

expenses to support the growth of our operations. General and administrative
expenses decreased as a percentage of net revenue from 19% in 1997 to 17% in
1998 because the growth in net revenue for the period exceeded the growth rate
of general and administrative expenses for the period.

Amortization of Compensation

In connection with some stock option grants in 1998, $2.3 million in
deferred compensation has been recorded. Amortization of compensation expense
reflects the amortization of stock compensation charges resulting from the
granting of stock options at prices below the deemed fair value of our common
stock. These amounts are being amortized using the accelerated method over the
vesting period of the stock options. Of the total deferred compensation,
approximated $522,000 was amortized in 1998.

Settlement Expense

Settlement expense totaled $570,000 in 1997 and consisted of our legal
expenses and the settlement expense that we paid in connection with a dispute
with one of our distributors. Under the terms of the settlement agreement, we
made cash payments to the distributor of $250,000 and granted the distributor a
5% increase in its existing discount rate for a specific quantity of its
purchases from us in 1998. In addition, under the terms of the settlement
agreement, we issued 45,592 shares of Series C preferred stock to the
distributor at a value of $6.58 per share in August 1998.

Income Taxes

In 1997 we incurred net losses for federal and state income tax purposes and
did not recognize any income tax provision or benefit during such period. In
1998 we recorded a provision for income taxes of $40,000 related to current
foreign income tax provided on the profits attributable to our foreign
operations. As of December 31, 1998, we had $2.0 million of federal and $1.4
million of state net operating loss carryforwards to offset future taxable
income. The difference between available net operating losses and our
accumulated deficit as reported for financial statement purposes is principally
the result of differences in the tax treatment of our deferred revenue, which
totaled $4.4 million as of December 31, 1998.

We cannot assure you that we will realize the benefit of the net operating
loss carryforwards and have therefore set up a full valuation allowance against
these deferred tax assets. The federal and state net operating loss
carryforwards will expire at various dates beginning in fiscal year 2004
through 2018, if we do not use them. Due to the "change of ownership"
provisions of the Internal Revenue Code, the availability of our pre 1998 net
operating loss and tax credit carryforwards are subject to an annual limitation
against taxable income in future periods. Post 1997 net operating loss and tax
credit carryforwards could also be subject to a substantial annual limitation
if future ownership changes should occur. It is likely that the shares to be
issued in this offering will create this type of change.

27
<PAGE>

Quarterly Results of Operations

The following tables present some consolidated statements of operations data
for our five most recent quarters ended March 31, 1999, in dollars and as a
percentage of net revenue. In management's opinion, this unaudited information
has been prepared on the same basis as the audited annual consolidated
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the unaudited
information for the quarters presented. You should read this information in
conjunction with the consolidated financial statements, including the related
notes, included elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of results that we might achieve for any
subsequent periods.

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenue................ $2,396 $ 3,083 $ 3,269 $ 5,899 $ 6,714
Cost of revenue............ 780 1,396 1,469 3,008 3,281
------ ------- ------- ------- -------
Gross profit............... 1,616 1,687 1,800 2,891 3,433
Operating expenses:
Research and
development............. 540 698 843 1,275 1,566
Sales and marketing...... 1,182 1,553 1,970 2,394 4,025
General and
administrative.......... 176 554 770 984 1,357
Amortization of
compensation............ 2 84 335 458 1,980
------ ------- ------- ------- -------
Total operating
expenses............... 1,900 2,889 3,918 5,111 8,928
------ ------- ------- ------- -------
Loss from operations....... (284) (1,202) (2,118) (2,220) (5,495)
Other income (expense),
net....................... (40) (101) 92 81 16
------ ------- ------- ------- -------
Loss before income taxes... (324) (1,303) (2,026) (2,139) (5,479)
Provision for income
taxes..................... -- 1 2 (43) --
------ ------- ------- ------- -------
Net loss................... $ (324) $(1,302) $(2,024) $(2,182) $(5,479)
====== ======= ======= ======= =======

As a Percentage of Net
Revenue:
Net revenue................ 100% 100% 100% 100% 100%
Cost of revenue............ 33 45 45 51 49
------ ------- ------- ------- -------
Gross margin............... 67 55 55 49 51
Operating expenses:
Research and
development............. 23 23 26 22 23
Sales and marketing...... 49 50 60 40 60
General and
administrative.......... 7 18 24 17 20
Amortization of
compensation............ -- 3 10 8 30
------ ------- ------- ------- -------
Total operating
expenses............... 79 94 120 87 133
------ ------- ------- ------- -------
Loss from operations....... (12) (39) (65) (38) (82)
Other income (expense),
net....................... (2) (3) 3 2 --
------ ------- ------- ------- -------
Loss before income taxes... (14) (42) (62) (36) (82)
Provision for income
taxes..................... -- -- -- (1) --
------ ------- ------- ------- -------
Net loss................... (14)% (42)% (62)% (37)% (82)%
====== ======= ======= ======= =======
</TABLE>

Our operating expenses have increased significantly in absolute dollars, but
not as a percentage of net revenue, in each quarter since inception as we have
transitioned from the development stage to the commercialization of our
products and services and expansion of our business. We expect to incur an
increase in operating expenses in the future as we attempt to expand our
business. To the extent that these expenses are not accompanied by an increase
in net revenue, our business, results of operations and financial condition
could be adversely affected.

28
<PAGE>

In the quarters subsequent to March 31, 1998, we experienced a significant
decrease in average selling prices which decreased our gross margin percentage
through the quarter ended December 31, 1998. Gross margin percentage for the
quarter ended March 31, 1999 increased primarily due to lower product costs.

In the quarter ended September 30, 1998, we experienced a significant
increase in operating expenses, both in absolute dollars and as a percentage of
net revenue. We hired additional employees in anticipation of customer orders
that were subsequently delayed or cancelled. These delays and cancellations
were attributable primarily to the anticipated release of a new version of our
product and the weak economic conditions in Asia.

We expect our operating results to fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control.
Consequently, we believe that period-to-period comparisons of our operating
results may not necessarily be meaningful, and as a result, you should not rely
on them as an indication of future performance.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, which totaled $18.5 million in aggregate
net proceeds through December 31, 1998. We have also financed our operations
through lines of credit, of which $2.5 million had been drawn down as of
December 31, 1998.

Net cash used in operating activities was $276,000 in 1996, $2.3 million in
1997, $5.8 million in 1998, $1.5 million for the three months ended March 31,
1998 and $4.0 million for the three months ended March 31, 1999. For 1997, cash
used in operating activities was attributable primarily to a net loss of $2.1
million, an increase in trade accounts receivable of $777,000 and an increase
in inventory of $889,000 due to anticipated growth in expected product
revenues, offset in part by increases in accounts payable and accrued
liabilities of $1.3 million. For 1997 the increase in accounts receivable was
entirely related to our increase in sales. For 1998, cash used in operating
activities was attributable primarily to a net loss of approximately $5.8
million, and increases in trade accounts receivable of $6.2 million and
inventory of $2.7 million. For 1998, the increase in accounts receivable was
primarily the result of higher sales levels during the fourth quarter. During
the year ended December 31, 1998, the Company increased its allowance for
doubtful accounts by $769,000 to address potential exposures related to the
composition of its customer base. The Company also deferred recognition of
revenue on certain sales where collectibility was not probable in accordance
with software revenue recognition rules. The cash used in operating activities
was offset in part by depreciation of approximately $516,000, amortization of
compensation of $879,000 and increases in accounts payable and accrued
liabilities of approximately $3.4 million and an increase in deferred revenue
of approximately $4.3 million.

Net cash used in operating activities for the three months ended March 31,
1998 was attributable primarily to a net loss of approximately $322,000 and
increases in trade accounts receivable of $1.7 million and inventory of
$710,000 partially offset by depreciation of $53,000, increases in accounts
payable and accrued liabilities of $538,000 and increases in deferred revenue
of $583,000. Net cash used in operating activities for the three months ended
March 31, 1999 was attributable primarily to a net loss of approximately $5.5
million and increases in trade accounts receivable of $4.1 million and
inventory of $2.0 million partially offset by depreciation of $346,000,
amortization of compensation of $2.0 million, increases in accounts payable of
$3.0 million and increases in deferred revenue of $2.3 million. The increase in
inventory for the three months ended March 31, 1999 was primarily in
anticipation of expected growth in product revenue as well as a greater need
for evaluation units. The increase in accounts receivable for the three months
ended March 31, 1999 is primarily the result of increased sales which occurred
during the last month of the quarter. In addition we increased our allowance
for doubtful accounts to address the increase in our accounts receivable
balance.

Net cash used in investing activities was approximately $95,000 in 1996,
$555,000 in 1997, $2.2 million in 1998, $103,000 for the three months ended
March 31, 1998 and $2.2 million for the three months ended March 31, 1999. For
each of these periods, cash used in investing activities was attributable to
purchases of property and equipment.

29
<PAGE>

Net cash provided by financing activities was $518,000 in 1996, $3.2 million
in 1997, $19.5 million in 1998, $2.6 million for the three months ended March
31, 1998 and $1.6 million for the three months ended March 31, 1999. For 1996
and 1997, cash provided by financing activities was attributable principally to
proceeds from the issuance of preferred stock. In 1998 cash provided by
financing activities was attributable to $14.8 million in proceeds from the
issuance of preferred stock, $2.5 million of short-term borrowings and $2.6
million of funds received from the issuance of bridge notes convertible into
Series C preferred stock offset by $550,000 in repayment of those bridge notes.
For the three months ended March 31, 1998, cash provided by financing
activities was attributable primarily to $2.6 million in proceeds from the
issuance of bridge notes. For the three months ended March 31, 1999, cash
provided by financing activities was attributable primarily to $1.6 million in
proceeds from our line of credit and equipment term loan facility.

As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel. We also may establish additional
operations as we expand globally.

From July 2, 1996 through December 31, 1998, we issued warrants to purchase
160,266 shares of Series C preferred stock at prices ranging from $5.59 to
$6.58 per share and 1,760,000 shares of common stock at a price of $0.05 per
share. Warrants for 768,238 shares of common stock have been exercised and
warrants for 59,266 shares of Series C preferred stock and 991,672 shares of
common stock are exercisable as of March 31, 1999. All of these warrants expire
upon the completion of an initial public offering and are being exercised prior
to the completion of this offering. See Notes 2 and 4 of Notes to Consolidated
Financial Statements.

In February 1998, we obtained $2.6 million in bridge financing in the form
of promissory notes from several investors and other parties. In June 1998,
approximately $2.1 million of the promissory notes were converted to Series C
preferred stock and the remainder was repaid.

In May 1998, we established a $5.0 million line of credit with a financial
institution. The effective interest rate on this credit facility is equal to
one-half of one percentage point above the prime rate. Borrowings under this
agreement are limited to our eligible receivable base. The terms of the line of
credit agreement establish affirmative and negative covenants, under which we
must maintain certain financial ratios and reporting practices. We failed to
comply with financial covenants related to the liquidity, tangible net worth
and the maximum permitted loss required under the agreement as of December 31,
1998. The financial institution waived these events of default. On February 16,
1999, the financial institution increased the line of credit to $7.0 million,
extended an additional $3.0 million equipment term loan facility, and revised
these financial ratios. At March 31, 1999 we failed to comply with the
liquidity, tangible net worth and maximum loss financial covenants. The
financial institution waived these events of default and has renegotiated new
covenants. The revised covenants require a minimum liquidity ratio of 1.25-to-
1, minimum tangible net worth of $9.5 million (increasing to $15 million
effective as of the last day of the month in which we complete our initial
public offering), minimum liquidity coverage of 2-to-1 and quarterly net
losses, adjusted to exclude the amortization of deferred compensation, of less
than $2.75 million for the quarter ended June 30, 1999, $2.8 million for the
quarter ended September 30, 1999 and $1.0 million for the quarter ended
December 31, 1999. As of March 31, 1999, $2.8 million was outstanding under
this line of credit and $1.3 million was outstanding under the equipment term
loan facility. At March 31, 1999, we had $1.2 million available under our line
of credit and $1.7 million unused under our equipment term loan facility.

We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and borrowing capacity will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months. If cash generated from operations is
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity or debt securities or increase the available borrowings under
our line of credit. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to holders of common stock, and the term of this debt could impose
restrictions on our operations. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders, and we
cannot be certain that additional financing will be

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<PAGE>

available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned product development and marketing efforts, which could harm our
business, financial condition and operating results.

Year 2000 Compliance

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish between 20th and 21st century dates. This may result in software
failures or the creation of erroneous results.

We have conducted the first phases of a Year 2000 readiness review for the
prior and current versions of our products. The review includes assessment,
implementation, including remediation, modifications, where necessary, of
current product versions, validation testing and contingency planning. We
continue to respond to customer questions about prior versions of our products
on a case-by-case basis.

We have largely completed all phases of this plan, except for contingency
planning, for the prior and current versions of our products. As a result, all
current versions of our products are "Year 2000 compliant," as defined below,
when configured and used in accordance with the related documentation, and
provided that the underlying operating system of the computer on which our
products run and any other software used with or in the computer on which our
products run, prior versions of our products are also Year 2000 compliant. We
are also supplying our customers who use prior versions of our products with
software updates for the third party supplied software components of our
products to make those versions Year 2000 compliant. We have not tested our
products on all platforms or all versions of operating systems that we
currently support.

We define "Year 2000 compliant" as the ability to:

. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;

. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;

. where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner;

. if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and

. recognize the year 2000 as a leap year.

We have tested software obtained from third parties that is incorporated
into our products, and we are seeking assurances from our vendors that licensed
software is Year 2000 compliant. Despite testing by us and by current and
potential clients, and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with Year 2000 date functions. Known or unknown errors or defects in our
products could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, or increased service and warranty costs,
any of which could materially adversely affect our business, operating results
or financial condition. Some industry analysts have predicted significant
litigation regarding Year 2000 compliance issues, and we are aware of such
lawsuits against other software vendors. Because of the unprecedented nature of
such litigation, it is uncertain whether or to what extent we may be affected
by it.

Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in the third quarter
of 1999. If our IT systems are not Year 2000 compliant, we may not have allowed
sufficient time for remediation of any deficiencies. To the extent that we are
not able to test the technology provided by third-party vendors, we are seeking
assurances from vendors that their systems are Year 2000 compliant. We are
currently scheduled to complete our initial

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<PAGE>

inventory/assessments of our non-IT systems by June 30, 1999. We have completed
the inventory/assessment of licensed software included in our products and have
confirmed that the licensed software that we incorporate in our products is
Year2000 compliant. This confirmation has been achieved through a combination
of internal testing, vendor's Year2000 Readiness Disclosures, and an ongoing
certification program addressing all of our suppliers and vendors.

We are not currently aware of any material operational issues or costs
associated with preparing our internal IT and non-IT systems for the Year 2000.
Our costs incurred through December 31, 1998, have totaled less than $25,000.
We expect to incur less than $100,000 in costs to complete our Year 2000
compliance efforts. However, we may experience material unanticipated problems
and costs caused by undetected errors or defects in the technology used in our
internal IT and non-IT systems.

We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures to address Year
2000 compliance problems, our business could suffer.

We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We expect to incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. In addition, we may experience material problems and
costs with Year 2000 compliance that could adversely affect our business,
results of operations, and financial condition.

We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations. However, we have appointed a cross-functional group to develop our
plan by the end of July 1999. The overall cost of developing and implementing
our plan may be material. Finally, we are also subject to external forces that
might generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. We are required to adopt SOP 98-1 effective January 1, 1999.
The adoption of SOP 98-1 is not expected to have a material impact on our
consolidated financial statements.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9. "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions", or SOP 98-9. SOP 98-9
requires use of the "residual method" for recognition of revenue when vendor-
specific objective evidence exists for undelivered elements but does not exist
for delivered elements of a software arrangement. We will be required to comply
with the provisions of SOP 98-9 for transactions entered into beginning January
1, 2000. The adoption of SOP 98-9 is not expected to have a material impact on
our consolidated financial statements.

Financial Market Risk

Our financial market risk includes risks associated with international
operations and related foreign currencies. We anticipate that international
sales will continue to account for a significant portion of our consolidated
revenue. Our international sales are denominated in U.S. dollars and therefore
are not subject to foreign currency exchange risk. Expenses of our
international operations are denominated in each country's local currency and
therefore are subject to foreign currency exchange risk; however, through March
31, 1999, we have not experienced any significant negative impact on our
operations as a result of fluctuations in foreign currency exchange rates.

We also have financial market risk on the interest rate associated with our
short term debt. At March 31, 1999, our financial market risk related to this
debt was immaterial.

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<PAGE>

BUSINESS

Overview

We are a leading provider of Internet protocol or IP telephony systems. IP
telephony systems permit the simultaneous transmission of voice, fax and data
over the Internet and similar communications networks. Using our technology to
simultaneously transmit voice, fax and data, our customers are able to more
efficiently and cost-effectively use the available capacity of their networks.
These customers include traditional, local, international and wholesale long
distance telephone companies, as well as new telecommunications service
providers. Traditional telecommunications service providers are companies that
have previously served as the monopoly or incumbent provider in their region.
New telecommunications service providers are companies that have started to
offer telecommunications services in the last three to five years in countries
that have deregulated their telecommunications markets. The IP telephony market
is relatively new. Less than 1% of all voice calls worldwide are currently
transmitted using IP telephony systems primarily over the Internet. According
to Frost & Sullivan, between 1997 and 2002, the number of call minutes,
including voice, fax and data, transmitted using IP telephony systems is
expected to have a compound annual growth rate of 325%.

Using our IP telephony product, the Clarent system, service providers can
deliver a level of voice quality that is indistinguishable from the voice
quality over the traditional telephone system. In addition, the Clarent system
enables the simultaneous transmission of voice, fax and data. The Clarent
system features a modular architecture that permits our customers to add new
product and service features without extensive product cost or development
time. Based on publicly available data provided by large telecommunications
service providers, we believe our modular architecture enables service
providers to provide their customers with communications services at a lower
cost than traditional telephone companies.

The Clarent system consists of three distinct components:

. the Clarent Gateway, an integrated hardware and software product that
includes network server software that is based on industry standards;

. the Clarent Command Center, a proprietary client/server software package;
and

. a relational database, which is supplied by a third party.

Our products enable service providers to deliver IP telephony services to
end user customers who can use their existing telephones. Since our products
are integrated by telephone companies and other service providers into systems
that take calls from the traditional telephone system and send these calls over
the Internet and other Internet protocol networks before returning these calls
to the traditional telephone system, the use of IP telephony is transparent to
end user customers. Our products can be accessed from cellular as well as
traditional telephones. As a result, end users do not have to purchase
additional telephone equipment to make IP telephony calls. Currently, IP
telephony is not commonly offered incorporating satellite transmissions or
using cable lines.

Industry Background

The telecommunications industry has historically followed a path of
development based on the belief that voice and data require separate
technologies and network resources. Traditional telephone systems were, and are
still, built around an architecture that requires a dedicated connection, or
circuit, in order for a call to be completed. This technology requires the
circuit to remain dedicated between calling parties for the entire duration of
a call. Most data today is transmitted over Internet protocol-based networks.
These networks are

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<PAGE>

more efficient because they do not require a dedicated circuit for the entire
path of the call. In a network using Internet protocol, the voice, fax or data
is divided into packets that are simultaneously sent to a final destination
where they are reassembled back to their original form. In this type of
network, multiple types of information including voice, fax and different forms
of data can travel through the network at the same time. The improvements in
the technologies used in data networks have led to an increase in use of this
type of network to transmit both voice and data. The IP telephony market
emerged from these technological advances. Recent developments in IP telephony
technology have significantly bridged the voice quality gap between the
traditional telephone system, which is commonly referred to as a circuit-
switched system, and IP telephony systems. The differences between a circuit-
switched call and an IP telephony call is illustrated in the diagram below.

[Graphic depicting the differences between a circuit-switched and IP telephony
call]
[A phone call transmits signals that direct a series of switches to open a
dedicated circuit to second phone. The dedicated circuit carries the electronic
signals through the line. The phones transists the signals back into speech.]
[Unlike the traditional circuit switched phone call, which travels on a
dedicated circuit, the electronic signals go to a Clarent Gateway, which
converts them into small packets of digital information. The packets may take
different routes to their destination. After traveling through the IP network,
the packets are converted back into electronic signals by another Clarent
Gateway and put back on the phone network.]

Today a voice call placed over an IP telephony network can sound virtually
indistinguishable from the same call made over the traditional telephone
system. What distinguishes IP telephony technology, however, is that it allows
service providers to simultaneously send voice, fax and data transmissions over
their networks and enables them to quickly add and use additional features and
services without the need for costly network upgrades. In contrast, changes to
the traditional telephone system are costly and difficult. For example, based
on estimates from the International Engineering Consortium, we believe the
recent integration of such basic services as caller ID and call return services
into the traditional telephone system took over a decade and hundreds of
millions of dollars to implement in the United States alone.

The added flexibility and cost-effectiveness of IP telephony networks are
particularly important in an increasingly deregulated and competitive market
environment. Deregulation acts as a catalyst for the rapid deployment of these
services by allowing new service providers to quickly enter formerly regulated
markets and by forcing existing service providers to rapidly respond to the
challenge of competition. According to a

34
<PAGE>

1998 Frost & Sullivan report, the total number of worldwide voice minutes
running over Internet protocol-based data networks is expected to grow from 6.3
million in 1997 to 8.8 billion in 2002, representing a compound annual growth
rate of 325% for the period. Accordingly, spending on IP telephony equipment is
projected to grow from $47.3 million in 1997 to $3.2 billion in 2002,
representing a compound annual growth rate of 132%.

We believe a significant market opportunity now exists for the makers of IP
telephony systems. We believe that none of our competitors to date has
developed a comprehensive solution that incorporates the functionality that
service providers require to provide end-to-end service. Some vendors have
developed products that embed the instructions on where to route the IP
telephony call in the same equipment that provides the IP telephony technology.
This approach limits service providers' flexibility to make modifications to
their networks because any modification must be made at several different
points throughout the network.

Many vendors only provide limited billing and network management data. This
data is gathered and formatted in a simplistic fashion, limiting the ability of
service providers to manage sophisticated networks or to bill using any pricing
structure they desire. Also, these simplistic billing systems make it difficult
to connect service providers' networks to the networks of other service
providers.

Some router, switch and IP telephony companies have formed partnerships with
billing and network management technology providers in order to provide even
the most basic operational support solution to service providers. A router is a
device that routes packets over the Internet or other Internet protocol
networks. A switch is a device that takes multiple incoming calls and places
these calls onto fewer lines. This partnering necessitates integration, which
can be technologically difficult, time consuming and expensive.

Many IP telephony vendors require dedicated ports for voice, fax or data. A
port is the connection between the traditional telephone system and the IP
telephony system. Each port handles a single call. Systems that use dedicated
ports are inefficient and more costly because more ports are needed to handle
the different types of transmissions anticipated. In addition, many vendors do
not have the technical capability to integrate these ports with the traditional
telephone system so that the ports can correctly interpret busy signals, dial
tones and disconnects. This means that service providers cannot accurately bill
for the call. Furthermore, the inability to integrate well with the traditional
telephone system makes it more difficult for end-users to gain the benefits of
this technology because they have to dial separate phone numbers or use multi-
step dialing processes.

In order to compete effectively in the emerging market for IP telephony
services, service providers need a cost-effective, comprehensive solution that
combines a high level of functionality with a flexible architecture designed to
support growth and new features. This solution must enable service providers to
deliver clear and robust voice quality that can be merged efficiently with fax
and data IP telephony services. The solution must also possess robust back-
office features to permit service providers to operate and manage a viable
communications business. Some service providers and their business customers
will use these features to support connections with other networks, while
others will use these features to connect to an intermediary, like an IP
telephony clearinghouse, to facilitate the exchange of IP telephony calls.
These clearinghouses enable service providers to exchange calls between
multiple destinations worldwide without having to enter into individual
agreements with other service providers in each geographic region. A
clearinghouse also performs the associated accounting and settlement services
for its members. The solution must allow service providers to centrally make
changes to their network as this technology continues to evolve. The solution
must also be able to incorporate feature enhancements because there will be
many and varied new feature requests as this technology continues to evolve.
The solution must also be transparent to end users and easy to use. Finally, we
expect that customers will prefer a solution that is technologically advanced
enough to allow service providers to quickly adapt their entire IP telephony
network to emerging standards.

The Clarent Solution

We have developed a comprehensive IP telephony solution that offers the
following key benefits:

Traditional telephone system voice quality and simultaneous voice, fax and
data transmission. Calls over a Clarent network that sound indistinguishable
from a traditional telephone system call. In addition, the Clarent

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<PAGE>

system enables the simultaneous transmission of voice, fax and data traffic.
These features are enabled by using standard compression and echo cancellation
technologies and our proprietary packet technologies.

Rapid, low-cost deployment and maintenance. The Clarent system provides a
comprehensive solution that can be rapidly put into use by service providers
with a modest initial capital investment. By centralizing management and
distributing functionality, the Clarent system allows service providers to
perform network administration in an economical manner.

Transparent and secure interconnection with different networks. The Clarent
system is designed to support the seamless interconnection between other
networks that use Clarent's products and the traditional telephone system. This
includes interconnecting to the traditional telecommunications service
providers' networks, commonly known as the SS7 network. These interconnections
provide a level of security that enables service providers to exchange large
volumes of calls and billing data with each other and with their business
customers. This process requires that only relevant transaction information is
disclosed, either bilaterally or through an intermediary, such as an IP
telephony clearinghouse.

Complementary processing of calls and centralized network management
functions. The Clarent system provides centralized processing of such network
functions as the authentication of callers, billing, routing and pricing of
calls and network diagnostics and maintenance. Because we provide both the call
processing and operational support functions in a network, we can effect
system-wide enhancements and new features quickly and efficiently.

Adaptability to changing standards and technologies. The Clarent system is
comprised of distinct units that can be spread across a network. Compared to a
circuit-switched network, a network using a Clarent system may be modified
quickly to accommodate new features, support new protocols or handle new end-
user devices, such as cable modems, and new end-user equipment, such as IP
telephones, as they become widely-used or available.

Strategy

Our objective is to be the leading provider of comprehensive IP telephony
solutions to service providers worldwide. Key elements of our strategy include
the following:

Provide the core technology enabling the delivery of a broad range of IP
telephony services. We have designed the Clarent system to provide service
providers with a unified technology platform for the effective and rapid
delivery of a broad range of IP telephony services. This will enable service
providers to offer their customers a wide array of value-added services,
including virtual private networks and worldwide roaming, using the Clarent
system. An additional element of our strategy is to increase the level of
technological interoperability of our products with those of other vendors to
expand the breadth of opportunities our products can address.

Increase our penetration of service provider market. We plan to increase the
sales of our products by expanding our relationships with existing customers
and by capturing new customer relationships. We have shipped our solutions to
approximately 100 telecommunications companies, including several of the
world's leading long distance carriers. We believe the demand for our products
will increase as new and existing customers increasingly derive revenue from IP
telephony-based services.

Target key growth markets worldwide. We will continue to focus our sales,
marketing and customer service and support efforts on key growth markets for IP
telephony services. We currently maintain a global sales and customer service
and support presence, with offices in Belgium, Germany, Japan, the People's
Republic of China, South Korea, Spain, Taiwan and the United Kingdom. We
believe that international markets represent particularly attractive early
markets for our products and services due to rapid telecommunications
deregulation and increasing demand for network capacity. We will continue to
add sales, marketing and customer service and support resources in these
regions and will respond to emerging opportunities in these markets.

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<PAGE>

Promote strategic relationships between our customers. We will continue to
promote the formation of bilateral alliances and clearinghouse arrangements
between our customers based on the Clarent system. For example, AT&T
Corporation, Pacific Gateway Exchange and Telia Telecom have established
international IP telephony clearinghouses based on the Clarent system. We
expect other service providers in different geographic regions to continue to
establish bilateral relationships with other Clarent customers or join
additional clearinghouses. We believe these relationships will lead to
increased installations of our products in both existing and new customers'
networks.

Extend our technology leadership position. We believe we have established a
technology leadership position in the market for IP telephony solutions, and we
intend to extend this position by leveraging our distinct architecture. Our
architecture is a component-based technology that segregates the call
processing and network management functions in the Clarent system. We believe
that our architecture differentiates the Clarent system from competing vendors'
systems by enabling service providers to implement and manage new features and
services across a network with a minimum level of service disruption.

Deliver added value through customer support and services. To drive the
rapid deployment of our solutions, we will continue to assist our customers in
the installation of our IP telephony systems and provide comprehensive ongoing
technical support, training and other services. We expect to continue to build
our internal professional services organization and explore additional
relationships with potential global services partners as a means of generating
additional revenue.

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<PAGE>

Products and Technology

The Clarent system incorporates internally-developed and third-party
technologies, including our proprietary packet handling technology. This
technology integrates all functions performed by the Clarent system in a
modular, flexible manner that enables the easy addition or alteration of system
components and features. As shown below, the Clarent system is comprised of
three distinct components:

. the Clarent Gateway;

. the Clarent Command Center; and

. a third-party relational database.

In order to implement the Clarent system, a service provider must acquire a
connection to a local central office switch owned by a local telephone company
and acquire access to the Internet or an Internet protocol network.

[Graphic depicting the architectural structure of our solution, the Clarent
System]

Clarent Gateway

The Clarent Gateway is an integrated hardware and software product that
converts voice, fax and data into packets that can be sent over Internet
protocol networks, then transmits these packets over the network. At the
destination, the Clarent Gateway converts these packets back into circuit-
switched voice, fax and data. The Clarent Gateway is connected on one side to
the traditional telephone network and on the other side to the Internet
protocol network. Each Clarent Gateway currently has the capacity to handle up
to 120 simultaneous

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<PAGE>

calls. Typically, a service provider will deploy a number of gateways
sufficient to handle the projected call volume and for system redundancy. The
Clarent Gateway provides the following functionality:

Standard telephony interfaces. The Clarent Gateway supports many standard
telephony interfaces and signaling protocols. Available telephony interfaces
include both analog and digital. Supported signaling protocols include MFR1,
MFCR2, PRI-ISDN, Feature Group D and SS7/C7, among others.

Caller interface. Our programmable interactive voice response software
provides a voice interface for prepaid calling card applications, captures
account codes for specific calls and routes users to specific features or
options. This software also processes different call types based on the number
dialed (such as toll-free 800 numbers), the automatic number identification of
the calling party or characteristics stored as part of a user's record.

Integrated voice, fax and data. Clarent Gateways simultaneously handle
voice, fax and data transmissions through universal ports, eliminating the need
to dedicate ports to specific types of transmissions. A universal port can
handle any type of call that comes to it, either a voice, fax or data.
Conversely, a dedicated port can only handle a single type of call, either
voice or fax or data. Universal and dedicated ports each handle one call at a
time, but a universal port can handle any type of call. Universal ports are
more flexible and cost-efficient.

Compliance with major telecommunications standards. Clarent Gateways
incorporate relevant International Telecommunications Union standards,
including the H.323, G.723.1, G.729a and G.711 codecs, as well as the
proprietary AudioCodes, Ltd. NetCoder codecs, among others. We also utilize
Q.931 signaling for call setup and control between the gateways, as specified
in H.323.

Low call latency. Clarent Gateways have a measured latency, the lag between
transmission and reception of a voice message, of approximately 100
milliseconds, or ms. Even with the addition of a typical 100 ms to 150 ms of
network-induced latency, the total system latency typically experienced with
Clarent Gateways is only between 200 ms to 250 ms.

Echo cancellation. Clarent Gateways employ the G.165 standard to provide
clear, virtually echo-less voice transmission.

Clarent Command Center

The Clarent Command Center is a centralized client/server software package
that processes network management and back-office functions, including the
routing and pricing of calls, user management, gateway monitoring and billing.
A single Clarent Command Center can support more than one Clarent Gateway. The
Clarent Command Center does not have a dedicated connection to each Clarent
Gateway. Instead it communicates with Clarent Gateways over the Internet or an
Internet protocol network. By centralizing all network management and
back-office functions, networks that use the Clarent system can be configured
and modified quickly and easily. Furthermore, the Clarent Command Center is
designed to be fully redundant through the use of multiple Clarent Command
Centers to enhance network efficiency and reliability. Examples of network
management and back-office functions performed by the Clarent Command Center
include:

Dynamic routing of calls. Calls are directed to specified groups of
gateways. In the event that a specified group of gateways is unavailable for a
particular destination, the Clarent Command Center will automatically route the
call to the specified backup group of gateways for completion. Furthermore, if
there are no gateways for a particular destination, the Clarent Command Center
can always route the call through the circuit-switched network, so that call
completion can be guaranteed.

Call pricing. The Clarent Command Center supports a wide range of pricing
options that allow service providers to customize their pricing schemes to
their business needs and offer different rates for the same routes based on
individual call or user characteristics. Examples of pricing options supported
by the Clarent Command Center include time-of-day rates and drop-off rates,
which are reduced rates after the first minute of

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<PAGE>

a call. Rates can also be varied, based on the identity of the caller, the
calling number or the called number, such as toll-free numbers.

Relational Database

The Clarent system also requires the installation of a third-party
relational database that stores operational support system data for a network
of Clarent gateways. The data stored in the database is used by the Clarent
Command Center to provide comprehensive back-office functionality. The Clarent
system is currently compatible with specific databases, including current
releases from Oracle Corporation and Microsoft Corporation. As a result,
customers using the Clarent system can develop their own customized Web
interfaces, billing systems and advanced management tools. Examples of the data
stored in the relational database include:

Billing information. Billing data is collected and stored in the relational
database and includes extensive detail on all calls made through the network.
Invoice generation and reporting programs can be developed using standard
database reporting tools.

Domain management. Service providers want to determine what calls can be
completed within their networks. The Clarent system provides service providers
with this capability to segment a network into domains, or "subnetworks" within
a larger network.

Other Clarent Products and Services

The following table provides a summary of additional Clarent products and
services:

<TABLE>
<CAPTION>
Product or Service Features
<C> <S>
Clarent Connect Provides network interconnection; real-time
account settlement; least-cost routing of
calls; balancing of calls between partners;
and connecting service providers and private
networks of companies
- -------------------------------------------------------------------------------
Clarent Clearinghouse Products Harvest, sort, group and archive billing
data from individual gateways or networks of
gateways
- -------------------------------------------------------------------------------
Clarent SS7/C7 Gateway Signaling Provides seamless connection between a
service provider's network and a Clarent
Gateway
- -------------------------------------------------------------------------------
Clarent Care Provides software upgrades and worldwide
technical support to customers seven days a
week, 24 hours a day
- -------------------------------------------------------------------------------
Clarent University Provides basic and advanced training courses
to users of Clarent technology
</TABLE>

Customers

We began commercial shipments of our products in March 1997 and, as of March
31, 1999, had already shipped Clarent Systems to approximately 100
telecommunications companies in 50 countries. We sell our products directly and
through distributors to service providers.

The following table is a list of our top 15 customers by revenue for 1998:

<TABLE>
<S> <C> <C>
AT&T Corporation Hemisphere Communications Corporation Sprint Corporation
AT&T GCSI Inc. IT&E Overseas, Inc. Star Telecom
AT&T Jens Corporation Korea Telecom International Technet International, Inc.
Bitro Telecommunications,
Inc. Rapid Link Telecommunications Telecomet International Inc.
Dacom International Inc. Singapore Telecommunications Ltd. Telia Telecom
</TABLE>

40
<PAGE>

In 1998 sales to these customers represented approximately 70% of our
revenues. Entities affiliated with AT&T Corporation accounted for 36% and
Technet International accounted for 12% of net revenue in 1998. Entities
affiliated with AT&T Corporation accounted for 25% and Technet International
accounted for 32% of net revenue in the first quarter of 1999.

Customer Case Studies

The following case studies illustrate how certain of our customers have
deployed our products.

AT&T Jens Corporation. AT&T Jens Corporation, a subsidiary of AT&T
Corporation, offered its customers IP telephony services using the Clarent
system in September 1997. Its first service offering, AT&T @Phone, is a prepaid
and postpaid calling card service that initially allowed consumers in Japan to
call 57 other countries around the world. By the fall of 1998, AT&T Jens
Corporation had expanded this service to provide voice and fax service to 224
countries. Using the Clarent system, AT&T Jens Corporation has been able to
provide international long distance telephone services to customers in Japan, a
market in which it had previously not been able to provide service using
circuit-switched technology. We believe that the success of AT&T @Phone stems
from its ability to offer a lower priced international long distance
alternative compared to existing circuit-switched services.

Rapid Link Telecommunications. Rapid Link Telecommunications, an
international telecommunications service provider based in Atlanta, Georgia,
launched commercial long distance service using the Clarent system in the fall
of 1998. The initial service launched was a prepaid long distance calling card
service between Asia, Europe and the United States. Rapid Link
Telecommunications is expanding its IP telephony network by setting up
bilateral partnerships with major international telecom carriers offering IP
telephony services in their geographic regions. The first partnership was
signed with Korea Telecom International in November 1998.

Telia Telecom. Telia Telecom, the leading telecommunications service
provider in Scandinavia and the incumbent telephone company in Sweden, began
commercial IP telephony trials in the summer of 1998 using the Clarent system.
After testing our products against those of seven other vendors, Telia Telecom
selected the Clarent system, based on its differentiating features. These
differentiating features included voice quality and the flexibility of the
Clarent Command Center. Telia launched its service in February 1999. At that
same time, Telia Telecom also launched Europe's first IP telephony
clearinghouse, using the Clarent system, for international IP telephony calls.
Since then, Telia Telecom has recruited more than nine service providers to
join the clearinghouse.

Sales, Marketing and Customer Service and Support

Sales

We currently have a global sales organization with sales and support offices
in Belgium, Germany, Japan, the People's Republic of China, South Korea, Spain,
Taiwan and the United Kingdom. Our sales force sells our products to services
providers both directly and through third-party distributors. Direct sales
accounted for 82% of our net revenue for the year ended December 31, 1998 and
85% for the quarter ended March 31, 1999. In addition, we have 11 third party
distributors in five countries. Our arrangements with these distributors
provide discount levels, target geographic sales regions and other material
terms.

Marketing

Our marketing organization develops strategies and implements programs to
support the sale of our products. Our current marketing efforts include a
number of programs designed to increase industry visibility, including
press/analyst tours, trade shows and events, speaking engagements and ongoing
interaction with analysts and the media as well as targeted marketing programs.
Additional programs include our customer summit, which provides the opportunity
for our customers to meet each other and learn more about the Clarent system.
We also undertake joint marketing programs with our clearinghouse customers to
help them build their customer base.

41
<PAGE>

Customer Service and Support

We believe that customer service and support are critical to maintaining
existing customer relationships and developing relationships with new
customers. Our professional services group performs the following functions:

. pre-sales support;

. product installation and customization;

. technical support and consulting services;

. customer training; and

. product maintenance.

In addition to our sales and support offices in North America, Asia and
Europe, we have established a support center in the United States that provides
support seven days a week, 24 hours a day. We also currently partner with
Equant Integration Services, Inc., a supplier of international network support
services, to provide global call center and technical support to our customers.

Competition

We compete in a new, rapidly evolving and highly competitive and fragmented
market. We expect competition to intensify in the future. We believe that the
main competitive factors in our market are product quality, features, cost and
customer relationships. We believe a critical component to success in this
market is the ability to establish and maintain strong customer relationships
with a wide variety of international service providers and to facilitate
relationships between those service providers to increase the geographic
coverage of their services.

Our current principal competitors include large networking equipment
manufacturers, such as 3Com Corporation and Cisco Systems, Inc., large
telecommunications equipment manufacturers, such as Lucent Technologies Inc.
and Nortel Networks Corporation, and IP telephony technology companies, such as
VocalTec Communications, Ltd. We also expect new competitors to emerge. Many of
our competitors are substantially larger than we are and have significantly
greater financial, sales and marketing, technical, manufacturing and other
resources and more established distribution channels and stronger relationships
with service providers. These competitors may be able to respond more rapidly
to new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products than
we can. Furthermore, we believe some of our competitors may offer aggressive
sales terms, including financing alternatives, which we might not be able to
match. These competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance or additional
features or be introduced earlier than our solutions. Given the market
opportunity, we also expect that other companies may enter our market with
better products and technologies. If any technology that is competing with ours
is more reliable, faster, less expensive or has other advantages over our
technology, then the demand for our products and services could decrease.

We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. Successful new
product introductions or enhancements by our competitors could reduce the sales
or market acceptance of our products and services, perpetuate intense price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and
marketing and customer support. We cannot be sure that we will have sufficient
resources to make these investments or that we will be able to make the
technological advances necessary to be competitive.

Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business, financial
condition and results of operations.

42
<PAGE>

Research and Development

To maintain our technology leadership position, we focus our research and
development efforts on improving the functionality and performance of our
existing products and developing new products. We obtain extensive product
development input from our customers and monitor our customers' needs and
changes in the marketplace. We are currently working on key areas such as ways
to improve the transmission of packets as well as the interoperability of our
products with those of other vendors. In addition we are developing
improvements to network management and enhanced end-user features.

We believe our success will depend, in part, on our ability to develop and
introduce new products and enhancements to our existing products. In the past
we have made, and intend to continue to make, significant investments in
research and development. Our engineering, research and development
expenditures totaled approximately $136,000 in 1996, $1.0 million in 1997 and
$3.4 million in 1998.

We perform our research and product development activities at our principal
offices in Redwood City, California. As of March 31, 1999, we had 32 employees
in our research and development department. If we are unable to develop new
products or enhancements to existing products on a timely basis, or if the new
products or enhancements fail to achieve market acceptance, our business,
financial condition and results of operations could be seriously harmed.

Manufacturing and Assembly

Our manufacturing operations consist of materials planning and procurement,
final assembly, product assurance testing, quality control and packaging and
shipping. We assemble and test our products at our facilities in Redwood City,
California. Based on volume, geographic or customer requirements, we may begin
outsourcing some assembly and test functions. We have developed an assembly
process that enables us to configure our products to be adapted to different
customer specifications at the final assembly stage. This flexibility is
designed to reduce both our assembly cycle time and our need to maintain a
large inventory of finished goods. We believe that the efficiency of our
assembly process to date is largely due to our product architecture and our
commitment to assembly process design. However, this assembly process involves
some risks, including the potential absence of adequate capacity and reduced
control over delivery schedules, manufacturing yields, quality and costs.

We test our products both during and after the assembly process using
internally-developed product assurance testing procedures. Although we
generally use standard components for our products and try to maintain
alternative sources of supply, some key components are purchased from sole or
single source suppliers for which alternative sources are not currently
available. We may experience supply problems in the future from any of our
suppliers, which could delay our ability to assemble and ship our products and
seriously harm our business, financial condition and results of operations.

Patents and Intellectual Property

We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We
currently do not have any United States patents issued for any of our
technology, although we do have four United States applications, one German
application and one Japanese application on file.

We also enter into confidentiality and proprietary information and
inventions agreements with our employees and consultants, and control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology. The laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the United
States, and many United States companies have encountered substantial
infringement problems in these countries, some of which are countries in which
we have sold and continue to sell products.

43
<PAGE>

There is a risk that our means of protecting our proprietary rights may be
inadequate. For example, our competitors may independently develop similar
technology, duplicate our products or design around our patents, when or if
issued, or our other intellectual property rights. If we fail to adequately
protect our intellectual property, it would be easier for our competitors to
sell competing products.

From time to time, third parties may assert exclusive patent, copyright,
trademark and other intellectual property rights to technologies that are
important to us. In addition, third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers with respect
to existing or future products, trademarks or other proprietary rights. We have
not conducted an exhaustive search of patents issued to other companies or
organizations. Because of the number of patents issued and patent applications
filed relating to the transmission of voice over packet-switched networks, we
believe there is a risk that current and potential customers and other third
parties have filed, or in the future will file applications for, or have
received or in the future will receive, patents or obtain additional
intellectual property rights relating to materials or processes that we use or
propose to use. If these third-party patents or other proprietary rights have
been or are issued, or are otherwise asserted by third parties, the holders of
these patents or other proprietary rights may bring infringement claims against
us. Furthermore, former employers of our current and future employees may
assert that our employees have improperly disclosed confidential or proprietary
information to us. We may in the future initiate claims or litigation against
third parties for infringement of our proprietary rights or to determine the
scope and validity of our proprietary rights and the rights of competitors. Any
of these claims, with or without merit, may be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
develop non-infringing technology. Alternatively, others may claim that we
infringe their intellectual property rights, and we may be required to obtain a
license or royalty agreement under the intellectual property rights of those
parties claiming the infringement. In addition, an adverse ruling could result
in substantial, including treble damages or the issuance of an injunction
against us requiring that we cease development and withdraw some products from
the marketplace. Limitations on our ability to market our products and delays
and costs associated with monetary damages and redesigns in compliance with an
adverse judgment or settlement could harm our business, financial condition and
results of operations.

Employees

As of March 31, 1999, we had a total of approximately 155 employees, of
which approximately 32 were in research and development, 82 were in sales,
marketing and customer support and 41 were in finance, administration and
operations. Our future performance depends, in significant part, upon our
ability to attract new personnel and retain existing personnel in key areas
including engineering, technical support and sales. Competition for this
personnel is intense, especially in the San Francisco Bay Area where we are
headquartered, and we cannot be sure that we will be successful in attracting
or retaining the personnel in the future. None of our employees is subject to a
collective bargaining agreement. We consider our relationship with our
employees to be satisfactory.

Facilities

We occupy approximately 39,000 square feet of space in Redwood City,
California. The term of the lease for 14,000 square feet of this facility
expires in December 1999, and the initial term for the remaining 25,000 square
feet of this facility expires as early as December 2003. In addition to our
principal office space in Redwood City, California, we also lease sales and
support offices in Illinois and internationally in Belgium, Germany, Japan, the
People's Republic of China, South Korea, Spain, Taiwan and the United Kingdom.
We believe that existing facilities are adequate for our needs through calendar
year 1999 and are currently in the process of locating additional space to meet
our expected requirements thereafter. If we require additional space, we
believe that we will be able to secure such space on commercially reasonable
terms without undue operational disruption.

Legal Proceedings

We are not currently a party to any material legal proceedings.

44
<PAGE>

MANAGEMENT

Executive Officers and Directors

Our executive officers and directors and their ages as of March 31, 1999,
are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerry Shaw-Yau Chang.............. 40 Chief Executive Officer, President and
Director

Richard J. Heaps.................. 46 Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary

Michael F. Vargo.................. 38 Chief Technology Officer and Director

Mark E. McIlvane.................. 45 Vice President, Worldwide Sales

Heidi H. Bersin................... 43 Vice President, Marketing

Mong Hong (Mahan) Wu.............. 39 Vice President and General Manager, Asia
Pacific

Wen Chang Ko(1)(2)................ 49 Director

Syaru Shirley Lin(1)(2)........... 30 Director
</TABLE>
- ---------------------
(1) Member of the audit committee
(2) Member of the compensation committee

Mr. Chang, one of our co-founders, has served as our President and Chief
Executive Officer and as a director since our inception in July 1996. From
March 1996 through June 1996, Mr. Chang worked as the system architect for
Relations Software, a developer of network and applications monitoring
software. From September 1994 through February 1996, Mr. Chang served as a
Senior Software Engineer at OnLive! Technologies, Inc., a developer of on-line
communications technology. Prior to September 1994, Mr. Chang spent seven years
at Centura Software Corporation, formerly Gupta Corporation, a supplier of
client/server application development and deployment technology, as a manager
and developer of Centura Software Corporation's client/server database
solution. Mr. Chang holds a B.S. degree in control engineering from National
Chiao-Tung University and an M.S. degree in computer science from Pennsylvania
State University. Mr. Chang's brother-in-law, Shoon Shen Tony Wang, serves as
our Controller of the Asia Pacific region.

Mr. Heaps has served as our Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary since September 1998. From July 1997
through August 1998, Mr. Heaps worked as an independent consultant and headed a
private consulting firm and law practice serving Silicon Valley-based high-
technology companies. From October 1987 through July 1997, Mr. Heaps served in
various management positions at Centura, most recently serving as Senior Vice
President of Business Development and General Counsel. Mr. Heaps is a member of
the State Bar of California and a member of the board of directors of the
Children's Discovery Museum of San Jose. Mr. Heaps holds a B.A. degree in
economics and mathematics from Yale University and J.D. and M.B.A. degrees from
Stanford University.

Mr. Vargo, one of our co-founders, has served as our Chief Technology
Officer and as a director since our inception in July 1996. From April 1996
through June 1996, Mr. Vargo served as a Senior Software Engineer at Oracle
Corporation, a leading provider of relational databases. From January 1995
through April 1996, Mr. Vargo served as a Senior Software Engineer at OnLive!
Technologies, Inc. From January 1992 through December 1994, Mr. Vargo served as
a Senior Software Engineer at Centigram Corporation, a voice messaging
equipment manufacturer. Prior to Centigram Corporation, Mr. Vargo spent seven
years at Pacific Bell. Mr. Vargo holds a B.S. degree in electrical engineering
and an M.E. degree in electrical engineering from California State Polytechnic
University at Pomona.

Mr. McIlvane has served as our Vice President, Worldwide Sales since July
1997. From January 1993 through June 1997, Mr. McIlvane served as Vice
President of Sales and Marketing for Comverse Technology, Inc., a manufacturer
of high-performance voice processing computers for network-based
telecommunications

45
<PAGE>

service providers. Prior to Comverse Technology, Inc., Mr. McIlvane served in
various senior positions at Applied Communications, Inc., a wholly owned
subsidiary of U.S. WEST, Inc. and Bell & Howell Corporation. Mr. McIlvane holds
a B.S. degree in business and economics from MacMurray College.

Ms. Bersin has served as our Vice President, Marketing since February 1997.
From 1983 through January 1997, Ms. Bersin served in various management
positions at Pacific Bell and Pacific Bell Information Services, including
Director of Pacific Bell Information Services from 1986 to 1997. Ms. Bersin
holds a B.A. degree from Stanford University and an M.B.A. degree from Yale
University.

Mr. Wu has served as our Vice President and General Manager of the Asia
Pacific region since April 1997. From January 1996 through March 1997, Mr. Wu
served as the Regional Sales Manager of Computer Sales Operations for Hewlett-
Packard Company, a measurement and computer equipment manufacturer, in Asia,
except Japan, and Australia after Hewlett-Packard Company acquired Convex
Computer Corporation, a supercomputer manufacturer, where Mr. Wu served as
General Manager of the Asia Pacific region, except Japan, from January 1994
through December 1995. Mr. Wu holds a B.S. degree in electrical engineering and
an M.B.A. degree from National Chiao-Tung University.

Mr. Ko has served as a director since June 1997. Since 1990, Mr. Ko has
served as Chairman of the WK Technology Funds and also served as Chairman of
the Taipei Venture Capital Association from 1992 to 1995. From 1977 to 1990,
Mr. Ko served in various management positions at Hewlett-Packard Taiwan Ltd.,
most recently serving as Chairman and President from 1979 to 1990. From 1974 to
1977, Mr. Ko served in various positions at IBM in the United States, most
recently serving as Research and Development Project Manager from 1975 to 1977.
Mr. Ko holds a B.S. degree in electrical engineering from National Cheng Kung
University and an M.S. degree in system science from Michigan State University.

Ms. Lin has served as a director since July 1998. Since 1993, Ms. Lin has
been employed by Goldman Sachs (Asia) Limited. She currently serves as an
executive director in the Merchant Banking Division, which manages several
merchant banking funds. From 1990 to 1993, Ms. Lin worked for Morgan Stanley &
Co. in New York and Hong Kong. Ms. Lin is also a non-executive director of Hung
Hing Printing Group Limited, a publicly listed company on the Hong Kong Stock
Exchange. Ms. Lin holds a B.A. degree from Harvard University.

Executive officers are appointed by the board of directors and serve until
their successors are qualified and appointed. There are no family relationships
among any of our directors or executive officers.

Board Composition

Upon the closing of this offering, the number of directors will be set at
five. In accordance with the terms of our amended and restated certificate of
incorporation, the terms of the office of the board of directors will be
divided into three classes, with each class holding office for staggered three
year terms: Class I directors' terms will expire at the annual meeting of
stockholders to be held in 2000, Class II directors' terms will expire at the
annual meeting of stockholders to be held in 2001, and Class III directors'
terms will expire at the annual meeting of stockholders to be held in 2002. The
Class I director is Ms. Lin, and there is one vacancy in this class of
directors. The Class II directors are Mr. Ko and Mr. Vargo, and the Class III
director is Mr. Chang.

At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, our amended and restated certificate of
incorporation provides that the authorized number of directors may be changed
only by resolution of the board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the board of directors may
have the effect of delaying or preventing changes in control. Although our
directors may be removed for cause by the affirmative vote of the holders of a
majority of the common stock, our

46
<PAGE>

amended and restated certificate of incorporation provides that holders of two-
thirds of the common stock must vote to approve the removal of directors
without cause.

Board Committees

The compensation committee consists of Mr. Ko and Ms. Lin. The compensation
committee:

. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our equity incentive plans; and

. makes recommendations to the board of directors regarding compensation
matters.

The audit committee consists of Mr. Ko and Ms. Lin. The audit committee:

. makes recommendations to the board of directors regarding the selection
of independent auditors;

. reviews the results and scope of the audit and other professional
services provided by our independent auditors;

. reviews the independence of the independent auditors; and

. reviews and evaluates our internal control functions.

Compensation Committee Interlocks and Insider Participation

The members of our compensation committee are Mr. Ko and Ms. Lin. None of
the members of the compensation committee of the board of directors is
currently or has been, at any time since our formation, one of our officers or
employees.

On February 24, 1998, we issued secured convertible subordinated promissory
notes with an aggregate principal amount of $2,600,000 and warrants to purchase
an aggregate of 59,266 shares of Series C preferred stock at an exercise price
of $5.59, in a private placement debt and equity financing with

. WK Technology Fund and entities affiliated with WK Technology Fund,

. Alice Wang, the spouse of Mr. Chang, one of our co-founders and chief
executive officer,

. Daniel Warmenhoven, one of our directors, who has since resigned from the
board of directors, and

. one unaffiliated investor.

In connection with this financing we issued notes evidencing an aggregate
principal amount of $2,000,000 and warrants to purchase an aggregate of 45,590
shares of Series C preferred stock to entities affiliated with WK Technology
Fund. $2,050,000 of the promissory notes were converted into shares of Series C
preferred stock on June 11, 1998. The warrants expire, if not earlier
exercised, on the closing of this offering.

On June 11, 1998 and December 7, 1998, we sold an aggregate of 2,644,241
shares of Series C preferred stock, at a per share price of $6.58, in a private
placement equity financing with entities affiliated with WK Technology Fund and
several unaffiliated investors. In connection with this financing we issued an
aggregate of 312,194 shares in connection with the conversion of promissory
notes by entities affiliated with WK Technology Fund. We also entered into a
voting agreement with some of our stockholders in connection with the sale of
our Series C preferred stock. In connection with the voting agreement, we
issued warrants to purchase 101,000 shares of our Series C preferred stock at
an exercise price of $6.58 per share to each of:

. WK Technology Fund III; and

. The Goldman Sachs Group, L.P., a principal stockholder, which is
affiliated with Goldman Sachs (Asia) Limited. Ms. Lin, one of our
directors, is an executive director of Goldman Sachs (Asia) Limited.

Each warrant will not be exercised and will expire upon the completion of this
offering. Neither warrant is exercisable at this time.

47
<PAGE>

Director Compensation

Directors who are also executive officers do not receive any additional
compensation for serving as members of the board of directors or any committee
of the board of directors. Non-employee directors are expected to receive an
initial option to purchase 5,000 shares of common stock and an annual option to
purchase 2,000 shares of common stock under our 1999 non-employee directors'
stock option plan.

Executive Compensation

The following table sets forth information for the year ended December 31,
1998, regarding the compensation of our chief executive officer and each of our
four most highly-compensated executive officers whose salary and bonus for the
year ended December 31, 1998 were in excess of $100,000 on an annualized basis:

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------------------- ---------------------
Name and Principal Other Annual Securities Underlying All Other
Position Salary($)(1) Bonus($) Compensation(2) Options(#) Compensation($)(3)
- ------------------ ------------ -------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang
President and Chief
Executive Officer..... $110,000 -- -- -- --
Richard J. Heaps(4)
Chief Operating
Officer, Chief
Financial Officer,
General Counsel and
Secretary............. 67,500 $6,160 -- 400,000 --
Michael F. Vargo
Chief Technology
Officer............... 131,875 7,500 -- -- --
Mark E. McIlvane
Vice President,
Worldwide Sales....... 202,717 20,000 $7,800 160,000 $2,000
Mong Hong (Mahan) Wu
Vice President and
General Manager, Asia
Pacific............... 131,640 26,145 -- -- --
</TABLE>
- ---------------------
(1) Mr. McIlvane's salary consists of a salary of $150,000 and sales
commissions of $52,717.
(2) Consists of reimbursement of automobile expenses.
(3) Consists of life insurance premiums.
(4) Mr. Heaps started his employment with us in September 1998. Mr. Heaps would
have earned a salary of $180,000 if he had been employed by us for the
entire year.

48
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth certain information relating to stock options
awarded to each of the named executive officers during the fiscal year ended
December 31, 1998. All such options were awarded under the 1999 amended and
restated equity incentive plan.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Stock Option Term(2)
------------------------------------------ ----------------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted Price Per Expiration
Name Granted in 1998(1) Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ 400,000 13.2% $0.75 08/27/08 $8,821,810 $14,224,958
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ 160,000 5.3 0.329 07/20/08 3,596,084 5,757,343
Mong Hong (Mahan) Wu.... -- -- -- -- -- --
</TABLE>

- ---------------------
(1) The total number of options granted to our employees in fiscal year 1998
was 3,030,896.

(2) In order to comply with the rules of the Securities and Exchange
Commission, we are including the gains or "option spreads" that would exist
for the respective options we granted to the named executive officers. We
calculate these gains based upon an assumed initial public offering price
of $14.00 per share appreciating at 5% and 10% compounded annually from the
date of the option grant until the termination date of the option. These
gains do not represent our estimate or projection of the future common
stock price.

49
<PAGE>

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values

The following table sets forth the number and value of securities underlying
unexercised options held by the named executive officers at December 31, 1998:

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ -- -- -- 400,000 -- $5,300,000
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ -- -- 324,882 175,118 $4,521,908 2,414,702
Mong Hong (Mahan) Wu.... 221,664 $3,097,754 11,668 326,668 163,060 4,565,185
</TABLE>
- ---------------------

(1) The amount set forth represents the difference between the fair market
value of the underlying common stock using an assumed initial public
offering price of $14.00 per share and the exercise price of the option,
multiplied by the number of shares underlying the option.

Employment Agreements

In June 1997, we entered into an employment agreement with Mark E. McIlvane,
Vice President, Worldwide Sales. The agreement was amended on June 1, 1998. The
amended agreement provides for an annual base salary of $150,000. Mr. McIlvane
is also eligible to receive sales commissions. The sales commissions are based
upon the sales plan that sets out the quota attainment standards and the
associated percentage of revenue to be paid as sales commissions. The sales
plan's objectives include attaining revenue that exceeds our business plan.
Under the sales plan's provisions, commissions are paid monthly based on
product and service revenue. A higher commission percentage can be earned if
revenue exceeds quota targets. There is no limit to the amount of commission
that can be earned. The agreement also provides Mr. McIlvane with incentive
stock options to purchase an aggregate of 500,000 shares of common stock. Of
those options, 40,000 shares vested immediately upon the signing of the
amendment to the employment agreement, 370,000 shares are subject to time-based
vesting over a four-year period and 90,000 shares are subject to certain
milestone-based vesting, but must vest by August 1, 2004. The agreement
provides that Mr. McIlvane is employed "at-will," and the employment
relationship may be terminated for any reason at any time, but if we terminate
Mr. McIlvane's employment without cause, we must pay Mr. McIlvane a severance
payment equal to 100% of his annual salary.

In August 1998, we entered into an employment agreement with Richard J.
Heaps, Chief Operating Officer, Chief Financial Officer, General Counsel and
Secretary. The agreement provides for an annual base salary of $180,000. Mr.
Heaps is also eligible to receive a $40,000 annual performance bonus based on
quarterly goals and objectives agreed upon by him and the chief executive
officer. The amount of the bonus will be reviewed and reset in each subsequent
year. The agreement also provides Mr. Heaps with an incentive stock option to
purchase 400,000 shares of common stock, which is subject to time-based vesting
over a four-year period. In the event Mr. Heaps is terminated without cause or
constructively terminated within 18 months of any change of control, between
50% to 100% of the outstanding options then held by Mr. Heaps will accelerate
and vest, depending on how long Mr. Heaps had been employed with us prior to
termination. "Constructive termination" is defined in the agreement as a
voluntary termination of employment after his duties or benefits are materially
reduced. The agreement provides that Mr. Heaps is employed "at-will," and the
employment relationship may be terminated for any reason at any time, but if we
terminate Mr. Heaps' employment without cause or if Mr. Heaps voluntarily
terminates his employment after his duties or benefits are materially reduced,
we must pay Mr. Heaps a severance payment equal to up to 100% of his annual
salary, depending on the amount of time Mr. Heaps has been employed by us.

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<PAGE>

Stock Plans

1999 Amended and Restated Equity Incentive Plan. Our 1999 amended and
restated equity incentive plan was adopted in October 1996, amended in May
1997, May 1998 and October 1998, and amended and restated by the board of
directors in April 1999, subject to stockholder approval. An aggregate of
11,358,170 shares of common stock currently are authorized for issuance under
the equity incentive plan. However, on January 31 of 2000, 2001, 2002, 2003 and
2004, respectively, the aggregate number of shares of common stock that are
available for issuance under the equity incentive plan will automatically be
increased by that number of shares of common stock equal to 2.5% of our
outstanding shares of common stock on that date or a lesser amount as
determined by the board of directors for each year.

The equity incentive plan provides for the grant of incentive stock options,
as defined under the amended Internal Revenue Code of 1986, to employees,
including officers and employee directors, and non-statutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights
to our and our affiliates' employees, including officers and employee
directors, directors and consultants. The equity incentive plan is administered
by the compensation committee of our board of directors which determines the
recipients and types of awards to be granted, including the exercise price,
number of shares subject to the award and the exercisability thereof.

The terms of options granted under the equity incentive plan may not exceed
ten years. Our compensation committee determines the exercise price of options
granted under the equity incentive plan. However, the exercise price for an
incentive stock option and a non-statutory stock option cannot be less than
100% of the fair market value of the common stock on the date of the option
grant. Options granted under the equity incentive plan vest at the rate
specified in the option agreement. Generally, the right to exercise 25% of the
total number of shares granted vests 12 months after the date of option grant,
with the remainder vesting monthly over three years thereafter, such that an
option is fully vested on the fourth anniversary of the date of the option
grant. Generally, the optionee may not transfer a stock option other than by
will or the laws of descent or distribution. However, an optionee may designate
a beneficiary who may exercise the option in the event of the optionee's death
or disability. Unless the terms of an optionee's option agreement provide for
an earlier termination, in the event of the optionee's cessation of his or her
relationship with us due to death or disability, the optionee's beneficiary may
exercise any vested options up to 18 months after death and 12 months after
disability after the date of such cessation. If the optionee's relationship
with us ceases for any reason other than the optionee's death or disability,
the optionee may exercise any vested options during a minimum of 30 days
following such cessation. Generally, the same terms and conditions that govern
the vesting and exercise of non-statutory options shall apply to stock
appreciation rights, and stock appreciation rights shall generally be subject
to the same terms and conditions applicable to the particular option grant to
which these rights pertain.

No incentive stock option, and, prior to our stock being publicly traded, no
non-statutory stock option, may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than 10% of our
total combined voting power or that of any of our affiliates, unless the option
exercise price is at least 110% of the fair market value of the stock subject
to the option on the date of grant and the term of the option does not exceed
five years from the date of the grant. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year, under the equity incentive plan and all
of our other stock plans and those of our affiliates, may not exceed $100,000.
Pursuant to Section 162(m) of the Internal Revenue Code, no person may be
granted options under the equity incentive plan covering more than 360,000
shares of common stock in any calendar year.

Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the equity incentive plan. Our compensation

51
<PAGE>

committee has the authority to reprice outstanding options or to offer
optionees the opportunity to replace outstanding options with new options for
the same or a different number of shares. Both the original and new options
will count toward the Section 162(m) limitations set forth above. Shares
subject to stock appreciation rights exercised in accordance with the incentive
plan will now be available for subsequent issuance under the incentive plan.

If there is any sale of all or substantially all of our assets, any merger
or any consolidation in which we are not the surviving corporation, or a like
transaction involving us, all outstanding awards under the equity incentive
plan either will be assumed or substituted for by any surviving entity. If the
surviving entity determines not to assume or substitute for such awards, the
vesting of stock awards held by persons still serving us or our affiliate will
be accelerated as to all of the shares and the awards will terminate if not
exercised prior to the sale of assets, merger or consolidation.

As of March 31, 1999, 1,426,328 shares of common stock had been issued upon
the exercise of options granted under the equity incentive plan, options to
purchase 7,631,842 shares of common stock were outstanding and as of April 8,
1999, 2,300,000 shares remained available for future grant. The equity
incentive plan will terminate on April 7, 2009, unless terminated by our board
of directors before then. As of April 8, 1999, no stock bonus, stock
appreciation right or restricted stock has been granted under the equity
incentive plan.

1999 Non-Employee Directors' Stock Option Plan. In April 1999, our board of
directors adopted the 1999 non-employee directors' stock option plan, subject
to stockholder approval, to provide for the automatic grant of options to
purchase shares of common stock to our non-employee directors who are not any
of our affiliates' employees or consultants. Our board of directors administers
the directors' plan, but may delegate the administration to a committee.

The aggregate number of shares of common stock that may be issued under
options granted under the directors' plan is 300,000 shares. Under the terms of
the directors' plan, as of the initial public offering, each non-employee
director, and each person who is thereafter elected or appointed for the first
time to be a non- employee director automatically shall, upon the date of his
or her initial election or appointment to be a non-employee director by our
board of directors or stockholders, be granted an option to purchase 5,000
shares of common stock. In addition, on the day of each regular meeting of the
board of directors, commencing with the third regular meeting subsequent to the
date of each non-employee directors' initial grant under the director's plan,
each person who is then serving as a non-employee director automatically shall
be granted an option to purchase 2,000 shares of common stock.

The exercise price of the options granted under the directors' plan will be
equal to the fair market value of the common stock on the date of grant. No
option granted under the directors' plan may be exercised after the expiration
of ten years from the date it was granted. Options granted under the directors'
plan vest and become exercisable immediately. Options granted under the
directors' plan generally are non-transferable. However, an optionee may
designate a beneficiary who may exercise the option following the optionee's
death. An optionee whose service relationship with us or any of our affiliates,
whether as one of our non-employee directors or subsequently as our affiliates'
employee, director or consultant, ceases for any reason, the vested option may
be exercised as provided in the option agreement, which is three months
generally, 12 months in the event of optionee's disability and 18 months in the
event of optionee's death.

1999 Employee Stock Purchase Plan. In April 1999, our board of directors
approved the 1999 employee stock purchase plan, subject to stockholder
approval, covering an aggregate of 600,000 shares of common stock. The purchase
plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Internal Revenue Code. Under the purchase plan,
the board of directors or a committee may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the purchase plan. The offering period for any offering will be no more than 27
months.

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<PAGE>

Under the purchase plan, employees are eligible to participate if they are
employed by us or one of our affiliates designated by our board of directors
and are employed at least 20 hours per week and at least five months per year.
Employees who participate in an offering will have the right to purchase up to
the number of shares of common stock purchasable with a percentage designated
by our board of directors, up to 10%, of an employee's earnings withheld
pursuant to the purchase plan and applied, on specified dates determined by
the board of directors, to the purchase of shares of common stock. The price
of common stock purchased under the purchase plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with us.

In the event of changes in control, our board of directors has discretion
to provide that each right to purchase common stock will be assumed or an
equivalent right will be substituted by the successor corporation, or that
such rights may continue in full force and effect, or that all sums collected
by payroll deductions will be applied to purchase stock immediately prior to
the change in control. The purchase plan will terminate at the board of
directors' discretion or when all of the shares reserved for issuance under
the purchase plan have been issued.

As of April 8, 1999, no employees have rights to purchase shares of common
stock under the purchase plan.

Description of 401(k) Plan

401(k) Plan. We maintain the Clarent Corporation 401(k) Retirement Plan for
eligible employees. In order to be a participant in the 401(k) plan, an
employee must have attained age 18. A participant may contribute up to 25% of
his or her total annual compensation to the 401(k) plan, or up to a
statutorily prescribed annual limit, if less. The annual limit for 1999 is
$10,000. Each participant is fully vested in his or her deferred salary
contributions. Participant contributions are held and invested by the 401(k)
plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have not
made any contributions to the 401(k) plan on behalf of the participants. The
401(k) plan is intended to qualify under Section 401 of the Internal Revenue
Code, so that contributions by us or our employees to the 401(k) plan, and
income earned on the 401(k) plan contributions, are not taxable to employees
until withdrawn from the 401(k) plan, and so that our contributions, if any,
will be deductible by us when made.

Limitation of Liability and Indemnification Matters

Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of the fiduciary duties as a director except for
liability

. for any breach of the director's duty of loyalty to us or to our
stockholders,

. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,

. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law or

. for any transaction from which the director derives an improper personal
benefit.

Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
full extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of an indemnified
party. Our bylaws also require us to advance expenses incurred by directors
and executive officers in connection with the defense of any action or
proceeding, subject to several exceptions, arising out of the status or
service as one of our directors or executive officers upon an undertaking by
that party to repay these advances if it is ultimately

53
<PAGE>

determined that the party is not entitled to indemnification. Furthermore, our
bylaws authorize us to enter into indemnification agreements with our
directors, officers, employees and agents and we intend to enter into these
agreements. A copy of the form of the indemnity agreement has been filed as an
exhibit to the registration statement. We also maintain directors' and
officers' liability insurance.

At present we are not aware of any pending litigation or proceeding
involving any of our directors, officers, employees or agents where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that may result in a claim for such
indemnification.

We are aware that the Securities and Exchange Commission considers
indemnification for liabilities arising under the Securities Act to be against
public policy. Even if our indemnification of our directors, officers and
controlling persons is permitted under indemnification agreements, it would be
unenforceable as a matter of public policy.

54
<PAGE>

CERTAIN TRANSACTIONS

On March 25, 1997 and June 10, 1997, we sold an aggregate of 3,220,000
shares of Series B preferred stock at a per share price of $1.00, in a private
placement equity financing with several unaffiliated investors and one of our
directors, including:

. an aggregate of 900,000 shares purchased by entities affiliated with WK
Technology Fund, a principal stockholder, of which Mr. Ko, one of our
directors, is Chairman; and

. 900,000 shares purchased by Mr. Ko.

On June 6, 1997, we entered into an employment agreement with Mr. McIlvane,
our Vice President, Worldwide Sales.

On June 3, 1997, we entered into an Advisory Services Agreement with WK
Technology Fund under which WK Technology Fund agreed that it would provide us
with business advisory services and finder services to identify, evaluate and
recommend outside director candidates. As compensation for these services, we
agreed to issue WK Technology Fund a warrant to purchase 1,400,000 shares of
common stock that vests monthly or immediately 30 days prior to the closing of
this offering at an exercise price of $0.05 per share and a warrant to purchase
360,000 shares of common stock that was exercisable on the date of issuance at
an exercise price of $0.05. As of March 31, 1999, WK Technology Fund had
exercised the warrants with respect to 768,328 shares of common stock. The
warrant covering the remaining 991,672 shares of common stock expires, if not
earlier exercised, upon the completion of this offering. The term of Advisory
Services Agreement with respect to the business advisory service is four years
and the term with respect to the finder services is one year.

On August 1, 1998, we entered into an employment agreement with Mr. Heaps,
our Chief Operating Officer Chief Financial Officer, General Counsel and
Secretary.

On December 7, 1998, we entered into an agreement with Intel Corporation
under which we agreed to collaborate on certain technical, public relations and
marketing activities. We agreed to allow Intel to purchase our products at the
same prices as the best price that we offer to any customer for similar
products and pursuant to similar terms and conditions at the time of Intel's
order. Intel can terminate the agreement at its convenience after September 30,
1999, without cause and both parties can terminate the agreement for cause upon
giving a 30-day notice and allowing for a 60-day cure period. Intel is one of
our principal stockholders.

We intend to enter into indemnification agreements with our directors and
executive officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. We also intend to execute
such agreements with our future directors and executive officers.

We believe that the foregoing transactions were in our best interest. As a
matter of policy the transactions were, and all future transactions between us
and any of our officers, directors or principal stockholders will be, approved
by a majority of the independent and disinterested members of the board of
directors, will be on terms no less favorable to us than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of our common stock offered by this prospectus:

. each stockholder who is known by us to own beneficially more than 5% of
our common stock;

. each of our named executive officers;

. each of our directors; and

. all of our directors and executive officers as a group.

Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their shares of our common
stock, except to the extent authority is shared by spouses under applicable
law. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Applicable percentage ownership is based on
22,301,128 shares of common stock outstanding as of March 31, 1999, including
1,082,990 shares issuable upon exercise of warrants, together with options for
that stockholder that are currently exercisable or exercisable within 60 days
of March 31, 1999. In computing the number and percentage of shares
beneficially owned by a person, shares of common stock subject to options
currently exercisable, or exercisable within 60 days of March 31, 1999 are
counted as outstanding, while these shares are not counted as outstanding for
computing the percentage ownership of any other person. The percentage of
shares outstanding after the offering is calculated after giving effect to the
issuance of 4,000,000 shares of common stock offered by this prospectus,
assuming no exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
Shares Issuable Number of Shares Percentage of Shares
pursuant to Beneficially Owned Outstanding
Options Exercisable (Including the Number --------------------
within 60 days of Shares Shown in Before the After the
Name of Beneficial Owner of March 31, 1999 the First Column) Offering Offering
- ------------------------ ------------------- --------------------- ---------- ---------
<S> <C> <C> <C> <C>
WK Technology Funds(1)
c/o Ms. Leslie Kuo
10th floor, No. 115
Sec. 3 Ming Sheng East
Road
Taipei, Taiwan......... 0 5,053,816 22.66% 19.22%
1998 Wang/Chang Family
Revocable Trust(2)
c/o Clarent Corporation
700 Chesapeake Drive
Redwood City,
California 94063....... 0 2,667,648 11.96 10.14
1998 Vargo Family Trust
c/o Clarent Corporation
700 Chesapeake Drive
Redwood City,
California 94063....... 0 2,580,000 11.57 9.81
The Goldman Sachs Group,
L.P.(3)
c/o Goldman Sachs
Group, L.P.
47/F 1 New York Plaza
New York, New York
10004
attention Richard
Friedman .............. 0 2,127,658 9.54 8.09
Intel Corporation
2200 Mission Boulevard
Santa Clara, California
95052 ................. 0 1,519,756 6.81 5.78
Jerry Shaw-Yau
Chang(4)............... 0 2,667,648 11.96 10.14
Richard J. Heaps........ 0 0 * *
Michael F. Vargo(5)..... 0 2,580,000 11.57 9.81
Mark E. McIlvane........ 345,360 345,360 1.52 1.30
Heidi H. Bersin(6)...... 112,500 506,250 2.26 1.92
Mong Hong (Mahan) Wu.... 70,002 491,666 2.20 1.86
Wen Chang Ko(7)......... 0 6,853,816 30.74 26.06
Syaru Shirley Lin(8).... 0 2,127,658 9.54 8.09
All officers and
directors as a group (8
persons)(9)............ 527,862 15,572,398 68.21 58.04
</TABLE>
- ---------------------
* Represents beneficial ownership of less than one percent of the common
stock.

56
<PAGE>

(1) Consists of 556,028 shares held by and 14,594 shares issuable pursuant to
a warrant held by WK Global Fund Ltd., 747,520 shares held by and
1,003,454 shares issuable pursuant to warrants held by WK Technology Fund,
684,374 shares held by and 10,944 shares issuable pursuant to a warrant
held by WK Technology Fund II, 817,618 held by shares and 17,514 shares
issuable pursuant to a warrant held by WK Technology Fund III,
587,176 shares held by and 14,594 shares issuable pursuant to a warrant
held by WK Technology Fund IV and 600,000 shares held by WK Technology
Fund V. If not previously exercised, the warrants will expire upon the
closing of the offering. Mr. Ko is the chairman and a beneficial owner of
each of the above entities and exercises sole voting and dispositive
powers with respect to the shares held of record by the WK Technology
Funds.

(2) Consists of 2,664,000 shares held by the 1998 Wang/Chang Family Revocable
Trust and 3,648 shares issuable pursuant to a warrant held by Alice Wang,
one of the trustees of the 1998 Wang/Chang Family Revocable Trust. If not
previously exercised, the warrant will expire upon the closing of the
offering.

(3) Consists of 1,519,756 shares held by The Goldman Sachs Group, L.P.,
140,930 shares held by the Bridge Street Fund 1998, L.P. and 466,972
shares held by the Stone Street Fund 1998, L.P. The Bridge Street Fund
1998, L.P. and the Stone Street Fund 1998, L.P. are affiliates of The
Goldman Sachs Group, L.P. The Goldman Sachs Group, L.P. is the general
partner, managing general partner or investment manager of these funds.
The Goldman Sachs Group, L.P. disclaims beneficial ownership of the shares
owned by these investment partnerships to the extent attributable to
partnership interests therein held by persons other than the Goldman Sachs
Group, L.P. and its affiliates. Each of these investment partnerships
shares voting and investment power with some of its respective affiliates.

(4) Consists of 2,664,000 shares held by the 1998 Wang/Chang Family Revocable
Trust, of which Mr. Chang is a trustee, and 3,648 shares issuable pursuant
to a warrant held by Alice Wang, Mr. Chang's spouse. If not previously
exercised, the warrant will expire upon the closing of the offering.

(5) Consists of 2,580,000 shares held by the 1998 Vargo Family Trust, of which
Mr. Vargo is a trustee.

(6) Consists of 393,750 shares held by the Bersin Family Trust, of which Ms.
Bersin is a trustee.

(7) Includes 3,992,716 shares held by and 1,061,100 shares issuable pursuant
to warrants held by the WK Technology Funds. Mr. Ko is the chairman of the
WK Technology Funds. Mr. Ko disclaims beneficial ownership of these shares
except to the extent of his proportional partnership interest therein.

(8) Consists of 2,127,658 shares held by The Goldman Sachs Group, L.P. and its
affiliated entities. Ms. Lin is an executive director in the Merchant
Banking Division of Goldman Sachs (Asia) Limited. Ms. Lin disclaims
beneficial ownership of these shares.

(9) Includes an aggregate of 3,992,716 shares held by the WK Technology Funds,
2,664,000 shares held by the 1998 Wang/Chang Family Revocable Trust,
2,580,000 shares held by the 1998 Vargo Family Trust, 393,750 shares held
by the Bersin Family Trust, 2,127,658 shares held by The Goldman Sachs
Group, L.P. and its affiliated entities, 1,061,100 shares issuable
pursuant to warrants held by the WK Technology Funds and 3,648 shares
issuable pursuant to a warrant held by Alice Wang.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Following the closing of the sale of the shares offered by this prospectus,
our authorized capital stock will consist of 50,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.

Common Stock

As of March 31, 1999, there were 22,301,128 shares of common stock
outstanding held of record by approximately 107 stockholders after giving
effect to the net exercise of outstanding warrants for shares of common stock,
on an as-converted basis. There will be 26,301,128 shares of common stock
outstanding after giving effect to the sale of the shares of common stock
offered by this prospectus. This number assumes no exercise of the
underwriters' over-allotment option and no exercise or conversion of
outstanding convertible securities after March 31, 1999.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully-paid and
nonassessable.

Preferred Stock

Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. Our board of directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of these series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing any change in control
without further action by the stockholders and may adversely affect the voting
and other rights of holders of common stock, and the likelihood that the
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control. At
present, we have no plans to issue any shares of preferred stock.

Registration Rights of Certain Holders

The holders of 20,823,800 shares of common stock, including 1,082,990 shares
issuable upon exercise of warrants, or their transferees are entitled to some
rights with respect to the registration of these shares under the Securities
Act. These rights are provided under the terms of an agreement between us and
the holders of registrable securities. Subject to some limitations in this
agreement, the holders of the registrable securities may require, on two
occasions at any time after one year from the effective date of this offering,
that we use our best efforts to register the registrable securities, except for
the 5,244,000 shares held by the founders, for public resale, provided that the
proposed aggregate offering price exceeds $10,000,000. If we register any of
our common stock either for our own account or for the account of other
security holders, the holders of registrable securities are entitled to include
their shares of common stock in the registration. A holder's right to include
shares in an underwritten registration is subject to the ability of the
underwriters to limit the number of shares included in this offering. All fees,
costs and expenses of such registrations must be borne by us and all selling
expenses, including underwriting discounts, selling commissions and stock
transfer taxes, relating to registrable securities must be borne by the holders
of the securities being registered.

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<PAGE>

Delaware Law and Some Charter Provisions

We are subject to the provisions of Section 203 of the Delaware Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, with some exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the stockholder, and an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own)
15% or more of the corporation's outstanding voting stock. This provision may
have the effect of delaying, deferring or preventing a change in control
without further action by the stockholders. In addition, upon completion of
this offering, some provisions of our charter documents, including a provision
eliminating the ability of stockholders to take actions by written consent,
may have the effect of delaying or preventing changes in control or
management, which could harm the market price of our common stock. Our stock
option and purchase plans generally provide for assumption of such plans or
substitution of an equivalent option of a successor corporation or,
alternatively, acceleration of vesting of shares issued pursuant to stock
grants, upon a change of control or similar event. The board of directors has
authority to issue up to 5,000,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any further vote or action by the stockholders. The
rights of the holders of the common stock will be subject to, and may be
harmed by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of our outstanding voting stock, thereby delaying,
deferring or preventing a change in control. Furthermore, this preferred stock
may have other rights, including economic rights senior to the common stock,
and, as a result, the issuance of this preferred stock could harm the market
value of the common stock. We have no present plan to issue shares of
preferred stock.

California Foreign Corporation Law

Pursuant to section 2115 of the California Corporations Code, under some
circumstances several provisions of the California Corporations Code may be
applied to foreign corporations qualified to do business in California
notwithstanding the law of the jurisdiction where the corporation is
incorporated. These corporations are referred to in this prospectus as "quasi-
California" corporations. Section 2115 applies to foreign corporations which
have more than half of their voting stock held by stockholders residing in
California and more than half of their business deriving from California,
measured on or after the 135th day of the corporation's fiscal year. If we
were determined to be a quasi-California corporation, we would have to comply
with California law with respect to, among other things, elections of
directors and distributions to stockholders. Under the California Corporations
Code, a corporation is prohibited from paying dividends unless:

(1) the retained earnings of the corporation immediately prior to the
distribution equals or exceeds the amount of the proposed distribution;
or

(2) (a) the assets of the corporation, exclusive of specific non-tangible
assets, equal or exceed 1 /1/4/ times its liabilities, exclusive of
specific liabilities; and

(b) the current assets of the corporation at least equal its current
liabilities. If the average pre-tax net earnings of the corporation
before interest expense for the two years preceding the distribution was
less than the average interest expense of the corporation for those
years, however, the current assets of the corporation must exceed 1 1/4
times its current liabilities.

Following this offering, we will be exempt from the application of Section
2115 until January 1, 2000, and thereafter in the event that more than half of
our voting stock is held by stockholders with residences outside of California
or is held by more than 800 persons.

Transfer Agent and Registrar

Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for our common stock.

59
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the common
stock. We cannot provide any assurances that a significant public market for
the common stock will develop or be sustained after this offering. Future sales
of substantial amounts of common stock in the public market, or the possibility
of such sales occurring, could adversely affect prevailing market prices for
the common stock or our future ability to raise capital through an offering of
equity securities.

After this offering, we will have outstanding 26,301,128 shares of common
stock. Of these shares, the 4,000,000 shares to be sold in this offering or
4,600,000 shares if the underwriters' over-allotment option is exercised in
full, will be freely tradable in the public market without restriction under
the Securities Act, unless such shares are held by "affiliates" of Clarent, as
that term is defined in Rule 144 under the Securities Act.

The remaining 22,301,128 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144. We
issued and sold the restricted shares in private transactions in reliance on
exemptions from registration under the Securities Act. Restricted shares may be
sold in the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act, as summarized below.

Pursuant to the "lock-up" agreements between our stockholders and either
Clarent or the underwriters, all of the holders of the restricted shares have
agreed not to offer, sell, pledge or otherwise dispose of, directly or
indirectly, or announce their intention to do the same, any common stock of
Clarent or security convertible into, or exchangeable or exercisable for any
security of Clarent for a period of 180 days from the date of this offering.
However, if the holder of the restricted shares is an individual, he or she may
transfer any such securities either during his or her lifetime or on death by
will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the holder of the securities and/or a
member of his or her immediate family. We also have entered into an agreement
with the underwriters that we will not offer, sell or otherwise dispose of
common stock for a period of 180 days from the date of this offering. On the
date of the expiration of the lock-up agreements, all of the restricted shares
will be eligible for immediate sale, of which 18,299,214 shares will be subject
to some volume, manner of sale and other limitations under Rule 144.

Following the expiration of the lock-up periods, some shares issued upon
exercise of options we granted prior to the date of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Additionally, 2,163,852 shares subject to vested options as of
the date 180 days after the completion of this offering will be available for
sale subject to compliance with Rule 701 and upon the expiration of the lock-up
periods. Rule 701 permits resales of such shares in reliance upon Rule 144
under the Securities Act but without compliance with the restrictions,
including the holding-period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, beginning 90 days
after the date of this prospectus, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of

. 1% of the then-outstanding shares of common stock or

. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

Sales under Rule 144 are also subject to some manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner who is not an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

60
<PAGE>

We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 10,831,842 shares of common
stock reserved for issuance under the 1999 amended and restated equity
incentive plan, the 1999 non-employee directors' stock option plan and the 1999
employee stock purchase plan. The registration statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of a registration statement on Form S-8, may be sold in the open market,
except for some holders, to the Rule 144 limitations applicable to affiliates,
the above-referenced lock-up agreements and vesting restrictions imposed by us.

In addition, following this offering, the holders of 20,823,800 shares of
common stock, including 1,082,990 shares issuable upon exercise of warrants,
will, under some circumstances, have rights to require us to register their
shares for future sale.

61
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc., Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc.
are acting as representatives, the following respective numbers of shares of
common stock:

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
BancBoston Robertson Stephens Inc..................................
Thomas Weisel Partners LLC.........................................
U.S. Bancorp Piper Jaffray Inc.....................................
----
Total............................................................
====
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
will pay:

<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions payable by us........
Expenses payable by us............
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We and our officers and directors and other stockholders and option holders
have agreed not to offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or, file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to any additional shares of common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.

62
<PAGE>

We have agreed to indemnify the underwriters against liabilities, under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.

We have applied to list the shares of common stock on The Nasdaq National
Market.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include:

. the information set forth in this prospectus and otherwise available to
the representatives;

. the history and the prospects for the industry in which we will compete;

. the ability of our management;

. our prospects for future earnings;

. the present state of our development and our current financial condition;

. the general condition of the securities markets at the time of this
offering; and

. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has co-managed eighteen public offerings
of equity securities and has acted as an underwriter in an additional seven
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.

The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases
of the common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
the securities originally sold by the syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. These
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

63
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that:

. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under the securities laws,

. where required by law, that the purchaser is purchasing as principal and
not as agent and

. the purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts names
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax
advisors and with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.

64
<PAGE>

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby will be
passed upon for us by Cooley Godward LLP, Palo Alto, California. The legal
matters in connection with the offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1997 and 1998 and the period from July
2, 1996 (inception) to December 31, 1996 and the years ended December 31, 1997
and 1998, as set forth in their report, included in this prospectus and
registration statement. Our consolidated financial statements are included in
this prospectus and registration statement in reliance on their report, given
on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

A registration statement on Form S-1, including amendments thereto, relating
to the common stock offered by this prospectus has been filed by us with the
Securities and Exchange Commission. This prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to us and the common stock offered by this
prospectus, reference is made to the registration statement, exhibits and
schedules. A copy of the registration statement may be inspected by anyone
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at 450 Fifth Street, NW, Judiciary Plaza, Washington,
D.C. 20549, and copies of all or any part thereof maybe obtained from the
Securities and Exchange Commission upon payment of certain fees prescribed by
the Securities and Exchange Commission. The Securities and Exchange Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information filed electronically with the Securities and
Exchange Commission. The address of the site is http://www.sec.gov.

65
<PAGE>

CLARENT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2

Consolidated Balance Sheets................................................. F-3

Consolidated Statements of Operations....................................... F-4

Consolidated Statement of Stockholders' Equity.............................. F-5

Consolidated Statements of Cash Flows....................................... F-7

Notes to Consolidated Financial Statements.................................. F-9
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Clarent Corporation

We have audited the accompanying consolidated balance sheets of Clarent
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from July 2, 1996 (inception) to December 31, 1996 and for the years ended
December 31, 1997 and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Clarent Corporation at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from July 2, 1996 (inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Palo Alto, California
February 12, 1999,
except for the second paragraph of Note 4 and Note 13, as to which the date is

June , 1999

- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon the
effectiveness of the stock split and the approval of the Certificate of
Incorporation in the state of Delaware as discussed in Note 13 to the
consolidated financial statements.

/s/ Ernst & Young LLP

Palo Alto, California

June 10, 1999

F-2
<PAGE>

CLARENT CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity at
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 474 $11,903 $ 7,267
Accounts receivable, net of
allowance for doubtful accounts
of $38, $807, and $1,204 at
December 31, 1997, December 31,
1998, and March 31, 1999,
respectively.................... 777 6,943 11,008
Inventories...................... 889 3,620 5,593
Prepaid expenses and other
current assets.................. 125 478 658
------- ------- --------
Total current assets........... 2,265 22,944 24,526
Property and equipment, net........ 543 2,233 4,078
Other assets....................... 10 -- 23
------- ------- --------
$ 2,818 $25,177 $ 28,627
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current liabilities:
Accounts payable................. $ 506 $ 2,905 $ 5,600
Line of credit................... -- 2,500 2,800
Settlement expense accrual....... 570 -- --
Deferred revenue................. 155 4,414 6,752
Other accrued liabilities........ 253 1,594 1,908
Long term debt, current portion.. -- -- 470
------- ------- --------
Total current liabilities...... 1,484 11,413 17,530
Long term debt..................... -- -- 784
Commitments
Stockholders' equity:
Convertible preferred stock,
$0.001 par value, issuable in
series (aggregate liquidation
preference of $21,119):
Authorized shares--8,000,000 at
December 31, 1997, 1998 and
March 31, 1999 and pro forma
Issued and outstanding shares--
4,220,000 in 1997, 6,864,241 in
1998 and March 31, 1999 and none
pro forma....................... 3,685 21,024 21,024 $ --
Common stock: $0.001 par value:
Authorized shares--50,000,000 at
December 31, 1997, 1998 and
March 31, 1999 and pro forma
Issued and outstanding shares--
5,401,000 in 1997, 7,129,076 in
1998, 7,489,656 as of March 31,
1999 and 21,218,138 pro forma... 27 2,746 14,622 35,646
Deferred compensation............. -- (1,771) (11,645) (11,645)
Notes receivable from
stockholders..................... (9) -- -- --
Accumulated other comprehensive
loss............................. (34) (68) (42) (42)
Accumulated deficit............... (2,335) (8,167) (13,646) (13,646)
------- ------- -------- -------
Total stockholders' equity..... 1,334 13,764 10,313 $10,313
------- ------- -------- =======
$ 2,818 $25,177 $ 28,627
======= ======= ========
</TABLE>
See accompanying notes.

F-3
<PAGE>

CLARENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Period from
July 2, 1996 Year ended Three Months Ended
(inception) to December 31, March 31,
December 31, ---------------- -----------------------
1996 1997 1998 1998 1999
-------------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ -- $ 3,359 $14,647 $2,396 $ 6,714
Cost of revenue......... -- 1,189 6,653 780 3,281
----- ------- ------- ------ -------
Gross profit........ -- 2,170 7,994 1,616 3,433
Operating expenses:
Research and
development.......... 136 1,044 3,356 540 1,566
Sales and marketing... -- 2,046 7,099 1,182 4,025
General and
administrative....... 140 639 2,484 176 1,357
Amortization of
compensation......... -- -- 879 2 1,980
Settlement expense.... -- 570 -- -- --
----- ------- ------- ------ -------
Total operating
expenses........... 276 4,299 13,818 1,900 8,928
----- ------- ------- ------ -------
Loss from operations.... (276) (2,129) (5,824) (284) (5,495)
Other income (expense):
Interest and other
income............... -- 70 204 11 61
Interest expense...... -- -- (172) (51) (45)
----- ------- ------- ------ -------
Total other income
(expense).......... -- 70 32 (40) 16
----- ------- ------- ------ -------
Loss before income tax-
es..................... (276) (2,059) (5,792) (324) (5,479)
Provision for income
taxes.................. -- -- (40) -- --
----- ------- ------- ------ -------
Net loss................ $(276) $(2,059) $(5,832) $ (324) $(5,479)
===== ======= ======= ====== =======
Historical basic and
diluted net loss per
share.................. N/A $ (2.14) $ (1.65) $(0.14) $ (1.00)
===== ======= ======= ====== =======
Shares used to compute
historical basic and
diluted net loss per
share.................. -- 962 3,544 2,326 5,481
===== ======= ======= ====== =======
Pro forma basic and di-
luted net loss per
share.................. $ (0.42) $(0.03) $ (0.29)
======= ====== =======
Shares used to compute
pro forma basic and di-
luted net loss per
share.................. 14,048 10,768 19,210
======= ====== =======
</TABLE>

See accompanying notes.

F-4
<PAGE>

CLARENT CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)

<TABLE>
<CAPTION>
Convertible Notes Accumulated
Preferred Stock Common Stock Receivable Other
---------------- ------------------ Deferred from Comprehensive Comprehensive Accumulated
Shares Amount Shares Amount Compensation Stockholders Loss Loss Deficit
--------- ------ ---------- ------ ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
restricted common
stock to founders
in exchange for
cash, technology,
debt forgiveness
and stockholder
receivables...... -- $ -- 7,400,000 $37 $ -- $(11) $ -- $-- $ --
Issuance of
Series A
convertible
preferred stock,
net of issuance
costs of $8...... 1,000,000 492 -- -- -- -- -- -- --
Net loss......... -- -- -- -- -- -- -- -- (276)
--------- ----- ---------- --- ----- ---- ------- ---- ------
Balances as of
December 31,
1996............. 1,000,000 492 7,400,000 37 -- (11) -- -- (276)
Issuance of
Series B
convertible
preferred stock,
net of issuance
costs of $27..... 3,220,000 3,193 -- -- -- -- -- -- --
Exercise of
common stock
options.......... -- -- 1,000 -- -- -- -- -- --
Repurchase of
common stock..... -- -- (2,000,000) (10) -- 2 -- -- --
Comprehensive
income:
Net loss........ -- -- -- -- -- -- $(2,059) -- (2,059)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- (34) (34) --
-------
Comprehensive
loss............. -- -- -- -- -- -- $(2,093) -- --
--------- ----- ---------- --- ----- ---- ======= ---- ------
Balances as of
December 31, 1997
(carried
forward)......... 4,220,000 3,685 5,401,000 27 -- (9) (34) (2,335)
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Issuance of
restricted common
stock to founders
in exchange for
cash, technology,
debt forgiveness
and stockholder
receivables...... $ 26
Issuance of
Series A
convertible
preferred stock,
net of issuance
costs of $8...... 492
Net loss......... (276)
-------------
Balances as of
December 31,
1996............. 242
Issuance of
Series B
convertible
preferred stock,
net of issuance
costs of $27..... 3,193
Exercise of
common stock
options.......... --
Repurchase of
common stock..... (8)
Comprehensive
income:
Net loss........ (2,059)
Foreign currency
translation
adjustment...... (34)
Comprehensive
loss............. --
-------------
Balances as of
December 31, 1997
(carried
forward)......... 1,334
</TABLE>

See accompanying notes.

F-5
<PAGE>

CLARENT CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(in thousands, except share amounts)

<TABLE>
<CAPTION>
Convertible Notes Accumulated
Preferred Stock Common Stock Receivable Other
----------------- ------------------ Deferred from Comprehensive Comprehensive Accumulated
Shares Amount Shares Amount Compensation Stockholders Loss Loss Deficit
--------- ------- --------- ------- ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1997
(brought
forward)......... 4,220,000 $ 3,685 5,401,000 $ 27 $ -- $ (9) $(34) $ (2,335)
Issuance of
Series C
convertible
preferred stock,
net of issuance
costs of $159.... 2,278,650 14,834 -- -- -- -- $ -- -- --
Issuance of
Series C
preferred stock
for settlement
expense.......... 45,592 300 -- -- -- -- -- -- --
Conversion of
Series C bridge
notes and related
accrued interest
of $56 to Series
C preferred
stock, net of
issuance costs of
$129............. 319,999 1,977 -- -- -- -- -- -- --
Issuance of
warrants in
conjunction with
Series C bridge
financing........ -- 228 -- -- -- -- -- -- --
Exercise of
common stock
options.......... -- -- 1,064,748 36 -- -- -- -- --
Exercise of
common stock
warrants......... -- -- 768,328 38 -- -- -- -- --
Repurchase of
common stock..... -- -- (105,000) (5) -- -- -- -- --
Forgiveness of
stockholder notes
receivable....... -- -- -- -- -- 9 -- -- --
Deferred
compensation
related to grant
of stock
options.......... -- -- -- 2,293 (2,293) -- -- -- --
Compensation
related to
issuance of
warrants for
services......... -- -- -- 357 -- -- -- -- --
Amortization of
deferred
compensation..... -- -- -- -- 522 -- -- -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- $(5,832) -- (5,832)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- (34) (34) --
-------
Comprehensive
loss............. -- -- -- -- -- -- $(5,866) -- --
--------- ------- --------- ------- -------- ----- ======= ---- --------
Balances as of
December 31,
1998............. 6,864,241 21,024 7,129,076 2,746 (1,771) -- (68) (8,167)
Exercise of
common stock
options
(unaudited)...... -- -- 360,580 22 -- -- -- -- --
Deferred
compensation
related to grant
of stock options
(unaudited)...... -- -- -- 11,145 (11,145) -- -- -- --
Compensation
related to
issuance of
warrants for
services
(unaudited)...... -- -- -- 709 -- -- -- -- --
Amortization of
deferred
compensation
(unaudited)...... -- -- -- -- 1,271 -- -- -- --
Comprehensive
loss:
Net loss
(unaudited)..... -- -- -- -- -- -- (5,479) -- (5,479)
Foreign currency
translation
adjustment
(unaudited)..... -- -- -- -- -- -- 26 26 --
-------
Comprehensive
loss
(unaudited)...... -- -- -- -- -- -- $(5,453) -- --
--------- ------- --------- ------- -------- ----- ======= ---- --------
Balance as of
March 31, 1999
(unaudited)...... 6,864,241 $21,024 7,489,656 $14,622 $(11,645) $ -- $(42) $(13,646)
========= ======= ========= ======= ======== ===== ==== ========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balances as of
December 31, 1997
(brought
forward)......... $ 1,334
Issuance of
Series C
convertible
preferred stock,
net of issuance
costs of $159.... 14,834
Issuance of
Series C
preferred stock
for settlement
expense.......... 300
Conversion of
Series C bridge
notes and related
accrued interest
of $56 to Series
C preferred
stock, net of
issuance costs of
$129............. 1,977
Issuance of
warrants in
conjunction with
Series C bridge
financing........ 228
Exercise of
common stock
options.......... 36
Exercise of
common stock
warrants......... 38
Repurchase of
common stock..... (5)
Forgiveness of
stockholder notes
receivable....... 9
Deferred
compensation
related to grant
of stock
options.......... --
Compensation
related to
issuance of
warrants for
services......... 357
Amortization of
deferred
compensation..... 522
Comprehensive
loss:
Net loss........ (5,832)
Foreign currency
translation
adjustment...... (34)
Comprehensive
loss............. --
-------------
Balances as of
December 31,
1998............. 13,764
Exercise of
common stock
options
(unaudited)...... 22
Deferred
compensation
related to grant
of stock options
(unaudited)...... --
Compensation
related to
issuance of
warrants for
services
(unaudited)...... 709
Amortization of
deferred
compensation
(unaudited)...... 1,271
Comprehensive
loss:
Net loss
(unaudited)..... (5,479)
Foreign currency
translation
adjustment
(unaudited)..... 26
Comprehensive
loss
(unaudited)...... --
-------------
Balance as of
March 31, 1999
(unaudited)...... $10,313
=============
</TABLE>

See accompanying notes.

F-6
<PAGE>

CLARENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Period from
July 2, 1996 Year ended Three Months Ended
(inception) to December 31, March 31,
December 31, ---------------- -----------------------
1996 1997 1998 1998 1999
-------------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $(276) $(2,059) $(5,832) $ (324) $(5,479)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation.......... 9 82 516 53 346
Amortization of
compensation......... -- -- 879 2 1,980
Interest expense from
warrant issued in
conjunction with
Series C bridge
notes................ -- -- 99 33 --
Preferred stock issued
for interest
payable.............. -- -- 56 -- --
Forgiveness of
stockholder notes
receivable........... -- -- 9 -- --
Changes in operating
assets and
liabilities:
Accounts
receivable......... -- (777) (6,166) (1,701) (4,065)
Inventories......... -- (889) (2,731) (710) (1,973)
Prepaid expenses and
other current
assets............. (1) (124) (353) (12) (180)
Other assets........ (10) 1 10 3 (20)
Accounts payable and
accrued
liabilities........ 2 1,324 3,440 538 3,019
Deferred revenue.... -- 155 4,259 583 2,338
----- ------- ------- ------- -------
Net cash used in operat-
ing activities......... (276) (2,287) (5,814) (1,535) (4,034)
Investing activities
Purchases of property
and equipment.......... (95) (555) (2,207) (103) (2,191)
Financing activities
Proceeds from line of
credit................. -- -- 2,500 -- 300
Proceeds from issuance
of long term debt...... -- -- -- -- 1,254
Proceeds from Series C
bridge notes........... -- -- 2,600 2,600 --
Principal payment on Se-
ries C bridge notes.... -- -- (550) -- --
Proceeds from issuance
of common stock........ 37 (8) 69 12 22
Net proceeds from issu-
ance of preferred
stock.................. 492 3,193 14,834 -- --
Issuance of stockholder
notes receivable....... (11) -- -- -- --
----- ------- ------- ------- -------
Net cash provided by fi-
nancing activities..... 518 3,185 19,453 2,612 1,576
----- ------- ------- ------- -------
Effect of exchange rate
changes on cash and
cash equivalents....... -- (16) (3) (6) 13
----- ------- ------- ------- -------
Net increase (decrease)
in cash and cash equiv-
alents................. 147 327 11,429 968 (4,636)
Cash and cash
equivalents at
beginning of period.... -- 147 474 474 11,903
----- ------- ------- ------- -------
Cash and cash equiva-
lents at end of peri-
od..................... $ 147 $ 474 $11,903 $ 1,442 $ 7,267
===== ======= ======= ======= =======
</TABLE>
See accompanying notes.

F-7
<PAGE>

CLARENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)

<TABLE>
<CAPTION>
Period from
July 2, 1996 Three Months
(inception) Year ended Ended
to December 31, March 31,
December 31, ------------- -----------------------
1996 1997 1998 1998 1999
------------ ------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of
cash flow information
Cash paid for interest...... $-- $ -- $ 28 $-- $ 45
==== ===== ======= ==== ====
Supplemental disclosure of
noncash financing
activities
Issuance of common stock for
technology................. $ 37 $ -- $ -- $-- $--
==== ===== ======= ==== ====
Issuance of common stock for
note receivable............ $ 11 $ -- $ -- $-- $--
==== ===== ======= ==== ====
Repurchase of common stock
in exchange for forgiveness
of note receivable......... $-- $ 2 $ -- $-- $--
==== ===== ======= ==== ====
Conversion of bridge notes
to Series C preferred
stock, less unamortized
cost of related preferred
stock warrant.............. $-- $ -- $ 1,921 $-- $--
==== ===== ======= ==== ====
Issuance of preferred stock
for settlement expense..... $-- $ -- $ 300 $-- $--
==== ===== ======= ==== ====
</TABLE>

See accompanying notes.

F-8
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

1. The Company and Summary of Significant Accounting Policies

The Company

Clarent Corporation was incorporated in the state of California on July 2,
1996. The Company is a provider of Internet protocol based technology for the
delivery of telecommunication services over public and private networks.

The Company has incurred operating losses to date, including a net loss of
approximately $5,832,000 for the year ended December 31, 1998.

The Company anticipates additional equity funding will be needed in order to
finance its expected operations for the year ending December 31, 1999, as well
as to fund its existing obligations. If additional equity funding is not
available, management believes, based on anticipated obligations, that
available resources will be sufficient to enable the Company to meet its
obligations through at least December 31, 1999. If anticipated operations are
not achieved, management has the intent and believes it has the ability to
delay or reduce expenditures so as not to require additional financial
resources if such resources were not available.

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company has export sales from the United States and
has operations in Taiwan and the United Kingdom. All significant intercompany
transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized at the time of shipment of the products and when no
significant contractual obligations or acceptance terms, if any, remain
outstanding and collection of the resulting receivable is deemed probable.
Shipment of evaluation products are not recognized as revenue until acceptance
by the customer. Revenue from services is recognized when the services are
performed. Amounts billed or received in advance of satisfying revenue
recognition criteria are classified as deferred revenue in the accompanying
balance sheets.

Concentrations of Credit Risk and Credit Evaluations

Financial instruments which subject the Company to concentrations of credit
risk primarily consist of cash and trade accounts receivable. The Company
maintains its cash and cash equivalents principally in domestic financial
institutions of high-credit standing. The Company's receivables are derived
primarily from sales of software and hardware products and services to
companies primarily in the domestic and international telecommunications arena.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Reserves are maintained for potential credit
losses and such losses to date have been within management's expectations.

A limited number of customers have historically accounted for a substantial
portion of the Company's revenue. Two customers accounted for 44% and 35% of
the Company's revenue for the year ended December 31, 1997. Two customers
accounted for 36% and 12% of net revenue for the year ended December 31, 1998.

F-9
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Sales of the Company's products and contracts for its technology will vary as a
result of fluctuations in market demand for such products and technology.
Further, the markets in which the Company competes are characterized by rapid
technological change and increasing competition.

Cash Equivalents

Cash equivalents consist of money market funds. For purposes of the
accompanying statements of cash flows, the Company considers all such liquid
instruments with an original maturity date of three months or less to be cash
equivalents. The fair value, based on quoted market prices of the cash
equivalents, is substantially equal to their carrying value at December 31,
1997 and 1998 and March 31, 1999.

Inventories

Inventories are stated at the lower of cost or market on a first-in, first-
out basis. Inventories consist of the following:

<TABLE>
<CAPTION>
December
31,
----------- March 31,
1997 1998 1999
---- ------ ---------
(in thousands)
<S> <C> <C> <C>
Raw materials...................................... $392 $2,529 $4,018
Finished goods..................................... 497 1,091 1,575
---- ------ ------
$889 $3,620 $5,593
==== ====== ======
</TABLE>

Property and Equipment

The Company records computer equipment and furniture at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years.

Software Development Costs

Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Costs incurred by the Company
between the establishment of technological feasibility and the point at which
the product is ready for general release have been insignificant. Accordingly,
the Company has charged all such costs to research and development expenses in
the accompanying statements of operations.

Stock-Based Compensation

The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123).

Advertising Expenses

The Company expenses advertising costs in the period in which they are
incurred. Advertising expenses for 1996, 1997, 1998, and the three months ended
March 31, 1998 and 1999 were approximately $0, $319,000, $706,000, $127,000,
and $472,000, respectively.

F-10
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Foreign Currency Translation

Assets and liabilities of the Company's wholly owned foreign subsidiaries
are translated from their respective functional currencies at exchange rates in
effect at the balance sheet date, and revenues and expenses are translated at
average exchange rates prevailing during the year. Resulting translation
adjustments are reflected as a separate component of stockholders' equity.
Foreign currency transaction gains and losses, which have been immaterial, are
included in results of operations.

Comprehensive Income (Loss)

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes new rules for the reporting and display of comprehensive income
and its components, requiring foreign currency translation adjustments, which
currently are reported in stockholders' equity, to be included in other
comprehensive income/loss. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130. At December 31,
1997 and 1998, and March 31, 1999, the Company's accumulated other
comprehensive loss consisted entirely of cumulative translation adjustments.

Interim Financial Information

The interim financial information at March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited but, in the opinion of management,
includes all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentation of the financial
position and results of operations for the interim periods. The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full fiscal year.

Recent Accounting Pronouncements

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires companies to capitalize certain
qualifying computer software costs which are incurred during the application
development stage and amortize them over the software's estimated useful life.
The Company adopted SOP 98-1 effective January 1, 1999. Adoption of SOP 98-1
did not have a material effect on the Company's consolidated financial position
or results of operations.

In December 1998, the AICPA issued Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). SOP 98-9 requires use of the "residual method" for
recognition of revenue when vendor-specific objective evidence (VSOE) exists
for undelivered elements but does not exist for delivered elements of a
software arrangement. The Company will be required to comply with the
provisions of SOP 98-9 for transactions entered into beginning January 1, 2000.

2. Related Party Transactions

In June 1997, the Company entered into an agreement for advisory services
with WK Technology Fund, a Taiwanese corporation, one of whose principals is a
member of the Company's board of directors. The advisory services primarily
relate to business strategy for the Company and are to be performed over a
four-year term. As consideration for the advisory services, the Company granted
to WK Technology Fund a warrant

F-11
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

to purchase up to 1,400,000 shares of the Company's common stock at an exercise
price of $0.05 per share. On the 6-month anniversary of the warrant effective
date, 175,000 of the warrants vested with the remaining warrants vesting
ratably over the subsequent 42 months or immediately 30 days prior to the
closing of the Company's public offering. The warrant has a life of five years.
The Company has valued the warrant using the guidance in the Financial
Accounting Standards Board's Emerging Issues Task Force Issue 96-18. The value
of the warrant was determined using the Black-Scholes valuation method. The
inputs used included the exercise price of the warrant of $0.05, the value of
the Company's common stock at each vesting date, expected dividend yield of 0%,
risk free interest rate of 6.0%, expected volatility of 0.3 and the contractual
life of the warrant of five years. The Company has recorded compensation
charges totaling $0 (amount was $3,000), $357,000 and $709,000 for the years
ended December 31, 1997, 1998 and the three months ended March 31, 1999,
respectively. These amounts are included in amortization of compensation
charges in the consolidated statement of operations. The Company terminated the
advisory services arrangement in June 1999 which caused the unvested portion of
the warrants to become fully vested. In connection with this termination, the
Company will record a compensation charge totaling approximately $10.6 million
in the quarter ending June 30, 1999. During 1998, WK Technology Fund exercised
the option to purchase 408,328 shares of the Company's common stock under this
warrant.

Also in June 1997, the Company entered into another agreement for certain
services with WK Technology Fund. These services were to assist the Company in
identifying, evaluating, and recommending an outside director for the Company.
Under the terms of this agreement, the Company is to grant to WK Technology
Fund a fully vested warrant to purchase up to 360,000 shares of the Company's
common stock at $0.05 per share upon the successful identification, evaluation,
and recommendation of an outside director of the Company. In February 1998, WK
Technology Fund was successful in obtaining an outside director for the
Company, and was granted the aforementioned warrant. The fair market value of
the Company's common stock on the date of this grant was $0.05 per share.
During 1998, WK Technology Fund exercised the option to purchase 360,000 shares
of the Company's common stock under this warrant.

In December 1998, the Company issued a warrant to purchase up to 101,000
shares of the Company's Series C preferred stock to both WK Technology Fund and
another Series C investor. These warrants are only exercisable upon the early
conversion of Series C preferred stock into common stock by certain other
Series C preferred stock investors. Upon such an event, one warrant for 101,000
shares will become exercisable and the other warrant for 101,000 shares will be
canceled. The warrants have an exercise price of $6.58 per share, and have a
contractual life of five years. As of December 31, 1998 and March 31, 1999, no
value was ascribed to these warrants as they are only exercisable based on
future events which are not currently deemed probable. These warrants will
expire unexercised upon the closing of the Company's Initial Public Offering.

3. Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1997 1998 1999
------ ------- ---------
(in thousands)
<S> <C> <C> <C>
Computer hardware and software........................ $ 473 $ 1,415 $2,130
Office equipment, furniture, and fixtures............. 108 1,204 2,072
Leasehold improvements................................ 53 221 829
----- ------- ------
634 2,840 5,031
Less accumulated depreciation and amortization........ (91) (607) (953)
----- ------- ------
$ 543 $ 2,233 $4,078
===== ======= ======
</TABLE>

4. Short-Term Borrowings

In February 1998, the Company obtained $2,600,000 in bridge financing from
certain investors and other parties. The financing was obtained via promissory
notes convertible into shares of the Company's Series C

F-12
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

preferred stock issued by the Company at the option of the note holders. In
conjunction with this bridge financing, the Company issued to the bridge
financing investors warrants to purchase 59,266 shares of the Company's Series
C preferred stock at an exercise price of $5.593 per share (including a
discount of 15%). The warrants have a contractual life of 10 years. As of the
date of this grant, the value ascribed to the warrants (using the Black-Scholes
valuation method with the following assumptions; expected life of 10 years,
exercise price of $5.593, stock price on date of grant of $6.58, expected
dividend yield of 0%, risk-free interest rate of 6%, and expected volatility of
.3) was approximately $228,000, of which approximately $99,000 was recorded by
the Company as additional interest expense over the period the debt was
outstanding. The remaining $129,000 was recorded as issuance costs upon the
conversion to Series C preferred stock. The effective interest rate of the
bridge promissory notes, as adjusted for the ascribed value of the bridge
financing warrants, was approximately 24.3%. In June 1998, $2,050,000 of the
bridge financing and approximately $56,000 of related accrued interest was
converted into 319,999 shares of the Company's Series C preferred stock. The
Company repaid the remaining $550,000 of the bridge financing and all related
accrued interest in June 1998.

In May 1998, the Company established a $5,000,000 line of credit with a
financial institution. The interest rate on this credit facility is variable
and is equal to one-half of one percentage point above the prime rate (8.5% in
total at December 31, 1998). Under the terms of this arrangement, the Company
is to pay an additional, pro-rated fee of 0.4% of all advances drawn in excess
of $3,000,000. In addition, borrowings under this arrangement are limited to
the Company's eligible receivable base. The terms of the line-of-credit
agreement establish certain affirmative and negative covenants, under which the
Company must maintain certain financial ratios and corporate reporting
practices, respectively. The Company failed to meet certain financial ratios
required to be maintained under the line of credit agreement as of December 31,
1998. The financial institution waived these events of default. On February 16,
1999, the financial institution increased the line of credit, to $7,000,000 and
revised the ratios. At March 31, 1999, the Company failed to meet certain
financial ratio covenants. The financial institution waived these events of
default and renegotiated new covenants. Borrowings under the line of credit are
secured by substantially all assets of the Company. At December 31, 1998 and
March 31, 1999, $2,500,000 and $2,800,000 was outstanding under this line of
credit, respectively. The line of credit agreement expires February 16, 2000.

5. Long-Term Debt

In February 1999, the Company entered into a $3,000,000 equipment term loan
facility. The loan bears interest at the bank's prime rate plus .75%. Under the
terms of the agreement, the Company grants a security interest in certain
assets of the Company and must maintain financial covenants (see Note 4) with
which the Company was not in compliance as of March 31, 1999. The financial
institution waived these events of default and renegotiated new covenants.
Borrowings and interest are repayable in installments over 24-27 months. As of
March 31, 1999, there was approximately $1,254,000 outstanding against the term
loan facility.

Maturities under these agreements are as follows:

<TABLE>
<CAPTION>
As of
March 31, 1999
--------------
(In thousands)
<S> <C>
1999 (nine months)........ $ 366
2000...................... 627
2001...................... 261
------
$1,254
======
</TABLE>

F-13
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

6. Settlement Expense

In November 1997, Wherever Computer Technology Co., Ltd. ("Wherever") filed
a complaint against the Company seeking to enforce a distributorship agreement
between Wherever and the Company or, in the alternative, for damages claimed in
connection with the breach of the distributorship agreement. On February 13,
1998, the Company's board of directors approved a settlement agreement with
Wherever. Under the terms of the agreement, the Company made an initial cash
payment to Wherever of $50,000, a cash payment to Wherever of $200,000 in
September 1998 and granted Wherever a 5% increase in the existing discount
Wherever receives applicable to a specific quantity of purchases of the
Company's products. In addition, under the terms of the settlement agreement,
the Company issued 45,592 shares of Series C preferred stock to Wherever at
$6.58 per share on August 12, 1998.

7. Income Taxes

The provision for income taxes of approximately $40,000 for 1998 consists
entirely of foreign income taxes provided on the profits attributable to the
Company's foreign operations. Pretax income (loss) from foreign operations was
$0 for the period from July 2, 1996 (inception) to December 31, 1996 and
approximately ($6,000) and $81,000 for 1997 and 1998, respectively. Due to
operating losses and the Company's inability to recognize an income tax benefit
from these losses, there is no provision for income taxes for 1997 or 1996.

The difference between the provision for income taxes and the amount
computed by applying the Federal statutory income tax rate (34%) to income
before taxes is explained below:

<TABLE>
<CAPTION>
Period from
July 2, 1996
(inception) Year ended
to December 31,
December 31, --------------
1996 1997 1998
------------ ----- -------
(in thousands)
<S> <C> <C> <C>
Tax (benefit) at Federal statutory rate.......... $(94) $(700) $(1,969)
Loss for which no tax benefit is currently
recognizable.................................... 94 700 1,969
Foreign tax...................................... -- -- 40
---- ----- -------
Total provision.................................. $-- $ -- $ 40
==== ===== =======
</TABLE>

Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
(in
thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 524 $ 798
Tax credit carryforwards....................................... -- 200
Deferred revenue............................................... -- 1,061
Accruals and reserves not currently deductible................. 376 1,092
----- -------
Total deferred tax assets....................................... 900 3,151
Valuation allowance............................................. (900) (3,151)
----- -------
Net deferred tax assets......................................... $ -- $ --
===== =======
</TABLE>

F-14
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon the weight of available evidence, which includes the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.

The valuation allowance increased by $800,000 and $2,251,000 during the
years ended December 31, 1997, and 1998, respectively.

As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $2,000,000 and $1,400,000, respectively. As
of December 31, 1998, the Company also had research and development tax credit
carryforwards of approximately $200,000. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2004 through 2018, if
not utilized.

Utilization of the pre 1998 net operating loss and tax credit carryforwards
is subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation results in the expiration of an immaterial amount of 1996
net operating loss carryforwards before utilization. Future ownership changes
may also subject the post 1997 net operating loss and tax credit carryforwards
to an annual limitation on utilization.

8. Employee Benefit Plan

The Company has a pretax savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan, participating employees may defer up
to 25% of their pretax salary but not more than statutory limits. The Company
may elect to make matching contributions to the plan. For the period from July
2, 1996 (inception) to December 31, 1996, and for the years ended December 31,
1997 and 1998, and the three months ended March 31, 1999, the Company made no
matching contributions and incurred immaterial expenses related to the plan.

9. Commitments

Leases

The Company leases its principal office under a noncancelable operating
lease agreement that expires in 2003. As of December 31, 1998, minimum lease
payments under all noncancelable lease agreements with initial terms in excess
of one year were as follows (in thousands):

<TABLE>
<CAPTION>
Operating
Year ended December 31, Leases
----------------------- ---------
<S> <C>
1999........................................................... $1,298
2000........................................................... 848
2001........................................................... 821
2002........................................................... 836
2003........................................................... 857
------
Total minimum lease payments.................................... $4,660
======
</TABLE>

Rent expense was approximately $24,000 for the period from July 2, 1996
(inception) to December 31, 1996, $81,000 and $492,000 for the years ended
December 31, 1997 and 1998, and $27,000 and $356,000 for

F-15
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

the three months ended March 31, 1998 and 1999, respectively. At December 31,
1998, the Company's aggregate future minimum rentals to be received under
noncancelable subleases is approximately $350,000.

10. Stockholders' Equity

Convertible Preferred Stock

Convertible Preferred Stock is as follows:

<TABLE>
<CAPTION>
Shares Issued and Outstanding
-----------------------------
December 31,
Authorized ------------------- March 31,
Series Shares 1997 1998 1999
- ------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
A..................................... 1,000,000 1,000,000 1,000,000 1,000,000
B..................................... 3,220,000 3,220,000 3,220,000 3,220,000
C..................................... 2,750,000 -- 2,644,241 2,644,241
Undesignated.......................... 1,030,000 -- -- --
--------- --------- --------- ---------
Total Preferred Stock.................. 8,000,000 4,220,000 6,864,241 6,864,241
========= ========= ========= =========
</TABLE>

Each share of Series A, B, and C preferred stock is convertible into common
stock at the exchange rate in effect at the time of conversion, currently two-
for-one, and is subject to adjustment for common stock splits, stock dividends,
and similar transactions. Conversion is automatic upon the closing of an
initial public offering of common stock in which the aggregate gross proceeds
to the Company are at least $20,000,000 with a minimum offering price of $10.00
per share.

Each holder of Series A, B, and C preferred stock is entitled to the number
of votes equal to the number of shares of common stock into which such
preferred stock is convertible. For so long as at least 500,000 shares of
Series C preferred stock (subject to adjustment for any stock split, reverse
split, or other similar event affecting the Series C preferred stock) remain
outstanding, the vote or written consent of at least a majority of the Series C
preferred stock, voting as a separate series, shall be required to effect or
validate specified corporate actions. For so long as at least 250,000 and
500,000 shares of Series A and Series B preferred stock (as adjusted),
respectively, remain outstanding, the vote or written consent of the holders of
the majority of the Series A and Series B preferred stock shall be required to
effect or validate specified corporate actions. In certain instances, Series A
and Series B vote together as a single series.

Each holder of Series C preferred stock is entitled to receive, in
preference to the holders of any Series A and Series B preferred stock and
common stock, when and as declared by the board of directors, noncumulative
cash dividends at an annual rate of $0.53 per share of Series C preferred
stock. Thereafter, each holder of Series A and Series B preferred stock is
entitled to receive, in preference to any holder of common stock, when and as
declared by the board of directors, noncumulative cash dividends at an annual
rate of $0.04 and $0.08 per share, respectively, on a pari passu basis.

In the event of liquidation, before any distribution or payment is made to
holders of Series A and Series B preferred stock, the holders of Series C
preferred stock shall be entitled to a liquidation preference equal to $6.58
per share, plus all declared and unpaid dividends. Thereafter, before any
distribution or payment is made to holders of common stock, the holders of
Series A and Series B preferred stock shall be entitled to receive $0.50 and
$1.00, respectively, plus all declared and unpaid dividends. Any remaining
assets shall be distributed on a pro rata basis among the holders of common
stock.

F-16
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Common Stock

In July 1996, 7,400,000 shares of common stock were issued to the Company's
three founders, one of whom subsequently left the Company, at $0.005 per share
in exchange for cash, software architecture technology ($10,000), debts owed by
the Company ($15,914) to the founders and stockholder notes receivable
($11,086). The notes accrue interest at a rate of 7% per year and are due and
payable on July 15, 2005, with interest payable annually. The outstanding
shares are subject to certain transfer restrictions through June 1999. These
shares are subject to repurchase at the issuance price upon the occurrence of
certain events, including termination of employment. The Company's right of
repurchase expires ratably over four years. In June 1997, 2,000,000 shares
issued to a founder who left the Company were repurchased. At December 31, 1998
and March 31, 1999, 5,400,000 shares issued to the two remaining founders
remain outstanding and 1,996,876 shares and 1,631,250 shares, respectively
remain subject to repurchase. The two remaining founders each hold 2,700,000
shares which have the same material terms.

Stock Option Plan

During 1996, the Company adopted the 1996 Stock Option Plan ("Option Plan").
Under the Option Plan, an aggregate of up to 10,503,000 shares of the Company's
common stock may be granted to directors, employees, and certain consultants.
During 1998, the board of directors approved the increase of options available
under the Option Plan by 3,303,000 shares. Under the Option Plan, options to
purchase common stock may be granted at no less than 85% of the fair value on
the date of the grant (110% of fair value in certain instances), as determined
by the board of directors. Options generally vest and become exercisable as to
25% of the shares one year from the date of grant and the balance in monthly
increments over the subsequent three years of service. Options have a maximum
term of 10 years. Certain stock options ("Performance Options") issued under
the Option Plan vest over a time period determined by the board of directors;
however, the vesting could be accelerated based on achievement of certain
performance criteria. As of December 31, 1998, the board of directors has
granted Performance Options to purchase 492,000 shares of common stock to
certain employees at an exercise price equal to the fair market value on the
date of grant. For the three months ended March 31, 1999, the Company granted
performance options to purchase 262,000 shares of common stock. These options
vest in seven years, but the vesting could be accelerated based on the
achievement of the performance criteria. The accelerated vesting schedule
provides that the grants will vest ratably over a 48 month term.

A summary of activity under the Option Plan is as follows:

<TABLE>
<CAPTION>
Options Outstanding
Shares ------------------------ Weighted-
Available Number of Price Average
for Grant Shares Per Share Exercise Price
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Authorized............... 7,200,000 -- -- --
Granted.................. (380,000) 380,000 $ 0.025 $ 0.025
---------- ----------
Balance at December 31,
1996..................... 6,820,000 380,000 $ 0.025 $ 0.025
Granted.................. (5,040,000) 5,040,000 $0.025-$0.05 $ 0.032
Exercised................ -- (1,000) $ 0.25 $ 0.25
Canceled................. 400,000 (400,000) $0.025-$0.05 $ 0.038
---------- ----------
Balance at December 31,
1997..................... 2,180,000 5,019,000 $0.025-$0.05 $0.0285
Authorized............... 3,303,000 -- -- --
Granted.................. (3,030,896) 3,030,896 $ 0.05-$1.00 $ 0.62
Exercised................ -- (1,064,748) $0.025-$1.00 $ 0.035
Canceled................. 511,500 (511,500) $ 0.05-$0.35 $ 0.13
---------- ----------
Balance at December 31,
1998..................... 2,963,604 6,473,648 $0.025-$1.00 $ 0.305
Granted.................. (1,522,900) 1,522,900 $3.00-$10.00 $ 5.30
Exercised................ -- (360,580) $ 0.05-$3.00 $ 0.12
Canceled................. 4,126 (4,126) $ 0.10 $ 0.10
---------- ----------
Balance at March 31,
1999..................... 1,444,830 7,631,842 $0.05-$10.00 $ 0.80
========== ==========
</TABLE>

F-17
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

The following table summarizes information concerning options outstanding
and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Number of Average Contractual Number of Average
Exercise Price Shares Exercise Price Life Shares Exercise Price
- -------------- --------- -------------- ----------- --------- --------------
(in years)
<S> <C> <C> <C> <C> <C>
$0.025.......... 1,608,796 $0.025 8.22 324,206 $0.025
$0.05........... 2,491,252 $0.05 8.87 356,344 $0.05
$0.35........... 520,500 $0.35 9.55 61,166 $0.35
$0.75........... 929,100 $0.75 9.68 -- --
$1.00........... 924,000 $1.00 9.84 -- --
--------- -------
6,473,648 741,716
========= =======
</TABLE>

Deferred Compensation

The Company has recorded deferred compensation charges of approximately
$2,293,000 for the year ended December 31, 1998 and $7,657,000 for the three
months ended March 31, 1999, for the difference between the exercise price and
the deemed fair value of certain stock options granted by the Company. These
amounts are being amortized as charges to operations, using the graded method,
over the vesting periods of the individual stock options, generally four years.
Under the graded method, approximately 59%, 25%, 12% and 4% respectively of
each options compensation expense is recognized in each of the four years
following the date of grant.

Pro Forma Disclosure of the Effect of Stock-Based Compensation

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

In fiscal 1996, 1997 and 1998, the fair value of each option grant was
estimated on the date of grant using the minimum value method with the
following weighted average assumptions:

<TABLE>
<CAPTION>
December 31,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................. 6.00% 6.00% 5.40%
Expected life of option in years......................... 4.00 4.00 4.21
Expected dividend yield.................................. -- -- --
</TABLE>

F-18
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for awards under
this plan consistent with the method provided for under FAS 123, then the
Company's net loss and loss per share would have been as indicated in the pro
forma amounts below:

<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1996 1997 1998
----- ------- -------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Net loss as reported............................. $(276) $(2,059) $(5,832)
Pro forma net loss............................... (276) $(2,064) $(5,869)
Net loss per shares as reported
Basic and diluted.............................. N/A $ (2.14) $ (1.65)
Pro forma net loss per share
Basic and diluted.............................. N/A $ (2.15) $ (1.66)
</TABLE>

The weighted average fair value of options granted to employees during the
years ended December 31, 1996, 1997 and 1998, were approximately $0.005, $0.005
and $0.125, respectively.

For purposes of pro forma disclosures, the minimum value of the stock grants
and stock options is deemed amortized over the grant vesting period. Because
FAS 123 is applicable only to options granted since inception its pro forma
effect will not be fully reflected until 2001.

Shares Reserved for Future Issuance

Common stock reserved for future issuance is as follows:

<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ----------
<S> <C> <C>
Stock option plan................................. 9,437,252 9,076,672
Warrants.......................................... 1,312,204 1,312,204
Conversion of outstanding preferred stock......... 13,728,482 13,728,482
---------- ----------
Total common stock reserved for future issuance... 24,477,938 24,117,358
========== ==========
</TABLE>

11. Segments of an Enterprise and Related Information

The Company operates in one industry segment. The Company designs, develops
and sells IP telephony systems. The Chief Executive Officer has been identified
as the Chief Operating Decision Maker ("CODM") because he has final authority
over resource allocation decisions and performance assessment. The CODM does
not receive discrete financial information about individual components.

F-19
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Net revenue for non-U.S. locations are substantially the result of export
sales from the U.S. Net revenue by geographic region based on customer location
were as follows:

<TABLE>
<CAPTION>
Three months
Year ended ended March
December 31, 31,
-------------- -------------
1997 1998 1998 1999
------ ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Net revenue:
United States................................ $ 213 $ 7,544 $1,391 $4,424
Other Americas............................... 2 99 -- 66
Europe....................................... 58 740 7 217
Asia......................................... 3,086 6,264 999 2,007
------ ------- ------ ------
Total......................................... $3,359 $14,647 $2,397 $6,714
====== ======= ====== ======
</TABLE>

12. Net Loss Per Share and Unaudited Pro Forma Stockholders' Equity

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic and diluted net loss per share
is computed by dividing net loss by the weighted average number of common
shares outstanding during the period less outstanding nonvested shares.
Outstanding nonvested shares are not included in the computations of basic and
diluted net loss per share until the time-based vesting restrictions have
lapsed.

If the offering contemplated by this prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 13,728,482 shares of common stock based on the
shares of convertible preferred stock outstanding at March 31, 1999. The
unaudited pro forma stockholders' equity reflects this conversion.

The following table sets forth the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
Period from Year ended Three months
July 2, 1996 December 31, ended March 31,
(inception) to ---------------- ----------------
December 31, 1996 1997 1998 1998 1999
----------------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net loss (numerator).... $ (276) $(2,059) $(5,832) $ (324) $(5,479)
======= ======= ======= ======= =======
Shares used in computing
historical basic and
diluted net loss per
share (denominator):
Weighted average common
shares outstanding.... 7,400 6,400 6,248 5,507 7,281
Less shares subject to
repurchase............ (7,400) (5,438) (2,704) (3,179) (1,800)
------- ------- ------- ------- -------
Denominator for
historical basic and
diluted net loss per
share.................. -- 962 3,544 2,328 5,481
======= =======
Conversion of preferred
stock (pro forma)...... 10,504 8,440 13,729
------- ------- -------
Denominator for pro
forma basic and diluted
net loss per share..... 14,048 10,768 19,210
======= ======= =======
Historical basic and
diluted net loss per
share.................. N/A $(2.14) $ (1.65) $ (0.14) $ (1.00)
======= ======= ======= ======= =======
Pro forma basic and
diluted net loss per
share.................. $ (0.42) $ (0.03) $ (0.29)
======= ======= =======
</TABLE>

F-20
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)

Clarent has excluded all convertible preferred stock, warrants for
convertible preferred stock and common stock, outstanding stock options and
shares subject to repurchase from the calculation of diluted loss per common
share because all such securities are anti-dilutive for all periods presented.
The total numbers of shares excluded from the calculations of diluted net loss
per share was 9,780,000 for the period from July 2, 1996 (inception) to
December 31, 1996, 19,297,000 and 24,158,334 for the years ended December 31,
1997 and 1998 and 18,727,000 and 24,324,862 for the three months ended March
31, 1998 and 1999.

13. Subsequent Events

In April 1999, the Company's Board of Directors approved the 1999 Amended
and Restated Equity Incentive Plan ("Plan"), subject to stockholder approval.
The Plan increases the authorized shares under the Company's existing stock
option plan from 10,503,000 to 11,358,170.

In April 1999, the Board adopted the 1999 Non-Employee Directors' Equity
Incentive Plan ("Directors' Plan"), subject to stockholder approval, to provide
for the automatic grant of options to purchase shares of common stock to our
non-employee directors who are not any of the Company's affiliates' employees
or consultants ("Non-Employee Director"). The Directors' Plan is administered
by the Board, and may be delegated to a committee.

The aggregate number of shares of common stock that may be issued under the
Directors' Plan is 300,000 shares. Under the terms of the Directors' Plan, as
of the initial public offering, each Non-Employee Director, and each person who
is thereafter elected or appointed for the first time to be a Non-Employee
Director automatically shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or stockholders, be
granted an option to purchase 5,000 shares of common stock. In addition,
commencing with the third regular meeting subsequent to the date of each Non-
Employee Directors' initial grant under the Director's Plan, each person who is
then serving as a Non-Employee Director automatically shall be granted an
option to purchase 2,000 shares of common stock. The exercise price of the
options granted under the Directors' Plan will be equal to the fair market
value of the common stock on the date of grant. Options granted under the
Directors' Plan vest and become exercisable immediately.

In April 1999, the Company's Board of Directors approved the 1999 Employee
Stock Purchase Plan ("Purchase Plan"), subject to stockholder approval,
covering an aggregate of 600,000 shares of common stock. Under the Purchase
Plan, the Board of Directors or a committee may authorize participation by
eligible employees, including officers, in periodic offerings following the
adoption of the Purchase Plan. The offering period for any offering will be no
more than 27 months. The price of common stock purchased under the Purchase
Plan will be equal to 85% of the lower of the fair market value of the common
stock on the commencement date of each offering period or the relevant purchase
date.

In the event of certain changes in control, the Board of Directors has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right will be substituted by the successor corporation, or
that such rights may continue in full force and effect, or that all sums
collected by payroll deductions be applied to purchase stock immediately prior
to the change in control. The Purchase Plan will terminate at the Board's
discretion or when all of the shares reserved for issuance under the Purchase
Plan have been issued.

In April 1999, the Company's Board of Directors approved a two-for-one split
of the Company's common stock. The stock split will become effective with the
approval of the Amended and Restated Certificate of Incorporation by the state
of Delaware in connection with the Company's reincorporation. In addition, each

F-21
<PAGE>

CLARENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
share of the Company's preferred stock will be convertible into two shares of
common stock. All share and per share amounts in the accompanying consolidated
financial statements have been adjusted retroactively.

On April 8, 1999, the Company's board of directors, subject to approval of
the Amended and Restated Certificate of Incorporation by the state of Delaware,
authorized the reincorporation of the Company in Delaware. The par value of the
preferred and common stock is $0.001 per share. The Company's Certificate of
Incorporation will be amended to authorize 5,000,000 shares of preferred stock
and 50,000,000 shares of Common Stock. The board of directors has the authority
to fix or alter the designations, powers, preferences, and rights of the shares
of each such series. The Company's reincorporation has been reflected in the
consolidated financial statements for all periods presented.

F-22
<PAGE>

[Graphic featuring a world map with stars indicating general geographic
locations of our deployed products]

The Clarent system has been installed in approximately 50 countries worldwide.
<PAGE>

[CLARENT LOGO APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the common stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:

<TABLE>
<S> <C>
SEC Registration Fee........................................... $20,461
NASD Filing Fee................................................ 7,860
Nasdaq National Market Filing Fee.............................. 95,000
Blue Sky Fees and Expenses..................................... 0
Accounting Fees................................................ 250,000
Legal Fees and Expenses........................................ 500,000
Transfer Agent and Registrar Fees.............................. 5,000
Printing and Engraving......................................... 200,000
Miscellaneous.................................................. 21,679
----------
Total........................................................ $1,100,000
==========
</TABLE>

ITEM 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit the indemnification under
some circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act of 1933, as amended. Article VI of
the registrant's amended and restated certificate of incorporation provides for
indemnification of its directors to the maximum extent permitted by the
Delaware General Corporation Law and Section 43 of Article XI of the
registrant's bylaws provides for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, the registrant intends to enter into
indemnification agreements with each director and some officers containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements may require the company, among other things, to
indemnify its directors against some liabilities that may arise by reason of
their status or service as directors, other than liabilities arising from
willful misconduct of culpable nature, to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' insurance if available on reasonable terms. Reference
is also made to Section 7 of the Underwriting Agreement contained in Exhibit
1.1 hereto, indemnifying officers and directors of the company against some
liabilities.

ITEM 15. Recent Sales of Unregistered Securities

Item 15. Recent Sales of Unregistered Securities

a) Since July 2, 1996, the registrant has issued and sold, without payment
or any selling commissions to any person, the following registered securities:

(1) Prior to completion of this offering, the registrant intends to
effect a two-for-one stock split of its outstanding common stock in which
every one outstanding share of common stock will be split into two shares
of common stock.

(2) Since July 2, 1996, the registrant issued 3,400,000 shares of common
stock (net of repurchases) to three employees, consultants and non-employee
directors at a weighted average purchase price of $0.005 per share.

II-1
<PAGE>

(3) Since October 11, 1996 and through March 31, 1999, the registrant
has granted stock options to purchase 9,813,796 shares of common stock (net
of cancellations) to a total of 150 employees, consultants and non-employee
directors at a weighted average exercise price of $0.64 per share pursuant
to the registrant's stock plans.

(4) On December 15, 1996, the registrant issued and sold shares of
Series A preferred stock convertible into an aggregate of 2,000,000 shares
of common stock to a total of five private investors for an aggregate
purchase price of $500,000.

(5) From March 25, 1997 to June 10, 1997, the registrant issued and sold
shares of Series B preferred stock convertible to an aggregate of 6,440,000
shares of common stock to a total of 24 private investors for an aggregate
purchase price of $3,220,000.

(6) As of March 31, 1999, 1,426,328 shares of common stock had been
issued upon exercise of options and 7,631,842 shares of common stock were
issuable upon exercise of outstanding options under the registrant's 1999
amended and restated equity incentive plan.

(7) On February 24, 1998, the registrant issued and sold warrants to
purchase an aggregate of 59,266 shares of Series C preferred stock to eight
private investors for an aggregate exercise price of $331,297.

(8) On April 2, 1998, the registrant issued warrants to purchase an
aggregate of 1,760,000 shares of common stock to WK Technology Fund for an
aggregate exercise price of $88,000.

(9) From June 11, 1998 to December 7, 1998, the registrant issued and
sold shares of Series C preferred stock convertible into an aggregate of
5,288,482 shares of common stock to 15 private investors for an aggregate
purchase price of $17,399,106.

The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act of 1933, as amended (the
"Securities Act") on the basis that such transaction did not involve a "sale"
of securities.

The sales and issuances of securities in the transactions described in
paragraphs (2), (3) and (6) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder, as
transactions by an issuer not involving any public offering, in that the
purchasers in each case represented their intention to acquire the securities
for investment only and not with a view to the distribution thereof, received
either adequate information about the registrant or had access, through
employment or other relationship, to such information, and the securities were
offered and sold, either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation as provided by Rule
701. Appropriate legends are affixed to the stock certificates issued in such
transactions. Similar legends were imposed in connection with any subsequent
sales of any such securities.

The sales and issuances of securities in transactions described in
paragraphs (4), (5) and (7) through (9) above were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2), Regulation D
or Regulation S promulgated thereunder as transactions by an issuer not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
received either adequate information about the registrant or had access,
through employment or other relationships, to such information.

There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).

II-2
<PAGE>

ITEM 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement

3.1+ Certificate of Incorporation of the Registrant

3.2+ Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this Registration
Statement

3.3+ Bylaws of the Registrant

4.1+ Specimen Common Stock Certificate

4.2+ Amended and Restated Investor Rights Agreement, dated June 11, 1998
(as amended December 7, 1998 and April 8, 1999)

4.3+ Founder Stock Purchase Agreement, dated July 2, 1996

5.1+ Opinion of Cooley Godward LLP

10.1+ Form of Indemnity Agreement between the Registrant and its directors
and officers.

10.2 1999 Amended and Restated Equity Incentive Plan and Form of Stock
Option Grant Notice and Agreement

10.3 1999 Non-Employee Directors' Stock Option Plan and Form of
Nonstatutory Stock Option

10.4 1999 Employee Stock Purchase Plan and Offering Document

10.5+ Employment Agreement, dated August 1, 1998, by and between the
Registrant and Richard J. Heaps

10.6+ Employment Agreement, dated June 9, 1997, by and between the
Registrant and Mark E. McIlvane (as amended June 9, 1998)

10.7+** OEM Purchase Agreement, dated effective as of December 1, 1998, by and
between the Registrant and AudioCodes, Ltd.

10.8+ Master Maintenance and Support Services Agreement and Statement of
Work, dated December 29, 1998, by and between the Registrant and
Equant Integration Services, Inc.

10.9+ Loan and Security Agreement, dated May 28, 1998, between Silicon
Valley Bank and the Registrant (as modified on February 16, 1999)

10.10+ Lease Agreement, dated August 12, 1998, by and between the Registrant
and Seaport Centre Associates, LLC

10.11+ Sublease, dated May 27, 1998, by and between the Registrant and
Unwired Planet, Inc.

10.12 Customer Agreement, dated June 25, 1998, by and between the Registrant
and Technet International

10.13 General Agreement for the Procurement of Data Processing Equipment,
Services and Supplies, the License of Software, dated as of September
17, 1998 by and between the Registrant and AT&T Corporation

23.1 Consent of Ernst & Young LLP, Independent Auditors

23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1)

24.1+ Power of Attorney

27.1 Financial Data Schedule
</TABLE>
- --------

+ Previously filed
* To be filed by amendment
** Confidentiality requested

(b) Financial Statement Schedules

II-3
<PAGE>

Schedule II--Valuation and Qualifying Accounts

Allowance For Doubtful Accounts:

<TABLE>
<CAPTION>
Additions-
Balances at Charged to Balances at
Beginning Costs and Deductions- End of
of Period Expenses Write-Offs Period
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Period from July 2, 1996
(inception) through
December 31, 1996.............. $ -- $ -- $ -- $ --
====== ====== ====== ======
Year Ended December 31, 1997.... $ -- $ 38 $ -- $ 38
====== ====== ====== ======
Year Ended December 31, 1998.... $ 38 $ 803 $ (34) $ 807
====== ====== ====== ======
</TABLE>

Schedules other than those listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes.

ITEM 17. Undertakings

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Redwood City, County of San Mateo, State of California, on June 11, 1999.

CLARENT CORPORATION

/s/ Jerry Shaw-Yau Chang
By: _________________________________
Jerry Shaw-Yau Chang
Chief Executive Officer,
President and Director

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Jerry Shaw-Yau Chang Chief Executive Officer, June 11, 1999
______________________________________ President and Director
Jerry Shaw-Yau Chang (Principal Executive
Officer)

* Chief Operating Officer June 11, 1999
______________________________________ and Chief Financial
Richard J. Heaps Officer (Principal
Financial and Accounting
Officer)

* Chief Technology Officer June 11, 1999
______________________________________ and Director
Michael F. Vargo

* Director June 11, 1999
______________________________________
Wen Chang Ko

* Director June 11, 1999
______________________________________
Syaru Shirley Lin

/s/ Jerry Shaw-Yau Chang
*By: _________________________________
Jerry Shaw-Yau Chang
(Attorney-In-Fact)
</TABLE>

II-5
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement

3.1+ Certificate of Incorporation of the Registrant

3.2+ Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this Registration
Statement

3.3+ Bylaws of the Registrant

4.1+ Specimen Common Stock Certificate

4.2+ Amended and Restated Investor Rights Agreement, dated June 11, 1998
(as amended December 7, 1998 and April 8, 1999)

4.3+ Founder Stock Purchase Agreement, dated July 2, 1996

5.1+ Opinion of Cooley Godward LLP

10.1+ Form of Indemnity Agreement between the Registrant and its directors
and officers.

10.2 1999 Amended and Restated Equity Incentive Plan and Form of Stock
Option Grant Notice and Agreement

10.3 1999 Non-Employee Directors' Stock Option Plan and Form of
Nonstatutory Stock Option

10.4 1999 Employee Stock Purchase Plan and Offering Document

10.5+ Employment Agreement, dated August 1, 1998, by and between the
Registrant and Richard J. Heaps

10.6+ Employment Agreement, dated June 9, 1997, by and between the
Registrant and Mark E. McIlvane (as amended June 9, 1998)

10.7+** OEM Purchase Agreement, dated effective as of December 1, 1998, by and
between the Registrant and AudioCodes, Ltd.

10.8+ Master Maintenance and Support Services Agreement and Statement of
Work dated, December 29, 1998, by and between the Registrant and
Equant Integration Services, Inc.

10.9+ Loan and Security Agreement, dated May 28, 1998, between Silicon
Valley Bank and the Registrant (as modified on February 16, 1999)

10.10+ Lease Agreement dated, August 12, 1998, by and between the Registrant
and Seaport Centre Associates, LLC

10.11+ Sublease, dated May 27, 1998, by and between the Registrant and
Unwired Planet, Inc.

10.12 Customer Agreement, dated June 25, 1998, by and between the Registrant
and Technet International

23.1 Consent of Ernst & Young LLP, Independent Auditors

23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1)

24.1+ Power of Attorney

27.1 Financial Data Schedule
</TABLE>
- --------

+ Previously filed
* To be filed by amendment
** Confidentiality requested

<PAGE>

EXHIBIT 1.1
________Shares

CLARENT CORPORATION

Common Stock, $0.001 par value per share

UNDERWRITING AGREEMENT
----------------------

__________, 1999

Credit Suisse First Boston Corporation
BancBoston Robertson Stephens Inc.
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,

New York, N.Y. 10010-3629

Dear Sirs:

1. Introductory. Clarent Corporation, a Delaware corporation ("Company"),
proposes to issue and sell shares ("Firm Securities") of its
Common Stock, $0.001 par value per share ("Securities") and also proposes to
issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than additional shares ("Optional
Securities") of its Securities as set forth below. The Firm Securities and the
Optional Securities are herein collectively called the "Offered Securities". The
Company hereby agrees with the several Underwriters named in Schedule A hereto
("Underwriters") as follows:

2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:

(a) A registration statement (No. 333-76051) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933, as amended
("Act"), and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement ("initial registration statement") has been declared effective,
either (i) an additional registration statement ("additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become effective upon filing pursuant to such Rule and
the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule
462(b) and will become effective upon filing pursuant to such Rule and
upon such filing the Offered Securities will all have been duly
registered under the Act pursuant to the initial registration statement
and such additional registration statement. If the Company does not
propose to amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose to
amend it, and if any post-effective amendment to either such registration
statement has been filed with the
<PAGE>

Commission prior to the execution and delivery of this Agreement, the
most recent amendment (if any) to each such registration statement has
been declared effective by the Commission or has become effective upon
filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the
case of the additional registration statement, Rule 462(b). For purposes
of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery
of this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (ii) if the Company has
advised the Representatives that it proposes to file an amendment or post-
effective amendment to such registration statement, the date and time as
of which such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration
statement pursuant to the General Instructions of the Form on which it is
filed and including all information (if any) deemed to be a part of the
initial registration statement as of its Effective Time pursuant to Rule
430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as the
"Initial Registration Statement". The additional registration statement,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b),
is hereinafter referred to as the "Additional Registration Statement".
The Initial Registration Statement and the Additional Registration
Statement are herein referred to collectively as the "Registration
Statements" and individually as a "Registration Statement". The form of
prospectus relating to the Offered Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus."
No document has been or will be prepared or distributed in reliance on
Rule 434 under the Act.

(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of
the Act and the rules and regulations of the Commission ("Rules and
Regulations") and did not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
and (iii) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration
Statement is prior to the execution and delivery of this Agreement, the
Additional Registration Statement, each conforms, and at the time of
filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is
required) at the Effective Date of the Additional Registration Statement
in which the Prospectus is included, each Registration Statement and the
Prospectus will conform, in all respects to the requirements of the Act
and the Rules and Regulations, and neither of such documents includes, or
will include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective
Time of

-2-
<PAGE>

the Initial Registration Statement is subsequent to the execution
and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will include any
untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and no Additional Registration Statement has been
or will be filed. The two preceding sentences do not apply to statements
in or omissions from a Registration Statement or the Prospectus based
upon written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information is that described as
such in Section 7(b) hereof.

(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where the
failure to be so qualified would individually or in the aggregate have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole ("Material Adverse Effect").

(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described in
the Prospectus; and each subsidiary of the Company is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect; all of the
issued and outstanding capital stock of each subsidiary of the Company
has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.

(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been issued, delivered and paid for in accordance with
this Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the Prospectus
under the caption "Description of Capital Stock"; and the stockholders of
the Company have no preemptive rights with respect to the Securities.

(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like
payment in connection with this offering.

(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act other than those that have been waived
(or expired).

(h) The Offered Securities have been approved for listing on
the Nasdaq Stock Market's National Market subject to notice of official
issuance.

-3-
<PAGE>

(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required for
the consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.

(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or the charter or by-laws of the Company or any such
subsidiary, or result in a Material Adverse Effect in any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.

(k) This Agreement has been duly authorized, executed and
delivered by the Company.

(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof
by them; and except as disclosed in the Prospectus, the Company and its
subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere
with the use made or to be made thereof by them.

(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct their business as described in
the Prospectus and have not received any notice of proceedings relating
to the revocation or modification of any such certificate, authority or
permit that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.

(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.

(o) The Company and its subsidiaries own or possess, adequate
trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or currently employed by them,
except where the failure to so own or possess such intellectual property
rights would not, individually or in the aggregate, have a Material
Adverse Effect, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of
its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.

(p) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating
to any environmental laws, which violation, contamination, liability or
claim would

-4-
<PAGE>

individually or in the aggregate have a Material Adverse Effect; and the
Company is not aware of any pending investigation which might lead to
such a claim.

(q) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a Material Adverse Effect, or would materially
and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the
context of the sale of the Offered Securities; and no such actions, suits
or proceedings are threatened in writing or, to the Company's knowledge,
contemplated.

(r) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a
consistent basis.

(s) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(t) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(u) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been filed
or have properly been extended, other than those filings being contested
in good faith, and all material taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due pursuant
to such returns or pursuant to any assessment received by the Company or
any of its subsidiaries have been paid, other than those being contested
in good faith and for which adequate reserves have been provided.

(v) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.

(w) The execution and delivery of the Agreement and Plan of
Merger dated as of , 1999 (the "Merger Agreement") between Clarent
Corporation, a California corporation (the "California Corporation"), and
the Company, effecting the reincorporation of the California Corporation
under the laws of the State of Delaware (the "Reincorporation"), was duly
authorized by all necessary corporate action on the part of each of the
California Corporation and the Company. Each of the California
Corporation and the Company had all corporate power and corporate
authority to execute and deliver the Merger Agreement, to file the Merger
Agreement with the Secretary of State of California and the Secretary of
State of Delaware and to consummate the reincorporation contemplated by
the Merger Agreement, and the Merger Agreement at the time of execution
and filing constituted a valid and binding obligation of each of the
California Corporation and the Company. The Company, as

-5-
<PAGE>

a newly incorporated Delaware corporation has substantially the same
rights under all material contracts to which the California Corporation
was a party immediately prior to the Reincorporation, except for those
rights which have terminated according to their terms (not by virtue of
the Reincorporation)

3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.

The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of the Company at the office of the Company located at 700
Chesapeake Drive, Redwood City, CA 94063, at A.M., New York time, on
, or at such other time not later than seven full business days thereafter as
CSFBC and the Company determine, such time being herein referred to as the
"First Closing Date". For purposes of Rule 15c6-1 under the Securities Exchange
Act of 1934, the First Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the above office of CSFBC
at least 24 hours prior to the First Closing Date.

In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.

Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company, at the above office of the Company located at 700
Chesapeake Drive, Redwood City, CA 94063. The certificates for the Optional
Securities being purchased on each Optional Closing Date will be in definitive
form, in such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of CSFBC at a reasonable time in
advance of such Optional Closing Date.

4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.

5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:

-6-
<PAGE>

(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.

The Company will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to
register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement or,
if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to
10:00 P.M., New York time, on the date of this Agreement or, if earlier,
on or prior to the time the Prospectus is printed and distributed to any
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBC.

(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement
as filed or the related prospectus or the Initial Registration Statement,
the Additional Registration Statement (if any) or the Prospectus and will
not effect such amendment or supplementation without CSFBC's consent; and
the Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of
a Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.

(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time
to amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery
of, any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 6.

(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a period
of at least 12 months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.

(e) The Company will furnish to the Representatives copies of
each Registration Statement (five of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so long
as a prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York time,
on the business day

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<PAGE>

following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will
pay the expenses of printing and distributing to the Underwriters all
such documents.

(f) The Company will cooperate to qualify or register the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.

(g) During the period of five (5) years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.

(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing fees
and other expenses (including fees and disbursements of counsel) incurred
in connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers
of the Offered Securities and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.

(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly or transfer the economic ownership interest of, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition
or filing, without the prior written consent of CSFBC, except issuances
of Securities pursuant to the conversion or exchange of convertible or
exchangeable securities or the exercise of warrants or options, in each
case outstanding on the date hereof, grants of employee stock options
pursuant to the terms of a plan or plans in effect on the date hereof,
issuances of Securities pursuant to the exercise of such options.

(j) The Company will (i) enforce the terms of each Lock-up
Agreement, and (ii) issue stop-transfer instructions to the transfer
agent for the Securities with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-up Agreement. In addition, except with the prior written
consent of CSFBC, the Company agrees (i) not to amend or terminate, or
waive any right under, any Lock-up Agreement, or take any other action
that would directly or indirectly have the same effect as an amendment or
termination, or waiver of any right under any Lock-up Agreement, that
would permit any holder of Securities, or any securities convertible
into, or exercisable or exchangeable for, Securities, to make any short
sale of, grant any option for the purchase of, or otherwise transfer or
dispose of, any such Securities or other securities, prior to the
expiration of the 180 days after the date of the Prospectus and (ii) not
to consent to any sale, short sale, grant of an option for the purchase
of, or other disposition or transfer of shares of Securities, or
securities convertible into or exercisable or exchangeable for
Securities, subject to a Lock-up Agreement.

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<PAGE>

6. Conditions of the Obligations of the Underwriters. The obligations of the
several Underwriters to purchase and pay for the Firm Securities on the First
Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:

(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement
to be filed shortly prior to such Effective Time), of Ernst & Young LLP
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:

(i) in their opinion the financial statements and
schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;

(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;

(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim
financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:

(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published Rules
and Regulations or any material modifications should be
made to such unaudited financial statements for them to be
in conformity with generally accepted accounting
principles;

(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent
specified date not more than three business days prior to
the date of such letter, there was any change in the
capital stock or any increase in short-term indebtedness
or long-term debt of the Company and its consolidated
subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any
decrease in consolidated net current assets or net assets,
as compared with amounts shown on the latest balance sheet
included in the Prospectus; or

(C) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement read
by such accountants there were any decreases, as compared
with the corresponding period of the previous year and
with the period of corresponding length ended the date of
the latest income statement included in the Prospectus in
consolidated net operating income or in the total or per
share amounts of consolidated net income.

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<PAGE>

except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and

(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.

For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial
registration statement as proposed to be amended by the amendment or post-
effective amendment to be filed shortly prior to its Effective Time, (ii)
if the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement but the Effective Time of
the Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement
and the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "Prospectus" shall mean
the prospectus included in the Registration Statements.

(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date as shall have
been consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with
the Rules and Regulations and Section 5(a) of this Agreement. Prior to
such Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company or
the Representatives, shall be contemplated by the Commission.

(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority in
interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such rating);
(iii) any suspension or limitation of trading in securities generally on
the New York Stock Exchange, or any setting of minimum prices for trading
on such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any
banking moratorium declared by U.S. Federal or New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United
is involved, any

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<PAGE>

declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of a majority in
interest of the Underwriters including the Representatives, the effect of
any such outbreak, escalation, declaration, calamity or emergency makes
it impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.

(d) The Representatives shall have received an opinion, dated
such Closing Date, of Cooley Godward LLP, counsel for the Company, to the
effect that:

(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification except
where the failure to be so qualified would not have a material
adverse effect on the business, financial condition or results
of operations of the Company;

(ii) Each subsidiary of the Company has been duly
incorporated and is an existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with
power and authority (corporate and other) to own its
properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified
would not have a material adverse effect on the business,
financial condition or results of operations of the Company;
all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly
issued and is fully paid and nonassessable; and the capital
stock of each subsidiary owned by the Company, directly or
through subsidiaries, is owned free from liens, encumbrances
and defects.

(iii) The Offered Securities delivered on such Closing
Date against payment therefor, and all other outstanding
shares of the Common Stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained
in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities;

(iv) Except as disclosed in the Prospectus to such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act
other than those that have been waived (or expired);

(v) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940.

(vi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated
by this Agreement in connection with the issuance or sale of
the Offered Securities by the Company, except such as have
been obtained and made under the Act and such as may be
required under state securities laws;

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<PAGE>

(vii) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any statute,
any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and the Company
has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement;

(viii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the
knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and
each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any
part of a Registration Statement or any amendment thereto, as
of its effective date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements
and Prospectus of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel
do not know of any legal or governmental proceedings required
to be described in a Registration Statement or the Prospectus
which are not described as required or of any contracts or
documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as
exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel
need express no opinion as to the financial statements or
other financial data contained in the Registration Statements
or the Prospectus;

(ix) The statements set forth under the heading
"Management," "Certain Transactions" and "Description of
Capital Stock" in the Prospectus, insofar as such statements
purport to summarize legal matters, documents or proceedings
referred to therein, provide a fair summary of such
provisions;

(x) No relationship, direct or indirect, exists between
or among the Company or any of its subsidiaries on the one
hand, and the directors, officers, stockholders, customers or
suppliers of the Company or any of its subsidiaries on the
other hand, which is required by the Act to be described in
the Registration Statement or the Prospectus which is not so
described;

(xi) The execution and delivery of the Merger Agreement,
effecting the Reincorporation was duly authorized by all
necessary corporate action on the part of each of the
California Corporation and the Company. Each of the California
Corporation and the

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<PAGE>

Company had all corporate power and corporate authority to
execute and deliver the Merger Agreement, to file the Merger
Agreement with the Secretary of State of California and the
Secretary of State of Delaware and to consummate the
Reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing
constituted a valid and binding obligation of each of the
California Corporation and the Company. The Company as a newly
incorporated Delaware corporation has substantially the same
rights under all contracts material to the Company's business
to which the California Corporation was a party immediately
prior to the Reincorporation, as described in the Prospectus,
except for those rights which have terminated according to
their terms (not by virtue of the Reincorporation); and

(xii) This Agreement has been duly authorized, executed
and delivered by the Company.

(e) The Representatives shall have received from Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, such opinion or opinions, dated such Closing Date, with
respect to the incorporation of the Company, the validity of the Offered
Securities delivered on such Closing Date, the Registration Statements,
the Prospectus and other related matters as the Representatives may
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters. In rendering such opinion, Wilson Sonsini Goodrich &
Rosati, Professional Corporation may rely as to the incorporation of the
Company upon the opinion of Cooley Godward LLP referred to above.

(f) The Representatives shall have received from Carr &
Ferrell, patent counsel to the Company, dated such Closing Date, with
respect to certain intellectual property matters, to the effect that:

(i) Such counsel is familiar with the technology used
by the Company in its business and the manner of its use and
has read the portions of the Registration Statement and
Prospectus entitled "Risk Factors - We may not have adequate
protection for our intellectual property," " - Our products
may infringe on the intellectual rights of third parties" and
"Business - Patents and Intellectual Property" and that such
counsel is of the opinion that such sections are accurate and
complete statements or summaries in all material respects of
the matters therein set forth;

(ii) To the best of such counsel's knowledge, there are
no judicial proceedings pending relating to patents, patent
rights or proprietary information to which the Company is a
party or of which any property of the Company is subject and,
to such counsel's knowledge, no such judicial proceedings are
threatened by governmental authorities or others;

(iii) The Company's patent applications have been
properly prepared and filed on behalf of the Company. Each of
the applications are held by the Company and, except as set
forth in the Prospectus, no other entity or individual has any
right or claim in any of the applications or any patent to be
issued therefrom, by virtue of any contract, license or other
agreement, known to such counsel, entered into between such
entity and the Company; and

(iv) To the best of such counsel's knowledge, except as
otherwise disclosed in the Prospectus, the Company owns, or
possesses adequate rights to use, all patents, patent rights,
inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights described or referred to in
the Prospectus as owned or used by it or which are necessary
for the conduct of its business as described in the
Prospectus; the Company has not received any notice of
infringement of or conflict with asserted rights of others
with respect to any patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks,

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<PAGE>

trade names or copyrights which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition
(financial or otherwise), business, results of operations or
prospects of the Company.

In addition, such counsel shall state that although he has not
verified the accuracy or completeness of the statements contained in the
Prospectus, nothing has come to the attention of such counsel that caused
him to believe that, at the time the Registration Statement became
effective, or at the First Closing Date or the Optional Closing Date, as
the case may be, the information set forth in the Prospectus under the
captions at "Risk Factors - We May Not Adequately Protect Our
Intellectual Property And Our Products May Infringe On The Intellectual
Rights of Third Parties" and "Business - Intellectual Property" contained
any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

(g) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable investigation,
shall state that: the representations and warranties of the Company in
this Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to dates of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a
whole except as set forth in or contemplated by the Prospectus or as
described in such certificate.

(h) The Representatives shall have received a letter, dated
such Closing Date, of Ernst & Young LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred
to in such subsection will be a date not more than three days prior to
such Closing Date for the purposes of this subsection.

The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.

7. Indemnification and Contribution.

(a) The Company will indemnify and hold harmless each
Underwriter, its partners, directors and officers and each person, if
any, who controls such Underwriter within the meaning of Section 15 of
the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided,

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<PAGE>

however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information furnished by
any Underwriter consists of the information described as such in
subsection (b) below.

(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each
person, if any who controls the Company within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities to which
the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability
or action as such expenses are incurred, it being understood and agreed
that the only such information furnished by any Underwriter consists of
the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the
fourth paragraph under the caption "Underwriting" and the information
contained in the twelfth and thirteenth paragraphs under the caption
"Underwriting."

(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) or (b) above, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under
subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject
matter of such action.

(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one

-15-
<PAGE>

hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding the provisions of
this subsection (d), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.

(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any,
who controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act.

8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
Closing Date or any Optional Closing Date and the aggregate number of shares
that such defaulting Underwriter or Underwriters agreed but failed to purchase
does not exceed 10% of the total number of shares of Offered Securities that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.

9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this

-16-
<PAGE>

Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Offered Securities by the Underwriters is not consummated, the
Company shall remain responsible for the expenses to be paid or reimbursed by
it pursuant to Section 5 and the respective obligations of the Company and the
Underwriters pursuant to Section 7 shall remain in effect, and if any Offered
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause
(iii), (iv) or (v) of Section 6(c), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements
of counsel) reasonably incurred by them in connection with the offering of the
Offered Securities.

10. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to the
Representatives c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at Clarent Corporation, 700
Chesapeake Drive, Redwood City, California 94063, Attention: Chief Operating
Officer; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.

11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.

12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.

13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.

The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.

-17-
<PAGE>

If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.

Very truly yours,
Clarent Corporation

By..........................
[Insert title]

The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.

Credit Suisse First Boston Corporation
BancBoston Robertson Stephens Inc.
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray Inc.

Acting on behalf of themselves and as
the Representatives of the several
Underwriters

By Credit Suisse First Boston Corporation

By......................................
[Insert title]

-18-
<PAGE>

SCHEDULE A

<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation

BancBoston Robertson Stephens Inc.

Thomas Weisel Partners LLC

U.S. Bancorp Piper Jaffray Inc.

-----------------
Total
=================
</TABLE>

<PAGE>

EXHIBIT 10.2

CLARENT CORPORATION
1999 AMENDED AND RESTATED EQUITY INCENTIVE PLAN

ADOPTED APRIL 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
TERMINATION DATE: APRIL 7, 2009

This Clarent Corporation 1999 Equity Incentive Plan amends and restates, in its
entirety, the Clarent Corporation 1996 Stock Option Plan adopted October 11,
1996, and amended on May 29, 1997, May 29, 1998, October 22, 1998 and April 8,
1999.

1. PURPOSES.

(A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

(B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which selected Employees, Directors and Consultants may be given an
opportunity to benefit from increases in value of the Common Stock through the
granting of: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii)
stock bonuses, (iv) rights to acquire restricted stock and (v) Stock
Appreciation Rights.

(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of persons who are now Employees, Directors or Consultants, to
secure and retain the services of new Employees, Directors and Consultants and
to provide incentives for such persons to exert maximum efforts for the success
of the Company and its Affiliates.

2. DEFINITIONS.

(A) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

(B) "BOARD" means the Board of Directors of the Company.

(D) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c).

(E) "COMMON STOCK" means the common stock of the Company.

(F) "COMPANY" means Clarent Corporation, a California corporation.

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<PAGE>

(G) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a right
granted pursuant to subsection 8(b)(ii) of the Plan.

(H) "CONSULTANT" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.

(I) "CONTINUOUS SERVICE" means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.

(J) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

(K) "DIRECTOR" means a member of the Board.

(L) "DISABILITY" means (i) before the Listing Date, the inability of a person,
in the opinion of a qualified physician acceptable to the Company, to perform
the major duties of that person's position with the Company or an Affiliate of
the Company because of the sickness or injury of the person and (ii) after the
Listing Date, the permanent and total disability of a person within the meaning
of Section 22(e)(3) of the Code.

(M) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Neither service as a Director nor payment of a director's fee by the Company or
an Affiliate shall be sufficient to constitute "employment" by the Company or an
Affiliate.

(N) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

(O) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:

2
<PAGE>

with the greatest volume of trading in the Common Stock) on the last market
trading day prior to the day of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable.

(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

(III) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.

(P) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(Q) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(iii) of the Plan.

(R) "LISTING DATE" means the first date upon which any security of the Company
is listed (or approved for listing) upon notice of issuance on any securities
exchange or designated (or approved for designation) upon notice of issuance as
a national market security on an interdealer quotation system if such securities
exchange or interdealer quotation system has been certified in accordance with
the provisions of Section 25100(o) of the California Corporate Securities Law of
1968.

(S) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or a subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
a subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.

(T) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an
Incentive Stock Option.

(U) "OFFICER" means (i) before the Listing Date, any person designated by the
Company as an officer and (ii) on and after the Listing Date, a person who is an
officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.

(V) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.

(W) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.

3
<PAGE>

(X) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.

(Y) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(Z) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

(AA) "PLAN" means this Clarent Corporation 1999 Equity Incentive Plan.

(BB) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

(CC) "SECURITIES ACT" means the Securities Act of 1933, as amended.

(DD) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.

(EE) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus, any right to acquire restricted stock and any Stock
Appreciation Right.

(FF) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

(GG) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(i) of the Plan.

(HH) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.

3. ADMINISTRATION.

(A) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).

(B) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

(I) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be

4
<PAGE>

permitted to receive stock pursuant to a Stock Award; and the number of shares
with respect to which a Stock Award shall be granted to each such person.

(II) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(III) To amend the Plan or a Stock Award as provided in Section 13.

(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

(I) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

(II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not Non-
Employee Directors the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.

4. SHARES SUBJECT TO THE PLAN.

(A) SHARE RESERVE. Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate Five Million Six Hundred Seventy
Nine Thousand Eighty Five (5,679,085) shares

5
<PAGE>

of Common Stock, such number to be increased each year on, respectively, January
31 2000, January 31, 2001, January 31, 2002, January 31, 2003, and January 31,
2004, by that number of shares equal to two and one-half percent (2.5%) of the
Company's outstanding shares, or such lesser amount as determined by the Board
of Directors each year measured as of such date. Notwithstanding the foregoing
(and subject to the provisions of Section 12), the stock that may be issued
pursuant to Incentive Stock Options shall not exceed in the aggregate Five
Million Six Hundred Seventy Nine Thousand Eighty Five (5,679,085) shares of
Common Stock, and the stock that may be issued pursuant to stock bonuses or
restricted stock agreements shall not exceed thirty percent (30%) of the Share
Reserve.

(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of restricted stock), the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. If any Common Stock acquired pursuant to the
exercise of an Option shall for any reason be repurchased by the Company under
an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall revert to and
again become available for issuance, pursuant to Stock Awards other than
Incentive Stock Options, under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuances under the Plan.

(C) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.

(D) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no time shall
the total number of shares issuable upon exercise of all outstanding Options and
the total number of shares provided for under any stock bonus or similar plan of
the Company exceed the applicable percentage as calculated in accordance with
the conditions and exclusions of Section 260.140.45 of Title 10 of the
California Code of Regulations, based on the shares of the Company which are
outstanding at the time the calculation is made.

5. ELIGIBILITY.

(A) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options and
Stock Appreciation Rights appurtenant thereto may be granted only to Employees.
Stock Awards other than Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted to Employees, Directors and Consultants.

(B) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.

Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.

Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.

6
<PAGE>

(C) SECTION 162(M) LIMITATION. Subject to the provisions of Section 12
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options and Stock Appreciation Rights covering more than three
hundred sixty thousand (360,000) shares of the Common Stock during any calendar
year. This subsection 5(c) shall not apply prior to the Listing Date and,
following the Listing Date, this subsection 5(c) shall not apply until (i) the
earliest of: (1) the first material modification of the Plan (including any
increase in the number of shares reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or
(4) the first meeting of stockholders at which Directors of the Company are to
be elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.

(D) CONSULTANTS.

(I) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.

(II) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.

(III) As of April 7, 1999 Rule 701 and Form S-8 generally are
available to consultants and advisors only if (i) they are natural persons; (ii)
they provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii)
the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock

7
<PAGE>

Options or Nonstatutory Stock Options at the time of grant, and a separate
certificate or certificates will be issued for shares purchased on exercise of
each type of Option. The provisions of separate Options need not be identical,
but each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:

(A) TERM. Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

(B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.

(C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Nonstatutory Stock Option granted prior to the Listing Date shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than one hundred percent (100%)of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.

(D) CONSIDERATION. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the Option is exercised or (ii) at the discretion
of the Board at the time of the grant of the Option (or subsequently in the case
of a Nonstatutory Stock Option) by delivery to the Company of other Common
Stock, according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock)
with the Participant or in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be compounded
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.

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(E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.

(F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. Except to the extent
permitted by law, a Nonstatutory Stock Option granted prior to the Listing Date
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. A Nonstatutory Stock Option granted on or after the
Listing Date shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

(G) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.

(H) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.

(I) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less than thirty (30)
days, unless such termination is for

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cause) or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

(J) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.

(K) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.

(L) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

(M) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation" in subsection 11(h), any unvested shares
so purchased may be subject to an unvested share repurchase option in favor of
the Company or to any other restriction the Board determines to be appropriate.

(N) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 11(h), the Option may, but need not, include a provision whereby the
Company may elect, prior

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<PAGE>

to the Listing Date, to repurchase all or any part of the vested shares acquired
by the Optionholder pursuant to the exercise of the Option.

(O) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(o), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.

(P) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part. Any such Re-Load Option shall (i) provide for a
number of shares equal to the number of shares acquired upon exercise of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan, including the provisions of Section 5(b)
applicable to Ten Percent Stockholders.

Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 11(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.

7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(A) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

(I) CONSIDERATION. A stock bonus shall be awarded in consideration for
past services actually rendered to the Company for its benefit.

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(II) VESTING. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.

(III) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.

(IV) TRANSFERABILITY. Shares of Common Stock granted pursuant to a
stock bonus agreement shall not be transferable prior to the time they become
vested.

(B) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

(I) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
one hundred percent (100%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For restricted stock
awards made on or after the Listing Date, the purchase price shall not be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.

(II) CONSIDERATION. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the Participant; or (iii) in any other form of
legal consideration that may be acceptable to the Board in its discretion;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.

(III) VESTING. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.

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<PAGE>

(IV) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.

(V) TRANSFERABILITY. Except to the extent permitted by law, for a
restricted stock award made before the Listing Date, rights to acquire shares
under the restricted stock purchase agreement shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant. For a restricted
stock award made on or after the Listing Date, rights to acquire shares under
the restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.

8. STOCK APPRECIATION RIGHTS.

(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5 ( c ), no limitation shall exist on the aggregate
amount of cash payments the Company may make under the Plan in connection with
the exercise of a Stock Appreciation Right.

(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:

(i) Tandem Stock Appreciation Rights. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option (other than an Incentive Stock
Option), and shall, except as specifically set forth in this Section 8, be
subject to the same terms and conditions applicable to the particular Option
grant to which it pertains. Tandem Stock Appreciation Rights will require the
holder to elect between the exercise of the underlying Option for shares of
stock and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable on the
exercised Tandem Right shall be in cash (or, if so provided, in an equivalent
number of shares of stock based on Fair Market Value on the date of the Option
surrender) in an amount up to the excess of (A) the Fair Market Value (on the
date of the Option surrender) of the number of shares of stock covered by that
portion of the surrendered Option in which the Optionholder is vested over (B)
the aggregate exercise price payable for such vested shares.

(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution payable
on an exercised Concurrent Rights hall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.

(iii) Independent Stock Appreciation Rights. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on
the date of the grant of the Independent Right) of such number of shares
Company stock. The appreciation distribution payable on the exercised
Independent Right shall be in cash or, if so provided, in an equivalent number
of shares of stock based on Fair Market Value on the date of the exercise of
the Independent Right.

9. COVENANTS OF THE COMPANY.

(A) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.

11. MISCELLANEOUS.

(A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised
and/or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

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(B) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares subject to
an Option unless and until such Participant has satisfied all requirements for
exercise of the Option pursuant to its terms.

(C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, for any reason, (ii) the service of a Consultant pursuant to the
terms of such Consultant's agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.

(D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

(E) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

(F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the

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<PAGE>

Participant by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Participant as a result of the
exercise or acquisition of stock under the Stock Award; or (iii) delivering to
the Company owned and unencumbered shares of the Common Stock.

(G) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 11(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.

(H) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:

(I) FAIR MARKET VALUE. If the repurchase option gives the Company the
right to repurchase the shares upon termination of employment at not less than
the Fair Market Value of the shares to be purchased on the date of termination
of Continuous Service, then (i) the right to repurchase shall be exercised for
cash or cancellation of purchase money indebtedness for all but not less than
all of the shares within ninety (90) days of termination of Continuous Service
(or in the case of shares issued upon exercise of Stock Awards after such date
of termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock") and (ii) the right
terminates when the shares become publicly traded.

(II) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for all but not less than all of the
shares within ninety (90) days of termination of Continuous Service (or in the
case of shares issued upon exercise of Options after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").

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<PAGE>

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(A) CAPITALIZATION ADJUSTMENTS TO STOCK SUBJECT TO THE PLAN. If any change
is made in the stock subject to the Plan due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a). Such adjustments shall be made by the Board, the determination
of which shall be final, binding and conclusive.

(B) CAPITALIZATION AND TRANSACTION ADJUSTMENTS TO OUTSTANDING STOCK AWARDS.
If any change is made in the stock subject to any outstanding Stock Award
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, separation,
stock dividend, dividend in property other than cash, stock split, reverse stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), such outstanding Stock Awards shall be
appropriately adjusted in the classes and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board, the determination of which shall be final, binding and
conclusive.

(C) CAPITALIZATION AND TRANSACTION ADJUSTMENTS (SECTION 162(M)). If any
change is made in the stock subject to the Plan, or subject to any Stock Award,
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, separation,
stock dividend, dividend in property other than cash, stock split, reverse stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
maximum number of securities subject to award to any person pursuant to
subsection 5(c). (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.) Such adjustments shall be made by the Board, the determination of
which shall be final, binding and conclusive.

(D) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.

(E) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (1) a sale of all or substantially all of the assets of the
Company, (2) a merger or consolidation in which the Company is not the surviving
corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then any surviving corporation or
acquiring corporation shall assume or continue any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 12(e) for those outstanding under the

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Plan. In the event any surviving corporation or acquiring corporation refuses to
assume or continue such Stock Awards or to substitute similar stock awards for
those outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full prior to such event, and the Stock
Awards shall terminate if not exercised (if applicable) at or prior to such
event. With respect to any other Stock Awards outstanding under the Plan, such
Stock Awards shall terminate if not exercised (if applicable) prior to such
event.

(F) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
Directors, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any NASDAQ or securities exchange listing requirements.

(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

(C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

17
<PAGE>

(D) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

(E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN.

(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
Notwithstanding the foregoing, all Incentive Stock Options shall be granted, if
at all, no later than the last day preceding the tenth (10th) anniversary of the
earlier of (i) the date on which the latest increase in the maximum number of
shares issuable under the Plan was approved by the stockholders of the Company
or (ii) the date such amendment was adopted by the Board.

(B) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.

15. EFFECTIVE DATE OF PLAN.

The Plan shall become effective as of the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a stock
bonus, shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.

16. CHOICE OF LAW.

All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.

<PAGE>

EXHIBIT 10.3

CLARENT CORPORATION

1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

ADOPTED BY THE BOARD OF DIRECTORS April 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999

EFFECTIVE DATE: APRIL 8, 1999

1. PURPOSES.

(A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options are
the Non-Employee Directors of the Company.

(B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of
Nonstatutory Stock Options.

(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for
such persons to exert maximum efforts for the success of the Company
and its Affiliates.

2. DEFINITIONS.

(A) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.

(B) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.

(D) "CODE" means the Internal Revenue Code of 1986, as amended.

(E) "COMMON STOCK" means the common stock of the Company.

(F) "COMPANY" means Clarent Corporation, a Delaware corporation.

(G) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors of the Company who are not
compensated by the Company for their services as
<PAGE>

Directors or Directors of the Company who are merely paid a director's
fee by the Company for their services as Directors.

(H) "CONTINUING GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(b) of the
Plan.

(I) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Optionholder's Continuous Service
shall not be deemed to have terminated merely because of a change in the
capacity in which the Optionholder renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the
entity for which the Optionholder renders such service, provided that
there is no interruption or termination of the Optionholder's Continuous
Service. For example, a change in status from a Non-Employee Director of
the Company to a Consultant of an Affiliate or an Employee of the Company
will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal leave.

(J) "DIRECTOR" means a member of the Board of Directors of the Company.

(K) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major
duties of that person's position with the Company or an Affiliate of the
Company because of the sickness or injury of the person.

(L) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company
or an Affiliate shall not be sufficient to constitute "employment" by the
Company or an Affiliate.

(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

(N) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:

(I) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common
Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable.

2.
<PAGE>

(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

(O) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.

(P) "IPO DATE" means the effective date of the initial public offering of
the Common Stock.

(Q) "NON-EMPLOYEE DIRECTOR" means a Director who is neither employed by
the Company or an Affiliate nor a representative of a five percent
(5%) or greater stockholder.

(R) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.

(S) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(T) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

(U) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.

(V) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.

(W) "PLAN" means this Clarent Corporation 1999 Non-Employee Directors'
Stock Option Plan.

(X) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.

(Y) "SECURITIES ACT" means the Securities Act of 1933, as amended.

3. ADMINISTRATION.

(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and
until the Board delegates administration to a committee.

(B) POWERS OF BOARD. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:

3.
<PAGE>

(I) To determine the provisions of each Option to the extent not
specified in the Plan.

(II) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this
power, may correct any defect, omission or inconsistency in
the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan
fully effective.

(III) To amend the Plan or an Option as provided in Section 12.

(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the
provisions of the Plan.

4. SHARES SUBJECT TO THE PLAN.

(A) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate One Hundred
Fifty Thousand (150,000) shares of Common Stock.

(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under
such Option shall revert to and again become available for issuance
under the Plan.

(C) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors.

6. NON-DISCRETIONARY GRANTS.

(A) INITIAL GRANTS. Without any further action of the Board, each Non-
Employee Director shall be granted the following Options:

(I) On IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Initial Grant to purchase Two
Thousand Five Hundred (2,500) shares of Common Stock on the
terms and conditions set forth herein.

4.
<PAGE>

(ii) After the IPO Date, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically
shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or
stockholders of the Company, be granted an Initial Grant to
purchase Two Thousand Five Hundred (2,500) shares of Common
Stock on the terms and conditions set forth herein.

(b) CONTINUING GRANTS. Beginning with the third regular meeting of the
Board subsequent to his/her receipt of the Initial Grant, each person
who continues to be a Non-Employee Director shall (during his/her
term as a Non-Employee Director) automatically be granted a
Continuing Grant to purchase One Thousand (1,000) shares of Common
Stock upon each regular meeting of the Board, on the terms and
conditions set forth herein.

7. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

(A) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.

(B) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than
that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.

(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes
and regulations, in any combination of (i) cash or check, (ii)
delivery to the Company of other Common Stock, (iii) deferred
payment, (iv) pursuant to a Regulation T Program if the Shares are
publicly traded or (v) any other form of legal consideration that may
be acceptable to the Board and provided in the Option Agreement;
provided, however, that at any time that the Company is incorporated
in Delaware, payment of the Common Stock's "par value," as defined in
the Delaware General Corporation Law, shall not be made by deferred
payment.

In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

5.
<PAGE>

(D) TRANSFERABILITY. An Option shall not be transferable other than to
"family members" as defined by Rule 701 of the Securities Act of 1933, as
amended, and by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder or such "family members" who are also transferees.
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

(E) VESTING GENERALLY. Options shall vest and become exercisable immediately
upon grant.

(F) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death
or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the earlier
of (i) the date twelve (12) months following the termination of the
Optionholder's Continuous Service, or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination,
the Optionholder does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate. For
purposes of this Section 7(f), the limitations upon exercise discussed
herein shall also apply to permitted transferees under Section 7(d).

(G) EXTENSION OF TERMINATION DATE. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon
the Optionholder's death) would be prohibited at any time solely because
the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option set forth in subsection 7(a) or
(ii) the expiration of a period of three (3) months after the termination
of the Optionholder's Continuous Service during which the exercise of the
Option would not be in violation of such registration requirements.

(H) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination),
but only within such period of time ending on the earlier of (i) the date
twelve (12) months following such termination or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate. For purposes of
this Section 7(h), the limitations upon exercise discussed herein shall
also apply to permitted transferees under Section 7(d).

6.
<PAGE>

(I) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the
termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise the Option as of the date
of death) by the Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's
death, but only within the period ending on the earlier of (1) the
date eighteen (18) months following the date of death or (2) the
expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.

8. COVENANTS OF THE COMPANY.

(A) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common
Stock required to satisfy such Options.

(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to grant Options and to issue
and sell shares of Common Stock upon exercise of the Options;
provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock
under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless
and until such authority is obtained.

9. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

10. MISCELLANEOUS.

(A) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to
its terms.

(B) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder
any right to continue to serve the Company as a Non-Employee
Director or shall affect the right of the

7.
<PAGE>

Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with
the Company or an Affiliate or (iii) the service of a Director pursuant
to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

(C) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to
give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option; and (ii) to give written
assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the
issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances
under the then applicable securities laws. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited
to, legends restricting the transfer of the stock.

(D) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in
addition to the Company's right to withhold from any compensation paid
to the Optionholder by the Company) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under
the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.

11. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split,

<PAGE>

liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of securities subject both to the Plan
pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted
in the class(es) and number of securities and price per share of stock
subject to such outstanding Options. The Board shall make such
adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration"
by the Company.)

(B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options
shall terminate immediately prior to such event.

(C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (i) a sale of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not
the surviving corporation or (iii) a reverse merger in which the Company
is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall
assume or continue any Options outstanding under the Plan or shall
substitute similar Options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in
this subsection 11(c) for those outstanding under the Plan. In the event
any surviving corporation or acquiring corporation refuses to assume or
continue such Options or to substitute similar Options for those
outstanding under the Plan, then such Options shall terminate if not
exercised prior to such event.

(D) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of Directors, then with respect to
Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options shall be accelerated in full.

9.
<PAGE>

12. AMENDMENT OF THE PLAN AND OPTIONS.

(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating
to adjustments upon changes in stock, no amendment shall be
effective unless approved by the stockholders of the Company to the
extent stockholder approval is necessary to satisfy the requirements
of Rule 16b-3 or any NASDAQ or securities exchange listing
requirements.

(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.

(C) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Optionholder
and (ii) the Optionholder consents in writing.

(D) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however,
that the rights under any Option shall not be impaired by any such
amendment unless (i) the Company requests the consent of the
Optionholder and (ii) the Optionholder consents in writing.

13. TERMINATION OR SUSPENSION OF THE PLAN.

(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended
or after it is terminated.

(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the
Plan is in effect except with the written consent of the
Optionholder.

14. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

10.
<PAGE>

15. CHOICE OF LAW.

All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.

11.
<PAGE>

CLARENT CORPORATION

NONSTATUTORY STOCK OPTION

(1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)

[NAME] , Optionholder:

CLARENT CORPORATION (the "Company"), pursuant to its 1999 Non-Employee
Directors' Stock Option Plan (the "Plan") has on _____________, 1999 granted to
you, the optionholder named above, an option to purchase shares of the common
stock of the Company ("Common Stock"). This option is not intended to qualify
and will not be treated as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's Non-
Employee Directors (as defined in the Plan).

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option is
___________ (_____). Subject to the limitations contained herein, this option
shall be exercisable in accordance with the Plan.

2. The exercise price of this option is ______________ Dollars ($______)
per share, being the Fair Market Value (as defined in the Plan) of the Common
Stock on the date of grant of this option.

3. (A) This option may be exercised, to the extent specified in the
Plan, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to paragraph 6 of the Plan. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.

(B) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option or the lapse of any substantial risk of forfeiture to
which the shares are subject at the time of exercise.

4. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed
<PAGE>

to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.

5. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

Dated the ___ day of__________, ____.

Very truly yours,

CLARENT CORPORATION

By:_____________________________________
Duly authorized on behalf
of the Board of Directors

ATTACHMENTS:

1999 Non-Employee Directors' Stock Option Plan
<PAGE>

The undersigned:

(A) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;

(B) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionholder and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:

NONE___________________________________________
(Initial)

OTHER___________________________________________

___________________________________________

___________________________________________
OPTIONHOLDER

___________________________________________
Address

___________________________________________

<PAGE>

EXHIBIT 10.4

CLARENT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN

ADOPTED APRIL 8, 1999

APPROVED BY STOCKHOLDERS _______________, 1999
NO TERMINATION DATE

1. PURPOSE.

(A) The purpose of the 1999 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Clarent Corporation, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase common stock of the Company.

(B) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").

(C) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.

(D) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code

2. ADMINISTRATION.

(A) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.

(B) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:

(I) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).

(II) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.

(III) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.

1.
<PAGE>

(IV) To amend the Plan as provided in paragraph 13.

(V) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.

(C) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee")
constituted in accordance with the requirements of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

3. SHARES SUBJECT TO THE PLAN.

(A) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate Three Hundred Thousand (300,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.

(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

4. GRANT OF RIGHTS; OFFERING.

(A) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.

(B) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have

2.
<PAGE>

identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.

5. ELIGIBILITY.

(A) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.

(B) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:

(I) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;

(II) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and

(III) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.

(C) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.

(D) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's

3.
<PAGE>

rights to purchase stock of the Company or any Affiliate to accrue at a rate
which exceeds twenty five thousand dollars ($25,000) of the fair market value of
such stock (determined at the time such rights are granted) for each calendar
year in which such rights are outstanding at any time.

(E) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.

6. RIGHTS; PURCHASE PRICE.

(A) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding ten percent (10%) of such employee's
Earnings (as defined by the Board or the Committee in each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.

(B) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.

(I) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or

(II) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.

"Fair market value" means, as of any date, the value of the Common Stock
determined as follows:

(X) If the Common Stock is listed on any established stock exchange
or traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the fair market value of a share of Common Stock shall be the
closing sales price for such stock

4.
<PAGE>

(or the closing bid, if no sales were reported) as quoted on such exchange
or market (or the exchange or market with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source
as the Board deems reliable;

(Y) In the absence of such markets for the Common Stock, the fair
market value shall be determined in good faith by the Board; and

(Z) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of
the California Code of Regulations.

For the Initial Offering, the fair market value of the Common Stock at the time
when the Offering commences shall be the price per share at which shares of
Common Stock are first sold to the public in the Company's initial public
offering as specified in the final prospectus with respect to that offering.

7. PARTICIPATION; WITHDRAWAL; TERMINATION.

(A) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering (as defined by the Board or Committee in each Offering). The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.

(B) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.

(C) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and

5.
<PAGE>

any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the terminated employee) under the Offering, without interest.

(D) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.

8. EXERCISE.

(A) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.

(B) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.

6.
<PAGE>

9. COVENANTS OF THE COMPANY.

(A) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.

(B) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.

11. RIGHTS AS A STOCKHOLDER.

A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(A) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the class(es) and number of shares and
price per share of stock subject to outstanding rights. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

(B) In the event of: (1) a dissolution or liquidation of the Company; (2)
a sale of all or substantially all of the Company's assets; (3) a merger or
consolidation in which the Company is not the surviving corporation; (4) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (5) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3

7.
<PAGE>

promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, as determined by the
Board in its sole discretion (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.

13. AMENDMENT OF THE PLAN.

(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 423 of the Code, Rule 16b-3 or any NASDAQ or
securities exchange listing requirements.

(B) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval.

(C) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.

(D) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.

14. DESIGNATION OF BENEFICIARY.

(A) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.

(B) The participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such shares and/or cash to the
spouse

8.
<PAGE>

or to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other person
as the Company may designate.

15. TERMINATION OR SUSPENSION OF THE PLAN.

(A) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares subject to the Plan's share reserve, as increased and/or adjusted
from time to time, have been issued under the terms of the Plan. No rights may
be granted under the Plan while the Plan is suspended or after it is terminated.

(B) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.

16. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on the same day that the Company's initial
public offering of shares of common stock becomes effective (the "Effective
Date"), but no rights granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.

9.
<PAGE>

CLARENT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN OFFERING

ADOPTED BY BOARD OF DIRECTORS APRIL 8, 1999

1. GRANT; OFFERING DATE.

(A) The Board of Directors of Clarent Corporation, a Delaware corporation
(the "Company"), pursuant to the Company's 1999 Employee Stock Purchase Plan
(the "Plan"), hereby authorizes the grant of rights to purchase shares of the
common stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first day of an Offering is that Offering's "Offering Date." An
Offering may consist of one (1) or more consecutive "Purchase Periods." The last
day of each Purchase Period during an Offering shall be a "Purchase Date" for
that Offering. If an Offering Date or Purchase Date does not fall on a day
during which the Company's Common Stock is actively traded, then the Offering
Date or Purchase Date, as the case may be, shall be the next subsequent day
during which the Company's Common Stock is actively traded.

(B) Unless otherwise specifically provided herein, an Offering shall begin
on each May 16 and November 16 and shall end six (6) months thereafter on
November 15 and May 15, as the case may be.

(C) The first Offering shall begin on the effective date of the initial
public offering of the Company's Common Stock and end on May 15, 2001, unless
terminated sooner as herein provided (the "Initial Offering"). The Initial
Offering shall be divided into four (4) shorter Purchase Periods of
approximately six (6) months in duration. The first such Purchase Period shall
begin on the Offering Date and shall end on November 15, 1999, the second
Purchase Period shall begin on November 16, 1999, and end on May 15, 2000, the
third Purchase Period shall begin on May 16, 2000, and end on November 15, 2000,
and the fourth Purchase Period shall begin on November 16, 2000, and end on May
15, 2001. Thereafter, an Offering shall begin on May 16 and November 16 of
every year and end six(6) months later on the day prior to the next Offering
Date.

(D) Prior to the commencement of any Offering, the Board of Directors (or
the Committee described in subparagraph 2(c) of the Plan, if any) may change any
or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.

(E) Notwithstanding any other provisions of an Offering, if the terms of an
Offering as previously established by the Board of Directors of the Company
would, as a result of a change to applicable accounting standards, as a result
of obtaining shareholder approval during such Offering for shares of Common
Stock that would be issued under such Offering (but for the provision of this
Section 1(e), or otherwise, generate a charge to earnings, such Offering shall
terminate effective as of the earlier of (1) the day prior to the date such
change of accounting standards would otherwise first apply to the Offering or
(2) the day prior to the date upon which the maximum aggregate number of shares
of Common Stock available to be purchased by all Eligible Employees under such
Offering (excluding any additional shares of Common Stock made available for
issuance under the Plan by approval of the shareholders of the Company during
the Offering) exceeds the aggregate number of whole shares purchasable by all
Eligible Employees based upon the aggregate of such Employees' payroll
deductions accumulated pursuant to such Offering (the "Offering Termination
Date"), and such Offering Termination Date shall be the final Purchase Date of
such Offering. A subsequent Offering shall commence on such date and on such
terms as shall be provided by the Board of Directors of the Company.

10.
<PAGE>

2. ELIGIBLE EMPLOYEES.

All employees of the Company and each of its Affiliates (as defined in the
Plan) incorporated in the United States, shall be granted rights to purchase
Common Stock under each Offering on the Offering Date (an "Eligible Employee").
Notwithstanding the foregoing, the following employees shall not be Eligible
Employees or be granted rights under an Offering: (i) part-time or seasonal
employees whose customary employment is less than 20 hours per week or five
months per calendar year or (ii) 5% stockholders (including ownership through
unexercised options) described in subparagraph 5(c) of the Plan.

3. RIGHTS.

(A) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to ten percent (10%) of
such Eligible Employee's Earnings paid during such Offering; provided, however,
that no employee may purchase Common Stock on a particular Purchase Date that
would result in more than ten percent (10%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").

(B) For purposes of this Offering, "Earnings" means the total compensation
paid to an employee, including all salary, wages (including amounts elected to
be deferred by the employee, that would otherwise have been paid, under any cash
or deferred arrangement established by the Company), overtime pay, commissions,
bonuses, and other remuneration paid directly to the employee, but excluding
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation.

(i) Each employee who was not eligible on the Offering Date for the
Initial Offering but who first becomes an Eligible Employee during the Initial
Offering and prior to November 16, 1999 shall (upon delivery of the designated
enrollment form, no later than November 24, 1999 to the Company or designated
Affiliate) on November 16, 1999 during that Offering, be granted the right to
purchase the number of shares of Common Stock purchasable with up to ten percent
(10%) of such employee's Earnings paid during his or her participation in such
Offering, which right shall be deemed to be a part of the Offering. Such right
shall have the same characteristics as any rights originally granted under the
Offering, except that (i) the date on which such a right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right; and (ii) the Offering for such right shall begin
on its Offering Date and end coincident with the end of the ongoing Offering;

(ii) Each employee who was not eligible on the Offering Date for the
Initial Offering but who first becomes an Eligible Employee during the Initial
Offering and prior to May 16, 2000, but after November 15, 1999, shall (upon
delivery of the designated enrollment form, no later than May 24, 2000, to the
Company or designated Affiliate) on May 16, 2000, during that Offering, be
granted the right to purchase the number of shares of Common Stock purchasable
with up to ten percent (10%) of such employee's Earnings paid during his or her
participation in such Offering, which right shall be deemed to be a part of the
Offering. Such right shall have the same characteristics as any rights
originally granted under the Offering, except that (i) the date on which such a
right is granted shall be the "Offering Date" of such right for all purposes,
including determination of the exercise price of such right; and (ii) the
Offering for such right shall begin on its Offering Date and end coincident with
the end of the ongoing Offering; and

(iii) Each employee who was not eligible on the Offering Date for the
Initial Offering but who first becomes an Eligible Employee during the Initial
Offering and prior to November 16, 2000, but after May 15, 2000, shall (upon
delivery of the designated enrollment form, no later than November 24, 2000, to
the Company or designated affiliate) on November 16, 2000, during that Offering,
be granted the right to purchase the number of shares of Common Stock
purchasable with up to ten percent (10%) of such employee's Earnings paid during
his or her participation in such Offering, which right shall be deemed to be a
part of the Offering. Such right shall have the same characteristics as any
rights originally granted under the Offering, except that (i) the date on which
such a right is granted shall be the "Offering Date" of such right for all
purposes, including determination of the exercise price of such right; and (ii)
the Offering for such right shall begin on its Offering Date and end coincident
with the end of the ongoing Offering.

11.
<PAGE>

(D) The maximum number of shares of Common Stock an Eligible Employee may
purchase on any Purchase Date in an Offering shall be such number of shares as
has a fair market value (determined as of the Offering Date for such Offering)
equal to (x) $25,000 multiplied by the number of calendar years in which the
right under such Offering has been outstanding at any time, minus (y) the fair
market value of any other shares of Common Stock (determined as of the relevant
Offering Date with respect to such shares) which, for purposes of the limitation
of Section 423(b)(8) of the Code, are attributed to any of such calendar years
in which the right is outstanding. The amount in clause (y) of the previous
sentence shall be determined in accordance with regulations applicable under
Section 423(b)(8) of the Code based on (i) the number of shares previously
purchased with respect to such calendar years pursuant to such Offering or any
other Offering under the Plan, or pursuant to any other Company plans intended
to qualify as "employee stock purchase plans" under Section 423 of the Code, and
(ii) the number of shares subject to other rights outstanding on the Offering
Date for such Offering pursuant to the Plan or any other such Company plan.

(E) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.

4. PURCHASE PRICE.

The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering as specified in the final prospectus with
respect to that offering.

5. PARTICIPATION.

(A) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering, or such later date specified in subparagraph
3(c). An Eligible Employee shall become a participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole dollars or whole percentages, with a maximum percentage of ten percent
(10%) of Earnings. A participant may not make additional payments into his or
her account. The agreement shall be made on such enrollment form as the Company
or a designated Affiliate provides, and must be delivered to the Company or
designated Affiliate no more than seven (7) days after the Offering Date, or
before such later date specified in subparagraph 3(c), to be effective, unless a
later time for filing the enrollment form is set by the Board for all Eligible
Employees with respect to a given Offering Date. For the Initial Offering, the
time for filing an enrollment form and commencing participation for individuals
who are Eligible Employees on the Offering Date for the Initial Offering may be
more than seven (7) days

12.
<PAGE>

after the Offering Date, as determined by the Company and communicated to such
Eligible Employees. (If the agreement authorizing payroll deductions is
required to be delivered to the Company or designated Affiliate a specified
number of days before the Offering Date to be effective, then an employee who
becomes eligible during the required delivery period shall not be considered to
be an Eligible Employee at the beginning of the Offering but may elect to
participate during the Offering as provided in subparagraph 3(c).)

(B) A participant may increase or reduce (including to zero) his or her
participation level effective as of November 16, 1999, May 16, 2000, and
November 16, 2000, during the course of the Initial Offering. Any such change in
participation shall be made by delivering a notice to the Company or a
designated Affiliate in such form and at such time as the Company provides. In
addition, a participant may increase or decrease his or her deductions prior to
the beginning of a new Offering to be effective at the beginning of such new
Offering. Except as otherwise specifically provided herein, a participant may
not increase or decrease his or her participation level during the course of an
Offering.

(C) A participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the participant on
any prior Purchase Dates), without interest, at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to participants) by delivering a withdrawal notice to the Company
in such form as the Company provides. A participant who has withdrawn from an
Offering shall not again participate in such Offering but may participate in
subsequent Offerings under the Plan by submitting a new participation agreement
in accordance with the terms thereof.

(D) A participant shall automatically participate in the Offering
commencing immediately after the final Purchase Date of each previous Offering
in which the participant participates until such time as such participant (i)
ceases to be an Eligible Employee, (ii) withdraws from the Offering or (iii)
terminates employment. A participant who automatically participates in a
subsequent Offering is not required to file any additional enrollment form for
such subsequent Offering in order to continue participation in the Plan.
However, a participant may file an enrollment form with respect to such
subsequent Offering if the participant desires to change any of the
participant's elections contained in the participant's then effective enrollment
form.

6. PURCHASES.

Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering.

7. RESTRICTIONS UPON SALE OF SHARES.

Shares of the Company's Common Stock purchased pursuant to the Initial
Offering may not be sold during the 180-day lock-up period immediately following
the IPO. In addition, Employees who participate in an Offering will be subject
to the Clarent Corporation Insider Trading Policy including the Company's
"window period" guidelines.

8. NOTICES AND AGREEMENTS.

Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or

13.
<PAGE>

this Offering shall be deemed effectively given upon receipt or, in the case of
notices and agreements delivered by the Company, five (5) days after deposit in
the United States mail, postage prepaid.

9. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

The rights granted under an Offering are subject to the approval of the
Plan by the stockholders as required for the Plan to obtain treatment as a tax-
qualified employee stock purchase plan under Section 423 of the Code.

10. OFFERING SUBJECT TO PLAN.

Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations that may from time to time be
promulgated and adopted pursuant to the Plan), the provisions of the Plan shall
control.

14.

<PAGE>

EXHIBIT 10.12

CLARENT CORPORATION CUSTOMER AGREEMENT

1. DEFINITIONS

1.1. "Confidential Information" means any confidential or proprietary
information, firmware, software mask works, designs, schematics, plans or any
other information relating to any research project, work in process, future
development, scientific, engineering, manufacturing, marketing or business plan
or financial or personnel matter relating to either party, its present or future
products, sales, suppliers, customers, employees, investors or business,
identified by the disclosing party as Confidential Information, whether in oral,
written, graphic or electronic form.

1.2. "Marks" means the trademarks, logos and trade names that Clarent uses
to identify the Software and/or System.

1.3. "Sale" or any reference to sale, purchase, resale, or selling the
Software or Systems means license, sublicense, or licensing to the extent it
refers to the Software or the Software included in such Systems.

1.4. "Sales Order Form" means the Clarent sales order form accompanying
this Customer Agreement.

1.5. "Software" means the software, and documentation thereto, owned or
licensed by Clarent, as more fully described in the face of this Clarent Sales
Order Form.

1.6. "System" means the Clarent Gateway system, consisting of Software
combined with certain hardware as more fully described on the face of this
Clarent Sales Order Form.

2. PURCHASE AND PAYMENT

2.1. Purchase. Customer agrees to purchase the Systems set forth in the
Sales Order Form at the rates and within the time period set forth on such Sales
Order Form. If any minimum purchase amount is set forth on the Sales Order Form
(the "Minimum Purchase"), in the event that Customer fails to purchase the
Minimum Purchase during the term, Customer shall, within thirty (30) days of
invoice by Clarent, remit to Clarent the difference between the Customer Price
set out on the Sales Order Form and the Clarent list price for all Systems
actually purchased during that period.

2.2. Payment Terms.

2.2.1. Payment. Unless otherwise set forth on the Sales Order Form,
Customer shall pay Clarent within thirty (30) days of receipt of Clarent's
invoice for items purchased hereunder. All amounts listed on the Sales Order
Form are and all payments shall be in U.S. Dollars.

2.2.2. Late Payments. If Clarent has not received payment in full for
Systems previously delivered to Customer, Clarent may in its sole discretion, in
addition to any other remedies it may have at law or in equity, (a) require
immediate payment prior to delivery of any additional Systems, or (b) refuse
shipment of additional Systems or other products or services until all amounts
then due are paid, or (c) demand and Customer agrees to immediately return to
Clarent, at Customer's expense, any Systems or other products, or (d) exercise
any right under this Agreement, Clarent's Credit Policy as applicable (if such
has been executed by Customer and Clarent with respect to items ordered
hereunder). In the event that no payments are received by Clarent within sixty
(60) days of any payment becoming due, Customer shall upon request from Clarent
return all Systems for which payment is late; further Clarent shall have the
right to enter onto the premises of Customer or such other location where the
equipment is housed to take possession of such equipment.

2.2.3. Interest. Customer shall pay to Clarent interest of one and
one-half percent (1.5%) per month or the maximum legal rate in effect, whichever
is less, of any amount not paid when due.

2.3. Maintenance, Updates and Training. Customer agrees to pay the amounts
set forth on the Sales Order Form for the support services selected by Customer,
if any. In the event that Clarent makes available updates to the Software,
Customer shall purchase such update at Clarent's then-current list price for
such updates and shall install such upgrades promptly. Customer agrees to pay
the amounts set forth on the Sales Order Form for the training selected by
Customer.

2.4. Taxes, Fees and Documentation. Customer agrees to pay, and to
indemnify and hold Clarent harmless from, any sales, use, excise, withholding,
import or export, value added or similar tax, not based on Clarent's gross
income, and all government permit or license fees and all customs, duty, tariff
and similar fees levied upon the delivery of the Software or Systems and any
other deliverables, and any costs associated with the collection or withholding
thereof, including penalties and interest (the "Taxes"). Customer shall be
responsible for obtaining, at its expense, all required import licenses,
<PAGE>

permits or other governmental orders. If a resale certificate or other
certificate, document or other evidence of exemption or payment or withholding
of taxes by Customer is required in order to exempt the distribution or
licensing of the Software or Systems from any such liability or to enable
Clarent to claim any tax exemption, credit or other benefit, Customer will
promptly furnish such certificate or document to Clarent.

2.5. Audit and Reporting. Customer shall deliver to Clarent weekly reports
setting forth amounts received from which Clarent is due a percentage as set
forth on the Sales Order Form; such reports shall include invoices sent by
Customer to the parties owing payment to Customer. Clarent will have the right
to engage, at its own expense, an independent auditor to examine Customer's
records from time to time as may be necessary to determine the correctness of
any report or payment made under this Agreement. If any audit conducted on
behalf of Clarent shows that Customer underpaid the sums due to Clarent under
this Agreement, then Customer shall immediately pay to Clarent any such
deficiency with interest thereon at a rate equal to the lower of one and a half
percent per month or the highest rate allowed by law from the date due until
paid or at such lower rate as shall be the maximum rate permitted by law. If any
such audit reveals an underpayment of more than five percent of the correct
amount of royalties due hereunder, such audit will be at the expense of
Customer.

2.6. Purchase Money Security Interest. To secure Customer's
obligations to Clarent under this Agreement, Customer hereby grants to Clarent a
first priority purchase money security interest in any now existing or hereafter
acquired Collateral (defined below). "Collateral" shall mean all Systems that
have not been paid for in full, including all improvements, modifications,
substitutions, replacements and proceeds thereof. Proceeds shall have the
meaning given to such term in the Uniform Commercial Code as in effect in the
State of California from time to time. At any time and from time to time, upon
request of Clarent, and at the sole expense of Customer, Customer shall promptly
execute and deliver any and all such further instruments and documents and take
such further actions as Clarent may request in order to perfect and maintain the
first priority of Clarent's security interest, including, without limitation,
the execution and delivery of UCC-1 financing statements. Customer hereby
irrevocably constitutes and appoints Clarent, and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of Customer and in
the name of Customer or in its own name, from time to time at Clarent's
discretion, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
perfect and maintain the first priority of Clarent's security interest. The
power of attorney granted pursuant to this Section 2.6 is a power coupled with
an interest and shall be irrevocable until all of Customer's obligations under
this Agreement are paid and performed in full. Notwithstanding anything herein
to the contrary, this section and the security interest granted herein shall
survive termination of this Agreement and shall remain effective until all
obligations of Customer secured hereunder have been satisfied in full. Customer
shall indemnify Clarent for all claims, losses, liabilities, damages, costs and
expenses, including reasonable attorneys' fees, which Clarent may incur in
connection with the enforcement of the security interest granted herein.

3. DELIVERY AND ACCEPTANCE

3.1. Shipment. Clarent will use commercially reasonable efforts to meet the
delivery dates set forth on the Sales Order Form. Unless otherwise set forth on
the Sales Order Form, all shipments of Systems shall be F.C.A. shipping point,
freight and insurance prepaid and billed to Customer, and risk of loss of the
Systems shall pass to Customer upon delivery to the carrier. Acceptance of
Systems by Customer under this Agreement shall be deemed to have taken place
upon delivery to the carrier.

3.2. Short Supply. Both parties recognize that from time to time Clarent or
its suppliers may, due to manufacturing and supply difficulties, be unable to
supply Systems in the quantities ordered by Customer. In such event Clarent
shall be entitled to allocate to Customer such amounts of Systems as Clarent
deems reasonable in the circumstances.

4. LICENSE AND OWNERSHIP

4.1. License. Subject to the terms and conditions of this Agreement,
including but not limited to Customer paying the purchase price of the
applicable System, Clarent grants Customer a nonexclusive, non-transferable
license to use the Software which is included in each System solely in
connection with such System for Customer's internal use only. The Software may
only be copied, in whole or in part (with the proper inclusion of existing
copyright notice(s) and other proprietary notice(s) on or in such Software) as
may be necessary and
<PAGE>

incidental to use on such System, and for reasonable archival and back-up
purposes.

4.2. Ownership. Customer acknowledges and agrees that Clarent or its
licensors and suppliers are and shall remain the sole owners of all intellectual
property rights in and to the Systems and Software and any improvements thereto
(the "Improvements") and that Customer has no rights in or to the Software or
intellectual property rights thereto, the Systems or any Improvements, or any
components of the foregoing. Customer agrees that it will only use the Software
in conjunction with the Systems and for the purposes set forth in this
Agreement. Clarent reserves all rights in the Software not expressly granted
under this Agreement. Except as expressly permitted under this Agreement,
Customer may not use, copy, modify, create derivative works of, distribute,
sell, assign, pledge, sublicense, lease, loan, or rent, or otherwise transfer
the Software, nor permit any other party to do any of the foregoing.

4.3. No Reverse Engineering. Customer acknowledges that Clarent protects
the human readable source code version of the Software as its trade secret and
therefore Customer agrees not to disassemble or otherwise reverse engineer the
Software for any reason, or permit any third party to do so. In the event that
any applicable jurisdiction would permit to gain access to the source code
notwithstanding the previous sentence, Customer agrees to notify Clarent and
negotiate with Clarent the terms under which Clarent would provide such source
code prior to engaging in any reverse engineering or disassembly.

5. CONFIDENTIALITY

5.1. Confidential Information. Customer will maintain in confidence all
Confidential Information disclosed by Clarent. Customer will not use, disclose
or grant use of such Confidential Information except as expressly authorized by
this Agreement. To the extent that disclosure is authorized by this Agreement,
Customer will obtain prior agreement from its employees, agents or consultants
to whom disclosure is to be made to hold in confidence and not make use of such
information for any purpose other than those permitted by this Agreement.
Customer will use and require that employees, agents and consultants use at
least the same standard of care as Customer uses to protect its own Confidential
Information of a similar nature from unauthorized use or disclosure. Customer
will promptly notify Clarent upon discovery of any unauthorized use or
disclosure of the Confidential Information. Customer agrees that the prices and
discounts offered to Customer by Clarent shall be Confidential Information.
Notwithstanding any other provision in this Agreement to the contrary, the
obligations set forth in this Section 5 shall survive any termination or
expiration of this Agreement in perpetuity.

5.2. Exceptions. The obligations of confidentiality contained in this
Section 5 will not apply to the extent that it can be established by Customer by
competent proof that such Confidential Information: (a) was already known to the
Customer, other than under an obligation of confidentiality, at the time of
disclosure by Clarent; (b) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to Customer; (c) became
generally available to the public or otherwise part of the public domain after
its disclosure and other than through any act or omission of Customer in breach
of this Agreement; (d) was disclosed to Customer, other than under an obligation
of confidentiality, by a third party who had no obligation to Clarent not to
disclose such information to others.

6. PROPRIETARY RIGHTS NOTICES

6.1. Trademark Notices. Customer shall not remove, replace or obscure any
of the trademarks, logos or trade names of the Systems, Software or any
component thereof ("Marks") unless approved in advance in writing by Clarent.
Nothing contained in this Agreement shall be construed to grant Customer any
right, title or interest in or to the Marks. Customer acknowledges Clarent's
exclusive ownership of the Marks and the renown of such Marks worldwide.
Customer shall not adopt, use or attempt to register any trademarks, service
marks or trade names that are confusingly similar to the Marks or in such a way
as to create combination marks with Marks. Customer shall take reasonable steps
to protect Marks and advise Clarent immediately in writing if Customer becomes
aware of any possible infringement of the Marks or problems in protecting the
Marks.

6.2. Copyright Notices. Customer shall not remove, obscure or alter any
proprietary notices on the Software, including without limitation copyright
notices, and shall not permit any third party to do so.

7. MARKETING COOPERATION

7.1. Publicity. Customer agrees that Clarent may issue a press release
regarding this Agreement in a form approved by Customer, which approval shall
not be unreasonably withheld or delayed. Customer agrees that Clarent may list
Customer on its list of current customers, so long as Customer is using Clarent
Systems.
<PAGE>

7.2. Clarent Reference. Customer agrees to act as a reference for existing
and prospective customers. Customer shall designate an employee to act as a
referral for Clarent customers and prospective customers, and in the event that
such customers contact Customer, they shall be referred to the designated
employee who shall use diligent efforts to promote Clarent and the Systems for
such customer.

8. WARRANTY

8.1. Limited Warranty. Clarent warrants to Customer that the Software and
Systems will perform in substantial accordance with the documentation
accompanying such Systems for a period of thirty days after delivery of the
Software or System to Customer (the "Warranty Period"). Clarent does not warrant
that Software or Systems are error free or that the Software or Systems perform
the functions desired by Customer. The warranty set forth in this Section 8.1
not apply and shall terminate if (i) any form of the Software or System has been
subject to accident, abuse, misuse, not used in accordance with Clarent's
instructions, misapplication or modified by a party not authorized by Clarent;
or (ii) any hardware component of the System is opened, altered, or repaired by
a repair facility not authorized by Clarent. Clarent's entire liability and
Customer's entire remedy will be for Clarent to use reasonable commercial
efforts to correct or provide a work-around for any reproducible nonconformity
with the warranty in the Software which is reported to Clarent by Customer
during the Warranty Period and to repair or replace any defective hardware
portions of the System which are returned to it by Customer (at Customer's
expense) during the Warranty Period.

8.2. Warranty Limitation. Except for the express limited warranty set forth
in Section 8.1, clarent makes no other warranties or conditions, either express,
implied or statutory, for the software and system and disclaims all implied
warranties, including without limitation the implied warranties or conditions of
title, non-infringement, merchantability and fitness for a particular purpose.

8.3. Exclusive Remedy. The remedies stated in this section constitute
Clarent's sole and exclusive obligations for breach of the warranty set forth in
this Agreement.

9. LIMITATION OF LIABILITY

Except for breaches of Sections 4, 5, 6 and 10.2, (a) no claim or liability by
either party shall be greater in amount than the purchase price of the order in
respect of which damages are claimed, and (b) neither party will be liable for
any loss of use, interruption of business, loss of data, lost profits, or any
indirect, special, incidental, or consequential damages of any kind regardless
of the form of action whether in contract, tort (including negligence), strict
product liability, or otherwise, even if such party has been advised of the
possibility of such damages. The parties agree that this Section 9 is an
essential element of this agreement and that absent this section the economic
terms of this agreement and the sales order form would be substantially
different.

10. INDEMNIFICATION

10.1. Clarent Indemnity. Clarent shall defend, indemnify and hold Customer
harmless from against any final judgments, including without limitation
reasonable attorney's fees of Customer therefor, that the Software developed by
Clarent infringes any copyright or misappropriates any trade secret, provided,
however, that Clarent shall not indemnify Customer for a claim based on any
alleged infringement arising from (a) changes or modifications to the Systems by
Customer or any third party or not authorized by Clarent, (b) any incorporation
of the Systems or any component thereof into any product or process, (c) any use
by Customer of any Systems subsequent to availability to Customer of redesigned
or otherwise superseding versions of such Systems or components thereof, or (d)
use of the Software outside of a System, or (e) use of Software or System not in
accordance with the License expressly granted in this Agreement. The foregoing
describes Carent's sole obligation and Customer's sole and exclusive remedy with
respect to any infringement, claim of infringement relating to the Software or
the System or any part thereof, or any intellectual property right.

10.2. Customer Indemnity. Customer shall indemnify and hold Clarent
harmless from and will defend against any and all claims, suits, losses,
damages, costs, fees and expenses, including without limitation attorneys' fees,
brought against Clarent that any use of or modifications to the Software or the
Systems or components thereof by Customer infringes any patent or copyright of
any third party or misappropriates any trade secret of a third party, provided,
however, that Customer shall not indemnify Clarent for a claim based on any
alleged infringement arising from any claim that would lie absent such
modification.
<PAGE>

10.3. Notice and Assistance. An indemnifying party under this section 10
shall only be liable for providing indemnification hereunder if the indemnified
party (i) notifies the indemnifying party promptly in writing of the claim, (ii)
gives the indemnifying party sole control to defend, compromise or settle the
claim, and (iii) provides all available information, assistance and authority at
the indemnifying party's reasonable expense to enable the indemnifying party to
do so. The indemnified party can participate in the defense or settlement of any
such claim at its own expense. Customer shall not enter into any settlement or
compromise under its obligations set forth in Section 10.2 without the prior
written consent of Clarent.

11. TERMINATION

11.1. Termination for Cause. This Agreement may be terminated by either
party upon written notice to the breaching party of a material breach or
repetitive breaches of any term of this Agreement by such party which is not
remedied within thirty (30) days after receipt of notice by the non-breaching
party specifying such breach and requesting that it be remedied.

11.2. Immediate Termination. This Agreement may be terminated by Clarent
immediately upon written notice to Customer (i) in the event that Customer has
not paid Clarent amounts due in accordance with the Sales Order Form within five
(5) business days of receipt of notice from Clarent of non-payment; or (ii) of
any breach by Customer of Sections 4 or 5. This Agreement may be terminated by
Clarent immediately without notice in the event of any bankruptcy or insolvency
proceedings against Customer under the U.S. Bankruptcy Act or equivalent foreign
law.

11.3. Effect of Termination. Upon expiration or termination of this
Agreement for any reason, Customer's right to acquire Software and Systems
hereunder shall immediately terminate. However, unless this Agreement is
terminated because of Customer's failure to pay or material uncured breach, the
expiration or termination of this Agreement will not affect Customer's right to
continue using the Software, subject to the surviving terms and conditions of
this Agreement as well as the provisions set forth in Section 4. In the event
that Customer has not purchased the Minimum Purchase prior to any termination of
this Agreement, Customer shall immediately pay Clarent the difference in U.S.
Dollars between the discounts for Software and Systems actually ordered (as
applicable) and Clarent's current list price therefor.

11.4. Intellectual Property Rights and Remedies. Nothing in this Agreement
is intended to waive or limit extra-contractual rights and remedies available to
Clarent to protect its proprietary interest in the Software, including, without
limitation, those rights and remedies under U.S. Copyright Law, the Berne
Convention or other international treaties, or applicable national copyright and
intellectual property laws of the countries in which Customer may use the
system.

12. SURVIVAL.

Upon any termination or expiration of this Agreement, Sections 1, 5, 8.2, 9,
10.2, 11, 13 and 14 shall survive.

13. EXPORT.

Customer acknowledges that the laws and regulations of the United States
restrict the export and re-export of commodities and technical data of United
States origin, including portions of the Software and the System. Customer
agrees that it will not export or re-export the Software or the System in any
form, without the appropriate United States and foreign governmental licenses.
Customer will not export Software or Systems without the prior written approval
of Clarent.

14. MISCELLANEOUS

14.1. Assignment. No right may be assigned and no duty may be delegated by
Customer under this Agreement except upon the written consent of Clarent and any
attempted assignment and delegation without such consent shall be void and
without effect. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective representatives, heirs,
administrators, successors and permitted assigns except as otherwise provided
herein.

14.2. Notices. Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given to either party
hereto by the other party shall be in writing and shall be deemed duly served
and given when personally delivered to either of the parties to whom it is
directed, or in lieu of such personal service, on the same day of transmission
by confirmed facsimile or seven days after deposit in the mail, first class air
mail postage prepaid, or two business days after being sent by express courier,
addressed to the addresses set forth above or such other addresses as the
parties may indicate in writing from time to time.

14.3. Force Majeure. Except for the duty of payment for goods and services
previously supplied,
<PAGE>

neither party shall be responsible or liable to the other party for
nonperformance or delay in performance of any terms or conditions of this
Agreement due to acts of God, acts of governments, wars, riots, strikes or
other labor disputes, shortages of labor or materials or other causes beyond
the reasonable control of the non-performing or delayed party.

14.4. No Waiver. Any waiver (express or implied) by either party of any
breach of this Agreement shall not constitute a waiver of any other or
subsequent breach. No provision of the Agreement will be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving party.

14.5. Compliance with Law. Each party shall obey all applicable laws and
regulations in the performance of its respective duties and tasks under this
Agreement.

14.6. Severability. If any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, unenforceable or
excessively broad it shall be construed, by limiting and reducing it, so as to
be enforceable to the fullest extent permissable under the applicable law and
the remaining provisions of this Agreement will remain in full force and effect.

14.7. Independent Contractors. Each party hereto is an independent
contractor of the other and neither shall be deemed an employee, agent, partner
or joint venturer of the other. Neither party shall make any commitment, by
contract or otherwise, binding upon the other nor represent that it has any
authority to do so.

14.8. Governing Law/Jurisdiction. This Agreement shall for all purposes be
governed by and interpreted in accordance with the laws of the State of
California as those laws are applied to contracts entered into and to be
performed entirely in California by California residents. Any suit or proceeding
arising out of or relating to this Agreement shall be commenced in a federal
court in the Northern District of California or in state court in Santa Clara
County, California, and each party irrevocably submits to the jurisdiction and
venue of such courts. The parties expressly agree that the United Nations
Convention on the International Sale of Goods shall not apply to this Agreement.

14.9. Language. This Agreement is in the English language only, which
language shall be controlling in all respects. All communication and notices
hereunder shall be in the English language.

14.10. Government Approvals and Authority. Each party represents that all
corporate action necessary for the authorization, execution and delivery of this
Agreement by such party and the performance of its obligations hereunder has
been taken. Customer represents and warrants hat no consent or approval with any
governmental authority is required in connection with the valid execution and
performance of this Agreement. Customer shall be responsible for timely filings
of this Agreement with any government commissions or agencies in the
jurisdictions in which the Systems are purchased or used.

14.11. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.

14.2. Entire Agreement. The Sales Order Form together with this agreement
constitutes the entire agreement of Clarent and Customer with regard to the
subject matter hereof and supersedes all prior negotiations and agreements,
whether written or oral. This Agreement may be amended only by a written
document executed by authorized representatives of Clarent and Customer.
<PAGE>

Clarent System License Agreement
--------------------------------

THIS AGREEMENT IS PROOF OF YOUR RIGHT TO USE THE SOFTWARE CONTAINED IN THE
CLARENT SYSTEMS AND CONTAINS ADDITIONAL INFORMATION CONCERNING CLARENT'S PRODUCT
WARRANTY AND LIMITATIONS OF LIABILITY. PLEASE READ IT CAREFULLY.

This Agreement is between you (either an individual or an entity) and Clarent
Corporation ("Clarent"). Clarent is willing to grant you the following rights to
use the enclosed software and its accompanying documentation (collectively, the
"Software") and the hardware systems with which they are bundled (the
"Hardware") only if you agree to be bound by all of the terms of this Agreement
(the Hardware and Software are referred to collectively as the "System"). By
using the Software or System, you agree to be bound by all the terms of this
Agreement. If you do not agree to be bound by all the terms of this Agreement,
Clarent is unwilling to grant you any rights to use the Software and you must
not use the Software or System; instead you must promptly return the System to
Clarent for a full refund.

1. Ownership. The Software is and shall remain a proprietary product of Clarent.
Clarent and Clarent's suppliers shall retain ownership of all patents,
copyrights, trademarks, trade names, trade secrets and other proprietary rights
relating to or residing in the Software. Except for the license grant provided
in Section 2, you shall have no right, title or interest in or to the Software.
The Software is licensed, not sold, to you for use only under the terms of this
Agreement. If you agree to be bound by all of the terms of this Agreement by not
returning the System to Clarent, you will only own the media on which the
Software has been provided and not the Software itself.

2. Grant of License. Clarent grants you a personal, non-exclusive, restricted
right solely to use one copy of the Software on the Hardware in the country in
which you acquired the System for your own internal business purposes. You agree
not to exceed the scope of the licenses granted herein. You understand that
Clarent may update the Software at any time and in doing so incurs no obligation
to furnish such updates to you pursuant to this Agreement.

3. Restrictions. Clarent reserves all rights in the Software not expressly
granted to you. Except as permitted in Section 2, you may not use, copy, modify,
create derivative works of, distribute, sell, assign, pledge, sublicense, lease,
loan, rent, timeshare, deliver or otherwise transfer the Software, nor permit
any other party to do any of the foregoing. You may not remove from the Software
or alter any of the trademarks, trade names, logos, patent or copyright notices
or markings, or add any other notices or markings to the Software. You may not
derive or attempt to derive the source code of the Software by any means, nor
permit any other party to derive or attempt to derive such source code. Except
to the extent permissible by applicable law, and in such case only to the
minimum extent applicable, you may not reverse engineer, decompile, disassemble,
or translate the Software or any part thereof. You agree to keep all
documentation delivered with the System under the strictest confidence and shall
not distribute such items to any third party or copy them.

4. Limited Warranty. Clarent warrants that the System will perform substantially
in accordance with the documentation provided by Clarent for a period of one
year from your receipt of the System. This limited warranty is void if failure
of the System to conform with the warranty has resulted from improper
installation, testing, misuse, neglect, accident, fire or other like cause or
event, or any breach of this Agreement.

5. Limited Remedies. In the event of a breach of the foregoing limited warranty,
you must return the System to Clarent or the Clarent
<PAGE>

authorized distributor that provided you with the System, shipping prepaid,
before the expiration of the warranty period, with a copy of the invoice for
the Software. Clarent's entire liability and your exclusive remedy shall be,
at Clarent's sole discretion, either to (i) provide a replacement System or
(ii) refund the fee paid for the System and terminate this Agreement. The
replacement will be warranted for the remainder of the original warranty
period or thirty (30) days, whichever is longer.

6. No Other Warranties. Other than the foregoing limited warranty, which is made
solely by Clarent and not by any Clarent supplier, the Software is being
licensed and the Hardware is being transferred to you "as is," without warranty
of any kind. Clarent and Clarent's suppliers disclaim all other warranties,
express or implied, including without limitation the warranties of
merchantability, fitness for a particular purpose, title and noninfringement of
third party rights. Some jurisdictions do not allow the disclaimer of implied
warranties, so the above disclaimer may not apply to you, in which case the
duration of any such implied warranties is limited to sixty (60) days from the
date the software is received by you. This warranty gives you specific legal
rights. You may have other legal rights which vary from jurisdiction to
jurisdiction.

7. Limitation of Liability. Clarent's aggregate liability in connection with
this agreement and the Software, Hardware, and System regardless of the form of
the action giving rise to such liability (whether in contract, tort or
otherwise), shall not exceed the fees paid to Clarent for the System. No Clarent
supplier shall have any liability whatsoever under this agreement. Clarent and
Clarent's suppliers shall not be liable for any indirect, exemplary, special,
consequential or incidental damages of any kind (including without limitation
lost profits), even if Clarent or such supplier has been advised of the
possibility of such damages. Some jurisdictions do not allow the limitation or
exclusion of liability for consequential or incidental damages so the above
limitation or exclusion may not apply to you. Clarent shall not be liable for
any claims of third parties relating to the software. The limited warranty,
limited remedies and limited liability provisions contained in this agreement
are fundamental parts of the basis of Clarent's bargain hereunder, and Clarent
would not be able to provide the system to you absent such limitations.

8. Termination. You may terminate this Agreement at any time. This Agreement
shall terminate automatically upon your breach of any term of this Agreement.
Upon termination, you shall destroy the Software. Sections 1 and 7 shall survive
termination of this Agreement.

9. Government End Users. The Software is comprised of "commercial computer
software" and "commercial computer software documentation" as such terms are
used in 48 C.F.R. 12.212 (SEPT 1995) and is provided to the Government (i) for
acquisition by or on behalf of civilian agencies, consistent with the policy set
forth in 48 C.F.R. 12.212; or (ii) for acquisition by or on behalf of units of
the Department of Defense, consistent with the policies set forth in 48 C.F.R.
227-7202-1 (JUN 1995) and 227.7202-3 (JUN 1995).

10. Export Control. Since this Software is subject to the export control laws of
the United States, you may not export or re-export the Software without the
appropriate United States and foreign government licenses. You shall otherwise
comply with all applicable export control laws and shall defend, indemnify and
hold Clarent and all Clarent suppliers harmless from any claims arising out of
your violation of any export control laws.

11. Grant of Security Interest. To secure the obligations to Clarent under this
Agreement, the
<PAGE>

undersigned hereby grants to Clarent a first priority security interest in any
now existing or hereafter acquired Collateral (defined below). "Collateral"
shall mean all Systems that have not been paid for in full, including all
improvements, modifications, substitutions, replacements and proceeds thereof.
Proceeds shall have the meaning given to such term in the Uniform Commercial
Code as in effect in the State of California from time to time. At any time
and from time to time, upon request of Clarent, and at your sole expense, you
shall promptly execute and deliver any and all such further instruments and
documents and take such further action as Clarent may reasonably request in
order to perfect and maintain the first priority of Clarent's security
interest, including, without limitation, the execution and delivery of UCC-1
financing statements. The undersigned hereby irrevocably constitutes and
appoints Clarent, and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of you and in your name or in its
own name, from time to time at Clarent's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to perfect and maintain the
first priority of Clarent's security interest. The power of attorney granted
pursuant to this Section 11 is a power coupled with an interest and shall be
irrevocable until all of the obligations under this Agreement are paid and
performed in full or until this Agreement is terminated, whichever is later.
Notwithstanding anything herein to the contrary, this section and the security
interest granted herein shall survive termination of this Agreement and shall
remain effective until all obligations secured hereunder have been satisfied
in full. You shall indemnify Clarent for all claims, losses, liabilities,
damages, costs and expenses, including reasonable attorneys' fees, which
Clarent may incur in connection with the enforcement of the security interest
granted herein.

12. General. This Agreement shall for all purposes be governed by and
interpreted in accordance with the laws of the State of California, USA, as
those laws are applied to contracts entered into and to be performed entirely in
California by California residents. The United Nations Convention on Contracts
for the International Sale of Goods is specifically disclaimed. If any provision
of this Agreement is held by a court of competent jurisdiction to be
unenforceable for any reason, the remaining provisions hereof shall be
unaffected and remain in full force and effect. This Agreement is the final,
complete and exclusive agreement between the parties relating to the subject
matter hereof, and supersedes all prior or contemporaneous understandings and
agreements relating to such subject matter, whether oral or written.

/s/ Zalmen Ashkenazi
Customer:____________________________________

President
Title:_______________________________________

6/25/98
Date:________________________________________

<PAGE>

EXHIBIT 10.13

AT&T

General Agreement for the Procurement of

Data Processing Equipment, Services and Supplies,

The License of Software, Between

Clarent Corporation

and

AT&T Corp.

Agreement made September 17, 1998, by and between Clarent Corporation,
("Supplier") a California corporation, having a place of business at 850
Chesapeake Drive, Redwood City, CA 94063 and AT&T Corp. ("AT&T Corp."), a New
York corporation, having a place of business at 10 Independence Blvd. Warren,
New Jersey, to facilitate the anticipated future procurement of Data Processing
Equipment, the license of Software, and the purchase of Maintenance Services and
Materials.

On the basis of Supplier's representations and in reliance upon Supplier's
expertise in analyzing, designing and providing Internet Protocol (IP)
Telephony, (defined as the conversion of true speech to TCPIP packet technology
for transport and then back to true speech; hardware and/or software appropriate
for the routing and transport of such packets) transport, and related services
for Company's applications, the parties agree as follows:

1
<PAGE>

CONTENTS

ARTICLE DESCRIPTION PAGE
- --------- ---------------------------------------------- -----

I. Definitions Applicable To The Entire Agreement 7-9

II. Provisions Applicable To Purchase
Of Equipment And Materials 10-15

III. Provisions Applicable To License
Of Software 16-23

IV. Provisions Applicable To Maintenance
Services For Equipment 24-30

V. General Provisions Applicable
To Entire Agreement 31-47

Signature Page 48

Attachment A Pricing 49-50

Attachment B Worldwide Clarent Care 51-60
Premium Support Offerings

Attachment C Escrow Agreement 61-72

Attachment D Acceptance Test Process 73-79

Attachment E Site Preparation Specifications 80-82

Attachment F Site Specific Term Sheet 83-89

2
<PAGE>

TABLE OF CONTENTS

ARTICLE DESCRIPTION PAGE
- ------- ----------- ----

I. Definitions Applicable To The Entire Agreement 7-9

II. Provisions Applicable To Purchase 10-15
Of Equipment And Materials

Contents Of Order 11
Definitions 11
Equipment Modification 12
Operating System Software 12
Price Adjustment 12
Return Of Equipment 12
Return Of Materials 12-13
Risk Of Loss 13
Sale 13
Site Preparation And Installation 13
Standard Of Performance And Acceptance Of
Equipment 14
Title 14
Training And Technical Service 15
Warranty 15

III. Provisions Applicable To License 16-23
Of Software

Contents of Order 17-18
Definitions 17
Enhancements And Maintenance 18
Intellectual Property Rights 18
License Fee 17
License Grant 17
Modifications 18-19
Redesignation Or Transfer Of Designated
Site Or Computer 19
Remote Access 19
Risk Of Loss 19
Software And Programming Aids 20
Source Programs And Technical Documentation 20
Standard Of Performance And
Acceptance Of Software 20-21
Training And Technical Service 21
Warranty 21-23

3
<PAGE>

ARTICLE DESCRIPTION PAGE
- ------- ----------- ----

IV. Provisions Applicable To Maintenance 24-30
Services For Equipment

Audit 26
Breakage, Disappearance and Condition 26-27
Contents of Maintenance Order 25-26
Contingency 27
Definitions 25
Eligibility for Maintenance Services 27
Engineering Changes 27
Identification Credentials 27-28
Maintenance Charge Changes 28
Maintenance Credit 28
Maintenance Facilities 28
Maintenance Services 25
Precautions 29
Technical Information, Software and Programming Aids 29
Title 29
Training and Technical Service 29
Type of Maintenance Services 29
Warranty 30

V. General Provisions Applicable 31-47
To Entire Agreement

4
<PAGE>

ARTICLE DESCRIPTION PAGE
- ------- ----------- ----

Heavy Metals in Packaging 38
Identification 38
Impleader 38
Indemnity 38-39
Infringement 39
Insurance 40
Invoices and Terms of Payment 40-41
Mediation 41
Non-exclusive Market Rights 41-42
Notices 42
Order 33
Order Termination 43
Ordering Companies 33
Ozone Depleting Substances 43
Publicity 42
Quarterly Reports 43
Releases Void 43
Right of Entry and Plant Rules 43
Scope of Agreement 33
Severability 44
Shipping 44
Standards 44
Supplier's Information 45
Survival of Obligations 45
Taxes 45-46
Timely Performance 46
Tools and Equipment 46
Use of Information 46
Variation of Quantity 46
Waiver 46
Work Done by Others 47

5
<PAGE>

ARTICLE DESCRIPTION PAGE
- ------- ----------- ----

Signature Page 48

Attachment A Pricing 49-50

Attachment B Premium Support Offerings 51-60

Clarent Care(TM) Premium Support Offerings: 53
Support Schedule: 53
Installation and Implementation Offering: 53-54
Hardware: 53-54
Software: 54
Planning: 54
Pricing: 54-55
Premium Support Offerings 54-55
APPENDIX A: Definitions 56-57
APPENDIX B: Premium Support Schedule 57
APPENDIX C: Copy of the North American Support Contract 58
Definitions, Premium Support Plan Provisions 59-60

Attachment C Escrow Agreement 61-72

Attachment D Acceptance Test Process 73-79

Attachment E Site Preparation Specifications 80-82

Attachment F Site Specific Term Sheet 83-89

6
<PAGE>

Article I

Definitions Applicable To

The Entire Agreement

DEFINITIONS
The definitions of this Article, which are set forth below, apply to all the
Articles of this Agreement:

Acceptance Test Process or ATP means the process by which Supplier will
test the System(s)'compliance with the Specifications and is set out on
Attachment D.

Associated Entity means a corporation, partnership or venture, a majority
of whose voting stock or ownership interest is owned directly or indirectly
by AT&T Corp.

Company means AT&T Corp. or an Associated Entity which enters into or
issues an Order under this Agreement.

Customer means someone who obtains the System through AT&T and is a user of
that System under a License from the Supplier.

Equipment means Internet Protocol Telephony and similar equipment, and also
includes options, accessories and attachments for additional Supplier's
equipment. Equipment includes as a component thereof any Media fixedly
embedded therein in that it is not normally replaced except for maintenance
and repair. Equipment may include in its meaning, depending upon context,
a system or systems consisting of tangible Equipment and intangible
Software.

Identification means any copy or semblance of any trade name, trademark,
service mark, insignia, symbol, logo, or any other product, service, or
organization designation, or any specification or drawing of AT&T Corp. or
an Associated Entity, or evidence of inspection by or for any of them.

Indemnitees means Company, its Customers, officers, directors, employees
and representatives, others doing work under its immediate or ultimate
direction and control, its intermediaries in the distribution chain, and
its successors and assigns.

Information means any idea, data, program, technical, business or other
intangible information, however conveyed.

7
<PAGE>

Maintenance Services mean all services required to operate the Equipment
and Software in conformance with all Statements of Work and Specifications
in the contract and the mutually agreed to detection and correction of any
Equipment or Software errors.

Materials mean repair, maintenance or replacement parts for Equipment,
Media not fixedly embedded in Equipment, and tangible supplies of other
kinds which are for or associated with Equipment.

Media or Medium means any document, print, tape, disc, tool, semiconductor
chip or other tangible information-conveying article.

Order means Company's form of purchase order or contract used for the
purpose of ordering Equipment, Software, Services or Materials which is
accepted by Supplier.

Services mean (1)Maintenance Services and other services in support of
purchased Equipment and (2) the subject matter called for by any Order,
specifications, drawings, and samples.

Site means each Company location where Company requests pursuant to an
accepted Order for installation and use of System.

Site Preparation Specifications means the Supplier specifications of the
requirements for preparation of each Company Site in order to prepare the
Site for installation and use of System. The initial Site Preparation
Specifications are set out on Attachment E.

Site Specific Term Sheet means the Supplier Site Survey of the needs and
requirements of each Company Site and any Site specific terms and
conditions. The initial Site Specific Term Sheet Form is set out on
Attachment F.

Software means intangible Information provided in object code form
constituting one or more computer or apparatus programs and the
informational content of such programs, together with any documentation
supplied in conjunction with and supplementing such programs, the foregoing
being provided to Company by way of electronic transmission or by being
fixed in Media furnished to Company.

Specifications means the specifications for the Equipment and Software as
set forth in this Agreement and in the mutually agreed upon Order, or if
not so set forth, shall mean Supplier's current published specifications,
user documentation, and other information for the Equipment and Software as
of the date of the Order and any additional mutually agreed to
specifications furnished by Company. Any provisions

8
<PAGE>

contained in Supplier's specifications in conflict with the provisions of
this Agreement shall be deemed deleted.

Statement of Work means a mutually agreed upon Order which provides a
clear, concise and complete description of the work to be performed by
Supplier.

Supplier means the other party to this Agreement with Company to whom an
Order is issued under this Agreement.

System means the Clarent Gateway system, consisting of Software combined
with certain hardware.

9
<PAGE>

Article II

Provisions Applicable To Purchase of Equipment And Materials

CONTENTS

CLAUSE PAGE
- ------ ----

CONTENTS OF ORDER 11
DEFINITIONS 11
EQUIPMENT MODIFICATION 12
OPERATING SYSTEM SOFTWARE 12
PRICE ADJUSTMENT 12
RETURN OF EQUIPMENT 12
RETURN OF MATERIALS 12-13
RISK OF LOSS 13
SALE 13
SITE PREPARATION AND INSTALLATION 13
STANDARD OF PERFORMANCE AND ACCEPTANCE OF EQUIPMENT 14
TITLE 14
TRAINING AND TECHNICAL SERVICE 15
WARRANTY 15

10
<PAGE>

DEFINITIONS
The definitions of Article I apply to this Article. Also, the definitions set
forth below, apply to this Article:

Installation Date means the dates by which the Equipment or Materials which have
been delivered are to be installed and ready for use in accordance with ATP.

Sale means the Supplier shall sell its Equipment and Materials to Company upon
the provisions set forth in this Agreement and in accepted Orders placed by
Company pursuant to this Article.

CONTENTS OF ORDER
An Order for the purchase of Equipment or Materials shall be written on
Company's purchase order form and shall contain the following:

1. The incorporation by reference of this Agreement;

2. The incorporation by reference of the applicable functional performance
Specifications;

3. A complete list of the Equipment or Materials to be purchased specifying
quantity, type, model, feature description and purchase price to be paid
(net of purchase option credit if applicable) and the invoice address;

4. The location at which the Equipment is to be installed or the Materials
to be delivered and used including floor, street, city and state;

5. The Installation Date; and

6. A complete list of the Services and associated costs, if any, such as,
but not limited to, training, if any required, and a schedule of their
performance;

7. A complete and signed, by Company, Site Specific Term Sheet for each
Site and System.

8. In the event of any conflict of terms, the terms of an accepted Order,
and of the Site Specific Term Sheet will prevail over the terms of this
Agreement

Ordered items shall be shipped complete on date(s) specified in an accepted
Order unless otherwise agreed to by Company.

11
<PAGE>

EQUIPMENT MODIFICATION
In the event that supplier cannot provide the requested modifications, Company
may substitute components or supplement the Equipment by making alterations or
installing attachments to modify the range or features that the Equipment
provides. Company shall notify Supplier in advance of its intent to modify, and
supplier shall grant a trade-in allowance against the purchase price of the new
items in accordance with applicable allowances in effect at the time of
modification. Should Company modify equipment without the consent of Supplier,
the Equipment warranty for that particular Equipment shall become void.

OPERATING SYSTEM SOFTWARE
Title to intellectual property rights in operating system software shall remain
in Supplier and/or its Licensor. For the life of the Equipment listed in the
Order for purchased Equipment, Supplier grants to Company and any subsequent
purchaser of the Equipment a nonexclusive license to use, and have used
therefor, Software on the Equipment on or for which it was delivered. Company
and any subsequent purchaser may copy the Software for use on such Equipment
with or for which it was delivered, and for archival purposes, but shall not
knowingly reproduce either the original operating system software or other of
the Software for distribution to other users. Company and any subsequent
purchaser may add to, delete from or modify the Software to extent that
modifications do not alter source code, in any manner, but no changes, however
extensive, shall alter Supplier's intellectual property rights to such delivered
Software. Intellectual property rights to any such modification or addition to
the Software shall remain in the entity which creates the modification or
addition.

PRICE ADJUSTMENT
If Supplier's published price for any Equipment or Materials is lower on the
delivery date for Materials or the Installation Date for Equipment than the
price stated in an Order, the price for the Equipment or Materials shall be
reduced to the published price.

RETURN OF EQUIPMENT
Whenever Equipment under warranty is shipped for repair or replacement purposes
from and then back to Company, Supplier shall furnish all labor and Materials
necessary for packing the Equipment at no charge to Company. Supplier shall
arrange for and bear all costs including, but not limited to, those of packing,
rigging, transportation and insurance. Supplier shall also bear all risk of
loss or damage from the time the Equipment is removed from Company's site until
the Equipment is returned to the site. If returned equipment is found not to be
in breach of warranty, Supplier's costs for packing, rigging, transportation and
insurance will be reimbursed by Company upon receipt of documentation
demonstrating such, and company's concurrence with such findings.

RETURN OF MATERIALS
Supplier shall accept for credit Materials returned under any of the following
circumstances:

12
<PAGE>

1. Company termination or cancellation of an Order for Supplier's Equipment or
exchange by Company of one Supplier machine for another Supplier machine
within thirty (30) days of the termination or cancellation, provided
Materials are not usable in other equipment within the location;

2. Supplier or Company error in the ordering or shipping process, provided the
Materials are returned by Company to Supplier within ninety (90) days of
receipt; or

3. Receipt of defective Materials or failure of Materials under the applicable
warranty.

Materials returned for credit or replacement must be in complete cartons and in
good resalable condition, except where the Materials are defective or fail under
the applicable warranty.

RISK OF LOSS
Supplier shall retain risk of loss and damage to the Equipment or Materials
prior to the passage of title pursuant to the Title clause unless caused by the
willful or negligent acts of Company or its employees. Company will promptly
notify Supplier of any damage incurred to Equipment.

SITE PREPARATION AND INSTALLATION
Supplier shall promptly furnish to Company detailed written site preparation
specifications to ensure that the Equipment to be installed will operate in an
efficient and environmentally safe manner. Company shall prepare the site at
its own expense and in accordance with the specifications furnished by Supplier
and Site Specific Term Sheet. Any alterations or modifications in site
preparation that are attributable to Supplier's incomplete or erroneous
specifications shall be made at Supplier's expense.

Supplier shall, per pricing agreement, ship and remote install the System
(unless on-site Installation has been ordered) ready for ATP Exhibit by the
Installation Date. Company shall (unless onsite installation has been ordered)
furnish all labor and materials necessary for unpacking, placement and
installation of the Equipment ready for remote install by Supplier on or before
the Installation Date, all in accordance with instructions of Supplier. If on-
site Installation has been ordered per pricing agreement, Supplier shall furnish
all labor and Materials necessary for unpacking, placement and installation of
the Equipment ready for ATP on or before the Installation Date. Not later than
the Installation Date, Supplier shall be ready to perform ATP and Company shall
provide a qualified person from Company to verify the ATP. Upon completion of
ATP, Supplier shall certify in writing to Company that the Equipment meets
Specifications. If the Equipment is certified to be ATP ready for use prior to
the day before the Installation Date, Company may elect to use the Equipment and
change the Installation Date accordingly. At any time prior to the date
indicated in an accepted Order for delivery of the Equipment, Company may, upon
written notice to Supplier, delay the Installation Date, but such delay shall
not exceed thirty (30) days.

13
<PAGE>

STANDARD OF PERFORMANCE AND ACCEPTANCE OF EQUIPMENT
1. The intent of this clause is to establish Company's standard of performance
which must be met before the Equipment is accepted by Company. Upon
certification by Supplier that the Equipment is ready for ATP, the ATP
period shall begin. Company shall promptly provide a qualified
representative of Company to verify the ATP with Supplier upon Supplier's
certification that the Equipment is ready for ATP. Supplier shall have
thirty (30) days from the start of ATP to certify that Equipment meets
Specifications in accordance with the ATP.

2. If the Equipment, operates in conformance with the Specifications in
accordance with ATP, it shall be deemed to have met Company's standard of
performance and shall be accepted by Company. Company's acceptance shall not
be unreasonably withheld. If the Equipment does not operate in substantial
conformance with the Specifications in accordance with the ATP within sixty
(60) days after Installation Date, Company shall have the right to notify
Supplier in writing and Supplier shall use reasonable commercial efforts to
make the Equipment substantially meet the Specifications in accordance with
the ATP within thirty (30) days after receipt of notice from Company.
Supplier will work with vigilance to address all substantial non conformance
with Specifications in accordance with the ATP. If Supplier fails to make
Equipment substantially comply with Specifications in accordance with ATP
within the second thirty (30) day period, Company shall promptly notify
Supplier in writing and may promptly return the Equipment to Supplier. Upon
such return, Company shall receive full refund of any payments made for such
Equipment and Company shall have no further obligation to make any payment
to Supplier for such Equipment.

3. If Supplier certifies that Equipment meets Specifications in accordance with
ATP and Company does not provide a qualified representative to verify that
the Equipment meets Specifications in accordance with ATP within ten (10)
business days of Supplier's certification, the Equipment will be deemed to
have been accepted.

4. Company shall maintain appropriate daily records to reflect operation of
the Equipment during the ATP period.

5. Upon successful completion of the ATP, the Equipment shall be accepted in
writing by Company.

TITLE
Company shall accept title to the Equipment after the Equipment satisfactorily
attains the standard of performance pursuant to the Standard of Performance and
Acceptance of Equipment clause. Upon receipt of payment, Supplier shall furnish
Company a bill of sale and all other documents requested by Company to enable it
to perfect unencumbered title to the Equipment. Title to Materials shall rest
in Company upon their acceptance which shall be deemed to occur upon receipt of
the Materials at Company's receiving dock unless otherwise specified by Company
before or promptly after such receipt.

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<PAGE>

TRAINING AND TECHNICAL SERVICE
Supplier shall provide, per Pricing Attachment A, the assistance and advice, if
requested, necessary to assist in the use of the Equipment. Supplier shall
provide, at no additional charge, the training it normally provides without
charge to users of the Equipment.

WARRANTY
Supplier warrants to Company and its Customers that the Equipment and Materials
furnished shall be free from defects in, material and workmanship and shall
conform to and perform in accordance with the Specifications. These warranties
extend to the future performance of the Equipment and Materials and shall
continue for the longer of (a) one year after the date of acceptance of ATP, or
(b) a greater period if specified elsewhere in this Agreement or an Order.
Supplier also warrants to Company and its Customers that the Equipment and
Materials shall be new or remanufactured and that Service shall be performed in
a first class, workmanlike manner. In addition, if the Equipment or Materials
furnished contains one (1) or more manufacturers' warranties, Supplier hereby
assigns those warranties to Company and its Customers to the extent it has the
authority to do so. Equipment, Materials or Services not meeting the warranties
will, at Company's option, (a) be returned for or subject to, repair,
replacement, or reperformance by Supplier at no cost to Company or its customers
and with transportation costs and damage in transit borne by Supplier, or (b) be
subject to refund. If returned equipment is found not to be in breach of
warranty, Supplier's costs for packing, rigging, transportation and insurance
will be reimbursed by Company upon receipt of documentation demonstrating such
and Company's concurrence with such findings, which shall not be unreasonably
withheld.

Supplier shall not charge Company for any repair or maintenance of Equipment or
Materials covered by this warranty.

All warranties shall continue in full force and effect notwithstanding transfer
of title to the Equipment or Materials by Company, so long as Company, its
Customers or its Associated Entities shall remain the user of the Equipment or
Materials. All warranties shall also survive inspection, acceptance and
payment.

The warranty shall not apply and terminate if any form of the Software and/or
System shall have been subject to accident, abuse, misuse, not used in
accordance with Supplier's instructions as delineated in Supplier's
operations/user manual, misapplication, breach of License or modified by a party
not authorized by Supplier.

The warranty shall not apply and terminate if any hardware component of the
System is opened, altered, or repaired by a repair facility not authorized by
Supplier.

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Article III

Provisions Applicable to License of Software

CONTENTS

CLAUSE PAGE
- ------ ----

CONTENTS OF ORDER 17-18
DEFINITIONS 17
ENHANCEMENTS AND MAINTENANCE 18
INTELLECTUAL PROPERTY RIGHTS 18
LICENSE FEE 17
LICENSE GRANT 17
MODIFICATIONS 18-19
REDESIGNATION OR TRANSFER OF DESIGNATED SITE OR COMPUTER 19
REMOTE ACCESS 19
RISK OF LOSS 19
SOFTWARE AND PROGRAMMING AIDS 20
SOURCE PROGRAMS AND TECHNICAL DOCUMENTATION 20
STANDARD OF PERFORMANCE AND ACCEPTANCE OF SOFTWARE 20-21
TRAINING AND TECHNICAL SERVICE 21
WARRANTY 21-23

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<PAGE>

DEFINITIONS
The definitions of Article I apply to this Article. Also, the definitions which
are set forth below apply to this Article:

Enhancements mean all Software changes which will be defined as:
a. Updates
b. Fixes/patches, and
c. Upgrades

Modifications mean Company additions to the Software, deletions from the
Software, or merges of the Software with one or more programs owned or licensed
by Company forming an updated and otherwise modified Software.

Specifications means the specifications for the Software as set forth in
Attachment to this Agreement or the mutually agreed upon Order, or if not so set
forth, shall mean Supplier's current applicable published. Any provisions
contained in Supplier's specifications not mutually agreed upon or set out in an
Order or Company's mutually agreed to specifications shall be deemed deleted.

Use means use by any individual having authorized access to the computer on
which the Software is operated.

LICENSE GRANT
Supplier hereby grants to Company, its Customer and any subsequent leasing
company, purchaser for lease and saleback of the Equipment an irrevocable
nonexclusive, worldwide, perpetual, without right to sublicense, license to Use
the Software on the Equipment for which it was ordered or other equipment as
authorized pursuant to the Equipment Modification Section of this Agreement.
However, if Supplier ceases to deliver the Equipment or cannot support the
Equipment delivered hereunder, Company has the right to use the Software on
other hardware platforms. Upon delivery to Company, all media shall become the
property of Company except that fixed in Equipment, title to which shall pass to
Company upon acceptance of the Equipment. Company agrees not to disassemble or
otherwise reverse engineer the Software for the purpose of deriving source code
therefrom.

CONTENTS OF ORDER
An Order for Software shall be written on Company's purchase order form and
shall contain the following:

1. The incorporation by reference of this Agreement;

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<PAGE>

2. A complete list of the Software to be included in the license,
including a reference to and incorporation of the applicable Software
reference manuals;

3. The name or names of the manufacturer and model number or numbers of
the data processing equipment with which the Software shall be
compatible in accordance with Supplier's specifications;

4. The location or locations at which the Software is to be delivered and
invoiced;

5. The date or dates by which the Software shall be delivered;
and

6. Support services including technical Services and training.

7. Any other special provisions agreed upon by both parties.

8. A complete and signed, by Company, Site Specific Term Sheet for each
Site and System.

ENHANCEMENTS AND MAINTENANCE
Supplier shall promptly furnish to Company during the duration of the Order, at
an agreed upon charge, if any, all Software Enhancements, Maintenance Services
and telephone technical assistance made available by Supplier to any of its
customers and shall promptly provide to Company any revisions to the basic
Software items defined in the SOFTWARE AND PROGRAMMING AIDS clause to reflect
the Enhancements. All Enhancements shall be considered Software subject to the
provisions of the Order. Company may incorporate the Enhancements into the
Software or continue using the previous version of the Software, at Company's
option in accordance with this Agreement. Company may, at any time and at its
discretion, discontinue maintenance of the Software. Supplier shall only be
obligated to support compatibility of one backward upgrade version of Software.

INTELLECTUAL PROPERTY RIGHTS
Title to the Software and to intellectual property rights therein shall remain
in Supplier or Supplier's licensor, as applicable. Company shall have the right
to make a reasonable number of copies of the Software directly related to the
needs of the business of Company for backup, archival and developmental test lab
purposes for Use. Company however, shall not knowingly reproduce copies of the
Software for the purpose of supplying it to others except individuals authorized
herein.

MODIFICATIONS
Company may make Modifications to the Software. Company shall have all right,
title and interest to any Modifications and resulting derivative works and the
intellectual property rights in such Modifications or works except as set out
differently in the Order. Moreover, nothing

18
<PAGE>

contained in this Agreement or an Order shall limit Company's right to reproduce
and Use the modified Software in as many copies as Company, in its sole
discretion, deems appropriate. However, any portion or aspect of the modified
Software which is licensed from Supplier under this Agreement or an Order shall
continue to be subject to all the provisions of this Agreement and the Order,
and nothing contained herein grants to Company any rights to Use the Software
other than as recited in this Agreement or the Order.

REDESIGNATION OR TRANSFER OF DESIGNATED SITE OR COMPUTER
If the Order specifies that Company's Use of the Software is limited to a
designated site or a designated computer within Company or affiliate, the
provisions of this clause shall apply. For purposes of this clause, site shall
include computer, as applicable to the Order. A redesignation shall refer to a
change of site and shall include the movement of Software to upgraded equipment.
A transfer shall refer to a temporary change of site of the Software.Without an
additional charge or fee or any requirement for any additional license, Company
may:

1. Redesignate the site at which the Software will be used and shall
notify Supplier of the new site and the effective date of the
redesignation; and

2. Concurrently operate the Software at another site for a period not to
exceed three (3) months for the purpose of redesignating the assigned
using site.

The license granted under the Order for a designated site may be transferred
with written notice to Supplier but at no additional charge or fee to Company:
(a) to a backup site if the computer at the designated site is inoperative due
to malfunction, due to performance of preventive or remedial maintenance, due to
engineering changes or due to changes in features or model, until the computer
is restored to operative status and processing of the data already entered in
the computer at the backup site has been completed or (b) to one other site for
assembly or compilation of the Software if the specifications of the computer at
the designated site are such that the Software cannot be assembled or compiled
on the computer.

REMOTE ACCESS
Company shall have the right, at no additional charge or fee, to have the
Software used at any other location by means of remote electronic access.

RISK OF LOSS
If any Software fixed in Media is lost, damaged or made invalid during shipment,
Supplier will promptly replace the Software and Media therefor at no additional
charge to Company. If any Software is lost or damaged while in the possession
of Company, Supplier will promptly replace the Software at the established
charge for the associated Media unless such is provided by Company. Company
will notify Supplier of any damage incurred to Software.

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<PAGE>

SOFTWARE AND PROGRAMMING AIDS
On the delivery date pursuant to an Order that includes any or all of the items
set out below, Supplier shall furnish to Company, at no additional charge or
fee, at least the following basic items:

1. Object code (the fully compiled or assembled series of instructions,
written in machine language, ready to be loaded into the computer, that
guides the operation of the computer) stored in a Medium compatible with
the Equipment described in the Order;

2. Program implementation and user instructions and required procedures in the
Order;

3. The Software Specifications, as well as the required machine configuration
in the Order;

4. Sample data output, such as printouts or typical screen displays, and any
other programs, routines, subroutines, utility or service programs,
normally provided to users or Customers, descriptive Specifications and ATP
or related material Supplier may have which is necessary or useful for the
full implementation and Use of the Software and which Supplier normally
furnishes to users of the Software without additional charge or fee in the
Order.

5. Source program (the computer program expressed in a source language) if
licensed by Supplier as part of the Software ordered hereunder in the
Order.

SOURCE PROGRAMS AND TECHNICAL DOCUMENTATION
Supplier shall, at Company's request, enter into an Escrow Agreement
substantially the same in form and substance to the form attached (Attachment C)
to this Agreement to safeguard Supplier's Software Specifications and source
program at any time during the duration of this Agreement. Both parties shall
negotiate in good faith such Escrow Agreement

STANDARD OF PERFORMANCE AND ACCEPTANCE OF SOFTWARE
1. Site Preparation shall be completed in accordance with Article I, Section
"SITE PREPARATION AND INSTALLATION."

2. The intent of this clause is to establish Company's standard of performance
which must be met before the Software is accepted by Company. Upon
certification by Supplier that the Software is ready for ATP, the ATP period
shall begin. Company shall promptly provide a qualified representative of
Company to verify the ATP with Supplier upon Supplier's certification that the
Software is ready for ATP. Supplier shall have thirty (30) days to certify that
Software meets Specifications in accordance with ATP.

20
<PAGE>

3. If the Software, operates substantially in conformance with the
Specifications in accordance with ATP, it shall be deemed to have met Company's
standard of performance and be accepted by Company. Acceptance shall not be
unreasonably withheld. If the Software does not operate in substantial
conformance with the Specifications in accordance the ATP within sixty (60) days
after Installation Date, Company shall have the right to notify Supplier in
writing and Supplier shall use reasonable commercial efforts to make Software
meet the Specifications in accordance with the ATP within thirty (30) days after
receipt of notice from Company. Supplier will work with vigilance to address
all substantial non conformance with Specifications in accordance with ATP. If
Supplier fails to make Software substantially comply with Specifications in
accordance with ATP within the second thirty (30) day period, Company shall
promptly notify Supplier and may promptly return the Software to Supplier. Upon
such return, Company shall receive full refund of any payments made for such
Software and Company shall have no further obligation to make any payment to
Supplier for such Software.

4. If Supplier certifies that Software meets ATP and Company does not provide a
qualified representative to verify that the Software meets ATP within ten (10)
business days of Supplier's certification, the Software will be deemed to have
been accepted.

5. Company shall maintain appropriate daily records to reflect operation of the
Software during the ATP period.

6. Upon successful completion of the ATP, the Software shall be accepted in
writing by Company.

TRAINING AND TECHNICAL SERVICE
Supplier shall provide per pricing attachment assistance and advice, as may be
reasonably requested by Company necessary to assist in the Use of the Software.
Supplier will provide to Company at no charge any training as it normally
provides without charge to users of the Software.

WARRANTY
Supplier warrants to Company and its Customers all of the following:

1. The Software will be free from significant errors which cause it not
to substantially comply with Specifications, and will conform to and
substantially perform in accordance with the Specifications. The
Media conveying the Software will be free from material defects in
material and workmanship. The Software will be compatible with and
may be used in conjunction with other Software as described in the
Specifications. If an accepted Order states that the Software is to
be used in conjunction with certain data processing equipment, the
Software shall be compatible with that Equipment. The foregoing

21
<PAGE>

warranties extend to the future performance of the Software and shall
continue for the longer of (a) the warranty period applicable to
sublicense by Company to its Customers of the Software or of products
which incorporate the Software, not to exceed twelve (12) months after
the Software is accepted by Company, (b) twelve (12) months after the
Software is accepted by Company, or (c) a greater period specified
elsewhere in this Agreement or an accepted Order.

2. Services will be performed in a first-class, workmanlike manner.

3. There are no copy protection or similar mechanisms within the Software
which will, either now or in the future, interfere with the grants
made in this Agreement or an Order.

4. As to Software for which Supplier does not solely own all intellectual
property rights, Supplier has full right, power and authority to
license the Software to Company and its customers as provided in this
Agreement or an Order.

5. If the Software, or any portion thereof, fails to substantially meet
Specifications or becomes unusable, totally, or in any material
respect during the applicable warranty period, Supplier will use
commercially reasonable efforts to correct significant errors, defects
and nonconformities and restore the Software to conforming condition
free of significant errors that cause Software to not substantially
meet Specifications, at no cost to Company or its Customers.

6. Supplier certifies and warrants that its Software does not contain any
malicious code, program, or other internal component. of the nature of
a computer virus, computer worm, computer time bomb, or similar
component), which could damage, destroy, or alter Software, firmware,
or hardware or which could, in any manner, reveal, damage, destroy, or
alter any data or other information accessed through or processed by
the Software in any manner. Supplier shall immediately advise
Company, in writing, upon reasonable suspicion or actual knowledge
that the Software provided under this Agreement or an accepted Order
may result in the harm described above. Supplier shall indemnify and
hold Company and its customers harmless from any damage resulting from
the harm described above.

7. Supplier warrants that Software will record, store, process and
present calendar dates falling on or after January 1, 2000, in the
same manner and with the same functionality as it performed before
January 1, 2000. This maintenance will be considered part of and
covered under the maintenance provisions of the Agreement at no
additional charge to Company.

8. All warranties shall survive inspection, acceptance and payment.

22
<PAGE>

The warranty shall not apply and terminate if any hardware component of the
System is opened, altered, or repaired by a repair facility not authorized by
Supplier.

23
<PAGE>

Article IV

Provisions Applicable To Maintenance Services for Equipment

CONTENTS

CLAUSE PAGE
- ------ ----

DEFINITIONS 25
MAINTENANCE SERVICES 25
CONTENTS OF MAINTENANCE ORDER 25-26
AUDIT 26
BREAKAGE, DISAPPEARANCE AND CONDITION 26-27
CONTINGENCY 27
ELIGIBILITY FOR MAINTENANCE SERVICES 27
ENGINEERING CHANGES 27
IDENTIFICATION CREDENTIALS 27-28
MAINTENANCE CHARGE CHANGES 28
MAINTENANCE CREDIT 28
MAINTENANCE FACILITIES 28
TYPE OF MAINTENANCE SERVICES 29
PRECAUTIONS 29
TECHNICAL INFORMATION, SOFTWARE AND PROGRAMMING AIDS 29
TITLE 29
TRAND TECHNICAL SERVICE 29
WARRANTY 30

24
<PAGE>

DEFINITIONS
The definitions of Article I apply to this Article. Also, the definitions which
are set forth below apply to this Article:

Maintenance Order means an order for Maintenance Services written on Company's
purchase order form.

Maintenance Services includes all Services in accordance with Supplier's Support
Program as set forth in Attachment B including what is defined as Supplier
Premium Support.

MAINTENANCE SERVICES
Supplier shall provide all Maintenance Services required by this Agreement upon
the provisions set forth in this Agreement and in accepted Orders placed by
Company pursuant to this Article for Maintenance Services as set out on
Attachment B. At any time, Company may terminate individual accepted Orders for
Maintenance, at no charge, pursuant to the Order Termination clause of Article V
of this Agreement, provided Company gives at least thirty (30) days prior
written notice to Supplier. If the charges for a terminated Order were paid
annually in advance, Supplier shall promptly refund to Company the unused
prorata portion of the charges.

In the event Supplier sets up specific service centers or locations specifically
for Company per an accepted Order, Company may cancel that specific accepted
Order with thirty (30) days prior written notice but will be liable to Supplier
for three (3) months' additional maintenance fees for the Sites affected.

In the event any Software, Equipment or System is modified by Company without
the consent of Supplier, ("Modified System") any Maintenance Services relating
to that Modified System or Systems affected by it, shall be cancelable by
Supplier upon written notice to Company or, at Supplier's option, the prices for
such Maintenance Services may be changed by Supplier upon written notice to
Company.

CONTENTS OF MAINTENANCE ORDER
A Maintenance Order shall contain the following:

1. The incorporation by reference of this Agreement;

2. A complete list of Equipment to be maintained specifying quantity and
type, description of Maintenance Services, duration of Order, monthly,
quarterly or annual maintenance charges for each item of Equipment,
total monthly maintenance charges payable by Company and invoice
address;

3. The location at which the Equipment is to be installed and used,
including floor, street, city and state;

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<PAGE>

4. Designation of a point of contact from whom Supplier's maintenance
representative shall receive notification of Equipment becoming
inoperative;

5. Company's observed holidays; and

6. Any other special terms agreed upon by both parties.

7. A complete and signed, by Company, Site Specific Term Form for each
Site and System.

AUDIT

With the exception of the fixed basic monthly, quarterly or annual maintenance
charge set forth in this Agreement, Supplier shall maintain complete, clear and
accurate records of (1) all hours of direct labor employees engaged in Services
for which payment under this Agreement is to be computed on the basis of actual
hours worked, at a fixed rate per hour or other unit of time specified in this
Agreement and (2) billable costs payable by Company under this Agreement
including a physical inventory, if applicable. These records shall be
maintained in accordance with generally accepted accounting principles so they
may be readily audited and shall be held until costs have been finally
determined under this Agreement and payment or final adjustment of payment, as
the case may be, has been made. Supplier shall permit Company or Company's
representative to examine and audit these records and all supporting records at
all reasonable times. Audits shall be made not later than one (1) calendar
year after the expiration or termination of an accepted Order, and the
correctness of Supplier's billing hereunder shall be determined from the results
of that audit. In making arrangements with a vendor for the furnishing of
labor, material, or other items for which Company will be charged separately
from the fixed basic monthly maintenance charges as set forth in this Agreement,
Supplier shall require its vendor to keep separate records, and make separate
invoices, covering only what is so supplied, so that no part of the records or
invoices shall apply to jobs not covered by this Agreement.

In making payments to a vendor for labor, material, or other items for which
Company will be charged separately from the fixed basic monthly maintenance
charges as set forth in this Agreement, Supplier shall show its vendor's invoice
number and date on Supplier's payment advice, and no part of that payment shall
apply to other jobs not covered by this Agreement.

BREAKAGE, DISAPPEARANCE AND CONDITION
Supplier shall take whatever precautions Supplier deems necessary or desirable
(which do not violate Company's plant rules or cause inconvenience or delay to
Company) regarding tools, equipment, and Materials, whether or not owned by
Supplier, which Supplier causes to be brought to Company's premises. Company
shall have no responsibility for their care,

26
<PAGE>

safekeeping, or operating condition. Company shall not bear any cost or expense
associated with their breakage or disappearance unless resulting from Company's
negligence.

CONTINGENCY
If Supplier fails to perform the Maintenance Services and Company has given
Supplier written notice of forty-eight (48) hours to cure the problem, Company
may arrange for the performance of the Maintenance Services by another party.
Supplier shall be responsible for all expenses incurred by Company and capped at
20% above Supplier's own fees for the same services.

ELIGIBILITY FOR MAINTENANCE SERVICES
Equipment shall automatically be eligible for Supplier Premium Support
Maintenance Services provided it shall have been under Supplier Premium Support
Maintenance Service or warranty by Supplier on the date of commencement of
Supplier Premium Support Maintenance Services. Any other Equipment off service
for 90 (ninety) days or more shall be inspected by Supplier at no charge to
determine whether it is in good working order and can be maintained in that
condition. Supplier shall notify Company in writing about the eligibility of
the Equipment. If the Equipment is not eligible, but can be made eligible,
Company may, at its expense, make or have made those changes required to upgrade
the Equipment to eligibility status with the Supplier.

ENGINEERING CHANGES
All engineering changes which Supplier provides to its customers at no
additional charge will also be provided to Company at no additional charge.
Mandatory safety changes shall also be made at no additional charge. If Company
refuses to allow Supplier to make mandatory safety changes, or Company fails to
implement mandatory safety changes, Company will release Supplier from the
indemnity associated with consequences of failure to implement safety changes,
as long as said mandatory safety changes are provided free of charge and do not
negatively impact the features and functionality of the System, or cause it not
to perform in accordance with Specifications.

IDENTIFICATION CREDENTIALS
Company may, at its discretion, require Supplier's employees and subcontractors
to exhibit identification credentials, which Company may issue, in order to
gain access to Company's premises for the performance of the Services. If for
any reason, any of Supplier's employees or subcontractors are no longer
performing Services, Supplier shall immediately inform Company's Representative
in the speediest manner possible. Notification shall be followed by the prompt
delivery to Company's Representative of the identification credentials involved
or a written statement of the reasons why the identification credentials cannot
be returned. Supplier

27
<PAGE>

shall be liable for any damage or loss sustained by Company if the
identification credentials are not returned to Company.

MAINTENANCE CHARGE CHANGES
If during the duration of this Agreement, Supplier's commercial rates for
maintenance service comparable to the Maintenance Services are reduced below the
maintenance charges set forth in this Agreement, the maintenance charges to
Company shall be reduced to be at least as low as such commercial rates. Such
reduction under this Agreement shall be effective on the date Supplier so
reduces such commercial rates.

MAINTENANCE CREDIT
If Equipment fails to operate as provided in its Specifications, Company shall
notify Supplier, either orally or in writing, of the failure. Supplier shall act
in Accordance with its Maintenance Agreement and if the Equipment is under a
Supplier Maintenance Agreement in accordance with Attachment B and inoperative,
other than through the fault or negligence of Company, for a continuous period
of twenty-four (24) hours or longer from the time of Company's notice, Company
shall be entitled to credit against the maintenance charges computed as follows:
for each hour during which the Equipment is inoperative, the credit shall be
one, two hundred-fortieth (1/240) of the monthly maintenance charges for the
Equipment; provided, however, the credit shall in no event exceed one-thirtieth
(1/30) of the monthly maintenance charges for the Equipment for any calendar
day nor the monthly maintenance charge for the Equipment for any month. Company
shall have the option of either (1) extending the duration of the Order by
applying the credit against the maintenance charges going beyond the duration of
the Order or (2) reducing the maintenance charges during the duration of the
Order. Company shall, in addition, be entitled to a credit against the charges
for the time any office systems equipment item, regardless of supplier, is
rendered inoperative and made not useable as a result of the inoperativeness of
the Equipment. Supplier only warrants network uptime when N+1 configurations
are ordered with the System, and redundant account manager is deployed on
redundant or fault tolerant platforms. If Company chooses not to accept
Supplier's recommended redundant practices for any System or Site, Supplier will
not be liable for maintenance credit.

MAINTENANCE FACILITIES
Company shall provide Supplier with adequate storage space for spare parts and
adequate working space, including heat, light, ventilation, electric current and
outlets for use by Supplier's maintenance personnel. These facilities shall be
within a reasonable distance of the Equipment to be serviced and shall be
provided at no charge to Supplier. Company shall not be responsible for any
damage to Supplier's Equipment or Materials stored on Company's premises unless
the damage results from Company's negligence.

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<PAGE>

TYPE OF MAINTENANCE SERVICES

Supplier shall recommend, but Company may designate in an Order, the type of
Maintenance Services for each item of Equipment. Supplier shall provide Company
Maintenance Services in accordance with Attachment B.

Maintenance Services provided under this Agreement may be limited to specific
geographic areas, and Supplier reserves the right to impose additional mutually
agreed upon charges for travel outside Supplier's normal service areas.

Per Call Service - Supplier shall provide Maintenance Services requested by
- ----------------
Company in addition to Supplier Premium Support Maintenance Services and
performed at Supplier's then standard rates or those as may be agreed upon by
Supplier and Company ("Per Call Service").

PRECAUTIONS
Supplier shall take care in all operations to safeguard people as well as
property and not to interfere with or curtail Company or customer operations at
the Services site.

TECHNICAL INFORMATION, SOFTWARE AND PROGRAMMING AIDS
Supplier shall furnish to Company on the agreed-upon delivery date without
additional charge any technical information, programs, routines, subroutines,
documentation, or related material it has or may develop or modify, necessary
for the general use or maintenance of Equipment under Maintenance Service, which
are normally so furnished to maintenance customers.

TITLE
Title to replacement and repair parts and components shall vest in Company upon
installation and payment on Equipment owned by Company. Any parts replaced
shall become the property of Supplier. Title to enhancements and modifications
and to intellectual property rights therein (other than those originating as a
result of development Services funded by Company) shall remain in Supplier.
Title to updates and modifications originating as a result of development
Services funded by Company and to intellectual property rights therein, shall
vest in Company upon origination or development. Ownership of modifications
requested by and or funded by Company will be negotiated on a case by case
basis.

TRAINING AND TECHNICAL SERVICE
Supplier shall provide, without additional charge to Company, the training and
assistance as it normally provides without charge to maintenance customers under
the applicable maintenance agreement (see Attachment B).

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<PAGE>

WARRANTY
Supplier warrants to Company and its customers that replacement and repair parts
and components furnished under this Agreement or an Order shall be new, or
refurbished so as to perform as new, free from defects in design, material and
workmanship and shall conform to and perform in accordance with the
Specifications. These warranties extend to the future performance of the parts
and components and shall continue for the longer of (a) one (1) year from the
date of Company's acceptance of their installation, or (b) a greater period as
may be specified elsewhere in the Maintenance Order. Supplier further warrants
to Company that the Maintenance Services shall be performed with promptness and
diligence, in a first-class, workmanlike manner in accordance with Supplier's
Premium Support Maintenance Agreement and Specifications and to Company's
satisfaction and that the Equipment shall function in good operating condition
during the duration of the Maintenance Order. In addition, if the parts or
components bear one (1) or more manufacturers' warranties, Supplier hereby
assigns those warranties to Company to the extent it has the authority to do so.
All warranties shall survive inspection, acceptance and payment.

Equipment, parts, components or Maintenance Services not meeting the warranties
will, at Company's option, (a) be returned for or subject to repair, replacement
or reperformance by Supplier at no cost to Company or its Customers or (b) be
subject to refund.

Whenever Equipment, repair parts or components under warranty are shipped for
repair or replacement purposes, Supplier shall bear all costs, including but not
limited to, costs of packing, rigging, transportation and insurance. Supplier
shall also bear all risk of loss or damage from the time the Equipment, repair
parts or components are removed from Company's site until the Equipment, repair
parts or components are returned to that site and installed by Supplier. If
returned Equipment, repair parts or components is found not to be in breach of
warranty, Supplier's costs for packing, rigging, transportation and insurance
will be reimbursed by Company upon receipt of documentation demonstrating such
and Company's concurrence with such findings, which shall not be unreasonably
withheld and risk of loss shall transfer to Company upon delivery of the
Equipment, parts or components to the carrier by Supplier.

The warranty shall not apply and terminate if any form of the Equipment, parts
or components shall have been subject to accident, abuse, misuse, not used in
accordance with Supplier's instructions as delineated in Supplier's
operations/user manual, misapplication, breach of License or modified by a party
not authorized by Supplier.

The warranty shall not apply and terminate if any hardware component of the
System is opened, altered, or repaired by Company, Customer or a repair facility
not authorized by Supplier.

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Article V

General Provisions Applicable To Entire Agreement

CONTENTS

CLAUSE PAGE
- ------ ----

Assignment and Subcontracting 34
Assignment by Company 33-34
CFC Packaging 34
Change 34-35
Choice of Law 35
Clause Headings 35
Clean-up 35
Compliance with Laws 35
Default 36
Effective Date and Duration of Agreement 33
Emergency 36
Entire Agreement 47
Force Majeure 36-37
Future Improvements and Benefits 37
Government Contract Provisions 37
Harmony 37
Heavy Metals in Packaging 38
Identification 38
Impleader 38
Indemnity 38-39
Infringement 39
Insurance 40
Invoices and Terms of Payment 40-41
Mediation 41
Non-exclusive Market Rights 41-42
Notices 42
Order 33
Order Termination 43
Ordering Companies 33
Ozone Depleting Substances 43
Publicity 42
Quarterly Reports 43
Releases Void 43

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CLAUSE PAGE
- ------ ----

Right of Entry and Plant Rules 43
Scope of Agreement 33
Severability 44
Shipping 44
Standards 44
Supplier's Information 45
Survival of Obligations 45
Taxes 45-46
Timely Performance 46
Tools and Equipment 46
Use of Information 46
Variation of Quantity 46
Waiver 46
Work Done by Others 47

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ORDERING COMPANIES
Company may order under this Agreement. Also, those additional Associated
Entities, both U.S. and foreign, designated in writing by AT&T Corp. may order
under this Agreement.

Any Order issued under this Agreement shall be a contractual relationship
between the ordering Company and Supplier, and Supplier shall look only to the
ordering Company for performance of Company's obligations under such an Order.

SCOPE OF AGREEMENT
This Agreement is applicable to the procurement by Company from Supplier of
Equipment, Software, intellectual property rights, Services, and Materials.

EFFECTIVE DATE AND DURATION OF AGREEMENT
This Agreement shall become effective as of the date set forth above and shall
continue in effect for a period of one (1) year, renewable by AT&T Corp.
annually on the anniversary of contract execution, and thereafter until
terminated by either Supplier or AT&T Corp. upon thirty (30) days' prior written
notice to the other party. The amendment or termination of this Agreement shall
not affect the obligations of Company or Supplier under any then existing Order
issued under this Agreement, but the Order shall continue in effect as though
this Agreement had not been amended or terminated, as the case may be, and were
still in effect with respect to the Order.

ORDER
Each Order shall reference this Agreement thereby incorporating the provisions
of this Agreement in the Order. If notice of rejection of an Order is not
received by Company within twenty (20) days from the date of receipt of an Order
by Supplier, the Order shall be deemed to have been accepted by Supplier.
Supplier shall provide Company with a written acknowledgement of the receipt of
an Order.

ASSIGNMENT BY COMPANY
AT&T Corp. shall have the right to assign this Agreement or an Order and to
assign its rights and delegate its duties under this Agreement or an Order
either in whole or in part at any time and without Supplier's consent to (i) any
present or future Associated Entity of AT&T Corp., (ii) the Customer(s) (who is
not a competitor of Supplier or has an adverse claim with Supplier), successors
and assigns of AT&T Corp. or its present or future Associated Entities, or (iii)
any other entity resulting from the sale, reorganization or other transfer of
all or part of the assets of AT&T Corp. or any Associated Entity. Company shall
give Supplier written notice of any assignment and delegation. Supplier may
terminate this Agreement should Company assign contract to a non-associated
entity one of whose primary interests is Internet

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Protocol telephony. The assignment and delegation shall not affect any rights or
duties that Supplier or Company may then or thereafter have as to Equipment,
Software, Services or Materials ordered by Company prior to the effective date
of the assignment and delegation. Upon acceptance of the assignment and
delegation and assumption of the duties under this Agreement or an Order,
Company shall be released and discharged, to the extent of the assignment and
delegation, from all further duties under this Agreement or the Order as to
Equipment, Software, Services or Materials so assigned.

ASSIGNMENT AND SUBCONTRACTING
Supplier shall not assign any right or interest under this Agreement or an Order
(excepting monies due or to become due) nor delegate any Services or other
obligation to be performed or owed by Supplier under this Agreement without the
prior written consent of Company, which consent shall not be unreasonably
withheld. However, Supplier shall have the right to assign this Agreement and
all accepted Orders, without Company's consent, to any other entity resulting
from an IPO of Supplier, and further, Supplier shall have the right to assign
this Agreement and all accepted Orders, with Company's consent which shall not
be unreasonably withheld, to any other entity resulting from a change in
control, the sale, reorganization or other transfer of all or part of the assets
of Supplier to which this Agreement pertains. It is understood that Supplier
will sub-contract Maintenance Services under this Agreement. Any attempted
assignment, delegation, or subcontracting in contravention of the above
provisions shall be void and ineffective. Any assignment of monies shall be void
and ineffective if any of the following occur: (1) Company receives less than
thirty (30) days' prior written notice of the assignment from the Supplier or
(2) the assignment attempts (i) to impose upon Company obligations to the
assignee additional to the payment of monies, or (ii) to preclude Company from
dealing solely and directly with Supplier in all matters pertaining to this
Agreement including the negotiation of amendments or settlements of charges due.
All Services performed by Supplier's subcontractors at any tier shall be deemed
Services performed by Supplier.

CFC PACKAGING
Supplier warrants that all packaging materials furnished by Supplier under this
Agreement and all packaging associated with Equipment, Software, or Materials
furnished under this Agreement were not manufactured using and do not contain
chlorofluorocarbons. "Packaging" means all bags, wrappings, boxes, cartons and
any other packing materials used for packaging. Supplier agrees to indemnify,
defend (at Company's request), and hold harmless Indemnitees from and against
any losses, damages, claims, demands, suits, liabilities, fines, penalties, and
expenses (including reasonable attorneys' fees) that arise out of or result from
Company's good faith reliance upon this warranty.

CHANGE
Company may at any time during the progress of the Services request additions to
or alterations of or deductions or deviations from the Services ("Change")
called for by the

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specifications. Supplier shall not be entitled to any compensation for Services
done pursuant to or in contemplation of a Change, unless made pursuant to a
written Change Order issued by Company. Within ten (10) business days after a
request for a Change, Supplier shall use commercially reasonable efforts to
submit a proposal to Company which includes any increases or decreases in
Supplier's costs or changes in the delivery or Services schedule necessitated by
the Change. Company shall, within ten (10) business days of receipt of the
proposal, either (i) accept the proposal, in which event Company shall issue a
written Change Order directing Supplier to perform the Change or (ii) advise
Supplier not to perform the Change, in which event Supplier shall proceed with
the original Services.

CHOICE OF LAW
The construction, interpretation and performance of this Agreement and all
transactions under it shall be governed by the laws of the State of New York,
excluding its choice of law rules and excluding the Convention for the
International Sale of Goods. The provisions of the New York Uniform Commercial
Code apply to this Agreement and all transactions under it, including agreements
and transactions relating to the furnishing of Services, the Lease or rental of
Equipment or Materials, the procurement of intellectual property rights and the
license of Software. Supplier shall submit to the jurisdiction of any court
wherein an action is commenced against Company based on a claim for which
Supplier has agreed to indemnify Company under this Agreement.

CLAUSE HEADINGS
The headings of the clauses in this Agreement are inserted for convenience only
and are not intended to affect the meaning or interpretation of this Agreement.

CLEAN-UP
Upon completion of installation or removal of the Equipment or of any other
Services performed by Supplier or any subcontractor on Company's or its
customer's premises, Supplier shall, at its expense, promptly remove all
implements, surplus materials and debris used in or produced by those
activities.

COMPLIANCE WITH LAWS
Supplier and all persons furnished by Supplier shall comply, at their own
expense, with all applicable federal, state, local and foreign laws, ordinances,
regulations and codes, including those relating to the use of
chlorofluorocarbons, and including the identification and procurement of
required permits, certificates, licenses, insurance, approvals and inspections,
in the performance of the Agreement. Supplier agrees to indemnify, defend (at
Company's request) and hold harmless Indemnitees from and against any losses,
damages, claims, demands, suits, liabilities, fines, penalties, and expenses
(including reasonable attorneys' fees) that arise out of or result from any
failure to do so.

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DEFAULT

In the event Supplier shall be in breach or default of any of the terms,
conditions, or covenants of this Agreement or any purchase order and such breach
or default shall continue for a period of ten (10) days after the giving of
written notice to Supplier thereof by Company, then in addition to all other
rights and remedies which Company may have at law or equity or otherwise,
Company shall have the right to cancel this Agreement and/or purchase orders
placed by Company without any charge to or obligation or liability of Company.

EMERGENCY
Supplier shall use its best efforts to assist Company in obtaining components
and equipment compatible with the Equipment in an emergency.

FORCE MAJEURE
Neither party shall be held responsible for any delay or failure in performance
of any part of an Order to the extent the delay or failure is caused by fire,
flood, explosion, war, strike, embargo, government requirement, civil or
military authority, act of God, or other similar cause beyond its control and
without the fault or negligence of the delayed or nonperforming party or its
subcontractors ("Force Majeure Conditions"). Notwithstanding the foregoing,
Supplier's liability for loss or damage to Company's Equipment, Software,
Materials or other tangible article in Supplier's possession or control shall
not be modified by this clause. If any Force Majeure Condition occurs, the
party delayed or unable to perform shall give immediate notice to the other
party, stating the nature of the Force Majeure Condition and any action being
taken to avoid or minimize its effect, and the party affected by the other's
delay or inability to perform may elect to:

1. suspend the specific performance directly associated with the Force Majeure
Condition for the duration of the Force Majeure Condition, and

a. at the affected party's option, as applicable:

i. obtain a license elsewhere for Software to perform the functions of
the Software licensed under the Order and deduct from the duration
of the Order the time for which such other license was obtained,
or

ii. buy or sell elsewhere Equipment, Materials or Services to be bought
or sold under an Order and deduct from any commitment the
Equipment, Materials or Services bought or sold or for which
commitments have been made elsewhere, and

b. resume performance under the Order for the remainder of the duration
(once the Force Majeure Condition ceases) with an option in the
affected party to extend

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<PAGE>

such duration up to the length of time the
Force Majeure Condition endured and/or,

2. terminate the Order (at no charge) as to any Equipment, Software or
Materials which have not been shipped or as to any Services which has not
been commenced, when the delay or nonperformance continues for a period of
at least fifteen (15) days.

Unless written notice is given within forty-five (45) days after the affected
party is notified of the Force Majeure Condition, 1 shall be deemed selected.

FUTURE IMPROVEMENTS AND BENEFITS
As Supplier announces improvements, Supplier shall advise Company of their
features and advantages. Supplier assures Company that all prices, terms,
warranties and benefits granted to Company by Supplier for the Equipment,
Software, Materials, Services and improvements, are at least as favorable as
those now offered by Supplier to any of its commercial customers under similar
conditions. If, during the duration of this Agreement, Supplier should enter
into an arrangement with any other customer providing greater benefits or more
favorable terms, this Agreement shall be deemed amended to provide the same to
Company under the same conditions.

GOVERNMENT CONTRACT PROVISIONS
The following provisions regarding equal opportunity, and all applicable laws,
rules, regulations and executive orders specifically related thereto, including
applicable provisions and clauses from the Federal Acquisition Regulation and
all supplements thereto, are incorporated in this Agreement as they apply to
Services performed under specific U.S. Government contracts: 41 CFR 60-1.4,
Equal Opportunity; 41 CFR 60-1.7, Reports and Other Required Information; 41
CFR 60-1.8, Segregated Facilities; 41 CFR 60-250.4, Affirmative Action for
Disabled Veterans and Veterans of the Vietnam Era (if in excess of $10,000); and
41 CFR 60-741.4, Affirmative Action for Disabled Workers (if in excess of
$2,500), wherein "contractor" and "subcontractor" mean "Supplier". In
addition, Orders placed under this Agreement containing a notation that the
Equipment, Software, Services or Materials are intended for use under U.S.
Government contracts shall be subject to the other U.S. Government provisions
printed, typed or written thereon, or on the reverse side thereof, or in
attachments thereto. Supplier will be afforded thirty (30) days to review
government contract provisions, and will act in accordance with these provisions
to the extent Supplier is required to by law.

HARMONY
Supplier shall be entirely responsible for all persons furnished by it working
in harmony with all others when Supplier is working on Company's premises.

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HEAVY METALS IN PACKAGING
Supplier warrants to Company that no lead, cadmium, mercury or hexavalent
chromium have been intentionally added to any packaging or packaging component
(as defined under applicable laws) to be provided to Company under this
Agreement. Supplier further warrants to Company that the sum of the
concentration levels of lead, cadmium, mercury and hexavalent chromium in the
package or packaging component provided to Company under this Agreement or an
Order does not exceed one hundred (100) parts per million. Upon request,
Supplier shall provide to Company Certificates of Compliance certifying that the
packaging and/or packaging components provided under this Agreement are in
compliance with the requirements set forth above in this clause. Supplier
agrees to indemnify, defend (at Company's request), and hold harmless
Indemnitees (all hereinafter referred to in this clause as "Company") from and
against any losses, damages, claims, demands, suits, liabilities, fines,
penalties, and expenses (including reasonable attorneys' fees) that arise out
of or result from Company's good faith reliance upon said warranties or any
certifications of compliance.

IDENTIFICATION
Supplier shall not, without Company's prior written consent, engage in
advertising, promotion or publicity related to this Agreement, or make public
use of any Identification in any circumstances related to this Agreement.

IMPLEADER
Supplier shall not implead or bring any action against Company or its customers
or the employees of Company or its customers based on any claim by a person for
personal injury or death to an employee of Company or its customers occurring in
the course or scope of employment and that arises out of Equipment, Software,
Services or Materials furnished under this Agreement or an Order, except for
Company's gross negligence or willful misconduct.

INDEMNITY
All persons furnished by Supplier shall be considered solely Supplier's
employees or agents, and Supplier shall be responsible for payment of all
unemployment, social security and other payroll taxes, including contributions
when required by law. Supplier shall indemnify, defend (at Company's request),
and hold harmless Indemnitees from and against any losses, damages, claims,
demands, suits, liabilities, fines, penalties, and expenses (including
reasonable attorneys' fees) that do, or allegedly do, arise out of or result
from:

1. injuries or death to persons or damage to property, including theft, in any
way arising out of, occasioned by, caused or alleged to have been caused
by the performance of the Services performed by Supplier or persons
furnished by Supplier, except for those instances caused by Indemnitees' or
Company's negligence, gross negligence or willful misconduct,

2. assertions under Workers' Compensation or similar acts made by persons
furnished by Supplier or by any subcontractor, or by reason of any
injuries to persons for which

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Company would be responsible under Workers' Compensation or similar acts if
the persons were employed by Company,

3. any failure on the part of Supplier to satisfy all claims against it for
labor, equipment, materials, intangible items and other obligations
relating directly or indirectly to the performance of the Services; or

4. any failure by Supplier to perform Supplier's obligations under this clause
or the Insurance clause.

Supplier shall defend Indemnitees, at Company's request, against any of these
claims, demands or suits. Company agrees to notify Supplier in a timely manner
of any written claim or demands against Company for which Supplier is
responsible under this Clause. Company shall cooperate in good faith with
Supplier to facilitate the defense of any such claim or demand.

Supplier's liability for any indemnification to Company under this Section of
the Agreement shall not exceed fifty million dollars ($50,000,000.00) in the
aggregate for the entire Agreement.

INFRINGEMENT
Supplier shall indemnify, and hold harmless Indemnitees from and against any
losses, damages, liabilities, fines, penalties, and expenses (including
reasonable attorneys' fees) that arise out of or result from any proved or
unproved claim (1) of infringement of any patent, copyright, trademark or trade
secret right, or other intellectual property right, private right, or any other
proprietary or personal interest, and (2) related by circumstances to the
existence of this Agreement or an Order or performance under or in contemplation
of either of them ("Infringement Claim"). However, if the Infringement Claim
arises solely from Supplier's adherence to Company's written instruction
regarding Services or tangible or intangible goods provided by Supplier
("Items") and if the Items are not (1) commercial items available on the open
market or the same as such items, or (2) items of Supplier's designated origin,
design or selection, Company shall indemnify Supplier. The indemnifying party
shall defend or settle, at its own expense, any demand, action or suit on any
Infringement Claim for which it is the indemnitor under the preceding
provisions. Company or Supplier (at Company's request) shall defend or settle,
at its own expense, any demand, action or suit on any Infringement Claim for
which it is the indemnitor under the preceding provisions and shall timely
notify the other of any assertion against it of any Infringement Claim and shall
cooperate in good faith with the other to facilitate the defense of any such
claim.

Any claim and liability for all claims of infringement shall not exceed a cap of
one hundred million dollars ($100,000,000.00) in the aggregate for the entire
Agreement.

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<PAGE>

INSURANCE
Supplier shall maintain and cause Supplier's subcontractors to maintain during
the duration of this Agreement all of the following:

1. Workers' Compensation insurance as prescribed by the law of the state or
nation in which the Services is performed;

2. employer's liability insurance with limits of at least $500,000 for each
occurrence;

3. comprehensive automobile liability insurance if the use of motor vehicles
is required, with limits of at least $1,000,000 combined single limit for
bodily injury and property damage for each occurrence;

4. Commercial General Liability ("CGL") insurance, including Products Blanket
Contractual Liability and Broad Form Property damage, with limits of at
least $1,000,000 combined single limit for bodily injury and property
damage for each occurrence;

5. if the furnishing to Company (by sale or otherwise) of Equipment, products
or Materials is involved, CGL insurance endorsed to include products
liability and completed operations coverage in the amount of $5,000,000 for
each occurrence; and

6. Errors and Omissions insurance in the amount of at least $1,000,000 per
claim with an annual aggregate of at least $3,000,000 inclusive of legal
defense costs.

All CGL and automobile liability insurance shall designate AT&T Corp., its
Associated Entities and each of their officers, directors and employees (all
hereinafter referred to in this clause as "Company') as an additional insured.
All such insurance must be primary and required to respond and pay prior to any
other available coverage.

Supplier, Supplier's insurer(s) and anyone claiming by, through, under or in
Supplier's behalf shall have no claim, right of action or right of subrogation
against Company and its Customers based on any loss or liability insured against
under the foregoing insurance. Supplier and Supplier's subcontractors shall
furnish prior to the start of Services certificates or adequate proof of the
foregoing insurance including, if specifically requested by Company, copies of
the endorsements and insurance policies. Company shall be notified in writing at
least thirty (30) days prior to cancellation of or any change in the policy.

INVOICES AND TERMS OF PAYMENT
Invoices for the charges specified in an Order shall be submitted by Supplier to
the address specified in the Order. Unless payment terms more favorable to
Company are stated on Supplier's invoices and Company elects to pay on such
terms, undisputed invoices (invoices may only be disputed for nonconformance
with the accepted Order or any term and condition

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<PAGE>

in the Agreement) for purchased Equipment, Materials, annual Maintenance
Services or licensed Software shall be payable no later than the thirtieth (30)
day after (a) the date of receipt of undisputed invoices or (b) the date of
acceptance of the Equipment or Software or Materials or delivery of Materials at
Company's dock, whichever is later. The initial invoice for leased Equipment or
licensed Software shall be payable no later than the thirtieth (30) day after
acceptance of the Equipment or licensed Software. Subsequent invoices for
monthly charges for Equipment and Software and all invoices for monthly charges
for Services shall be submitted prior to completion of such monthly period and
shall be payable no later than thirty (30) days after receipt of such invoice.
All authorized charges in excess of regular rental or maintenance charges, if
any, shall be listed separately on the invoice. Supplier shall (1) render proper
original invoices showing Order number, through routing, weight and unit price
per the denomination specified in the Order, (2) render separate invoices for
each shipment and (3) forward bill of lading and shipping notices with invoice.
If prepayment of transportation charges is authorized, Supplier shall include
the transportation charges from the FOB point to the destination as a separate
item on the invoice stating the name of the carrier used. Company shall pay
Supplier in U.S. Dollars, via wire transfer.

MEDIATION
If a dispute arises out of or relates to this Agreement, or its breach, and the
parties have not been successful in resolving the dispute through direct
negotiation, the parties shall attempt to resolve the dispute first between
district managers; failing that, next by going through division managers and not
exceeding in total a period of sixty (60) days through non-binding mediation by
submitting the dispute to a sole mediator selected by the parties or, at the
option of a party, to mediation by the American Arbitration Association ("AAA").
Each party shall bear its own expenses and an equal share of the expenses of the
mediator and the fees of the AAA. The parties, their representatives, other
participants and the mediator shall hold in confidence the existence, content
and result of the mediation. If the dispute is not resolved by the mediation,
the parties shall have the right to resort to any remedies permitted by law.
Defenses based on the passage of time are suspended upon submitting the dispute
to the mediator and during the mediation. The time period during the mediation
shall be disregarded in calculating such defenses. Nothing in this clause
shall be construed to preclude any party from seeking injunctive relief in order
to protect its rights during mediation. A request by a party to a court for
injunctive relief shall not be deemed a waiver of the obligation to mediate.

NON-EXCLUSIVE MARKET RIGHTS
This Agreement neither grants to Supplier an exclusive right or privilege to
sell, license or Lease to Company any or all Equipment, Software, Services or
Materials described in this Agreement which Company may require, nor requires
the purchase, license or Lease of any Equipment, Software, Services or Materials
from Supplier by Company. Company may contract with other manufacturers and
suppliers for the acquisition of comparable Equipment, Software, Services or
Materials. Purchases, licenses or leases by Company under this Agreement shall
be initiated by the placement of an Order by Company and the Order shall not

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restrict the right of Company to cease acquisition nor require Company to
continue any level of acquisition from Supplier.

NOTICES
Any notice, demand or other communication (other than an Order) required, or
which may be given, under this Agreement shall, unless specifically otherwise
provided in this Agreement, be in writing and shall be given or made by
overnight courier service, confirmed facsimile, registered or certified mail
(return receipt) or other media which provides the sender with written record of
delivery, and shall be addressed to the respective parties as follows:

To Supplier: Rich Heaps
Chief Operating Officer
Clarent Corporation
850 Chesapeake Drive
Redwood City, CA 94063

cc: Mark McIlvane
Clarent Corporation
1300 Iroquois Drive Suite 205
Naperville, IL 60563

To Company or AT&T Corp.: Dean Pedoto
AT&T Corp.
Supplier Management Division
10 Independence Boulevard
Room 3A31
Warren, NJ 07059

The notice, demand or other communication (other than an Order) shall be deemed
to have been given or made when picked up by the delivery services mentioned
above. The above addresses may be changed at any time by giving thirty (30)
days prior written notice.

PUBLICITY
Supplier agrees to submit to Company all advertising, sales promotion, press
releases, and other publicity matters relating to the material furnished or the
services performed by Supplier under this Agreement wherein Company's names or
marks are mentioned or language from which the connection of said names or marks
therewith may be inferred or implied; and Supplier further agrees not to publish
or use such advertising, sales promotion, press releases, or publicity matters
without Company's prior written approval.

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ORDER TERMINATION
An Order may be terminated by Company, at no charge unless specified in an
Order, at any time prior to shipment from Supplier's plant or commencement of
Services. Company shall notify Supplier in writing of any such termination.

OZONE DEPLETING SUBSTANCES
Supplier warrants and certifies that all Equipment, Software, and Materials,
including packaging and packaging components, provided to Company under this
Agreement have been accurately labeled, in accordance with the requirements of
40 CFR Part 82 entitled "Protection of Stratospheric Ozone, Subpart E - The
labeling of Products Using Ozone Depleting Substances." Supplier agrees to
indemnify, defend and save harmless Indemnitees from and against any losses,
damages, claims, demands, suits, liabilities, fines, penalties, and expenses
(including reasonable attorneys' fees) that may be sustained by reason of
Supplier's non-compliance with such applicable law or the terms of this warranty
and certification.

QUARTERLY REPORTS
Upon request, Supplier shall render quarterly reports covering Orders placed
under this Agreement for Equipment, Software, Services and Materials as early in
the subsequent quarter as possible. This report shall be submitted in a
mutually agreed upon format.

RELEASES VOID
Neither party shall require (i) waivers or releases of any personal rights, or
(ii) execution of documents which conflict with the provisions of this
Agreement, from employees, representatives or customers of the other in
connection with visits to its premises, and no such releases, waivers, or
documents shall be pleaded by them or third persons in any action or proceeding.

RIGHT OF ENTRY AND PLANT RULES
Each party shall have the right to enter the premises of the other party during
normal business hours with respect to the performance of this Agreement, subject
to all plant rules and regulations, security regulations and procedures and U.S.
Government clearance requirements, if applicable. Supplier shall become
acquainted with conditions governing the delivery, receipt and storage of
Materials and Equipment at the site of the Services so that Supplier will not
interfere with Company's operations. Storage space will not necessarily be
provided adjacent to the site of the Services. Therefore, Supplier shall be
expected to select, uncrate, remove and transport Materials and Equipment from
the storage areas provided. Company is not responsible for the safekeeping of
Supplier's property on Company's premises. Supplier shall not stop, delay or
interfere with Company's work schedule without the prior approval of Company's
Representative. Supplier shall provide and maintain sufficient covering and
take any other precautions necessary to protect Company's stock, equipment and
other property from damage due to Supplier's performance of the Services.

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SEVERABILITY
If any of the provisions of this Agreement shall be invalid or unenforceable,
the invalidity or unenforceability shall not invalidate or render unenforceable
the entire Agreement or Order, but rather the entire Agreement or Order shall be
construed as if not containing the particular invalid or unenforceable provision
or provisions, and the rights and obligations of the parties shall be construed
and enforced accordingly.

SHIPPING
Supplier shall, at its expense, do all of the following:

1. Ship the Equipment, Software and Materials to the site designated in an
accepted Order by the date set forth in the accepted Order in accordance
with specific shipping instructions. If Supplier anticipates that an
accepted Order will be delayed more than 24 hours past the due date stated
in the accepted Order, Supplier will immediately notify Company's
representative as designated on the accepted Order,

2. Place the accepted Order number on all subordinate documents,

3. Enclose a packing memorandum with each shipment, and when more than one (1)
package is shipped, identify the one containing the memorandum,

4. Mark the accepted Order number on all packages and shipping papers, and.

5. Furnish adequate protective packing at no additional charge.

If Supplier does not comply with the F.O.B. terms of an Order or with Company's
shipping or routing instructions, Supplier authorizes Company to deduct from any
invoice of Supplier (or charge back to Supplier), any increased costs incurred
by Company as a result of Supplier's noncompliance.

STANDARDS
Employees of Supplier with records of criminal convictions, other than minor
traffic violations, shall not be assigned to Company's premises until a detailed
statement of the circumstances is furnished to Company for its review, and
Company has given its written approval of such assignment. In fulfilling
Supplier's obligations under this clause, Supplier shall comply fully with all
laws relating to the making of investigative reports and the disclosure of
information contained therein.

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<PAGE>

SUPPLIER'S INFORMATION
Except for documentation provided hereunder, and notification of significant
bugs, Supplier shall not provide under, or have provided in contemplation of,
this Agreement any Information or Medium, unless Supplier has the right to do
so, and Supplier shall not view any of the Information as confidential or
proprietary. Further, there are no limitations on the Use of Software except as
otherwise agreed to in this Agreement. Notwithstanding the above, Company will
protect Software received from Supplier with the same degree of care that
Company normally uses to protect its own Software that it does not wish to
become public knowledge, and Company will advise any recipient of such Software
of that obligation under this Agreement.

SURVIVAL OF OBLIGATIONS
The obligations of the parties under this Agreement, which by their nature would
continue beyond the termination, cancellation or expiration of this Agreement,
including, by way of illustration only and not limitation, those in the
COMPLIANCE WITH LAWS, IDENTIFICATION, IMPLEADER, INDEMNITY, INFRINGEMENT,
INSURANCE, RELEASES VOID, USE OF INFORMATION, LICENSE GRANT, INTELLECTUAL
PROPERTY, SOURCE CODE LICENSE, MEDIATION and WARRANTY clauses, shall survive
termination, cancellation or expiration of this Agreement.

TAXES

Company agrees to pay any applicable sales, use, excise, import or export tax,
value-added or similar tax, customs, duties, tariffs and similar charges levied
upon the delivery of Supplier's products (hereinafter referred to as "Tax" or
"Taxes"); provided, however, that Company shall not pay or be responsible for
any taxes (i) with respect to which Company has advised Supplier of an exemption
and provided all reasonably required substantiation, (ii) imposed on or in
respect of Supplier's net or gross income, or (iii) imposed on or in respect of
bringing Supplier's products to Supplier's shipping point. Taxes payable by
Company shall be shown as separately billed items on Supplier's invoices in a
form adequate to obtain any applicable recovery or credit and shall not be
included in Supplier's prices. Supplier shall make every reasonable effort to
assist and inform Company of the possible Taxes that may apply.

Company shall have the right to have Supplier contest any such Taxes that
Company deems improperly levied, at Company's expense and subject to Company's
direction and control. If the non-taxability of the subject transaction is
disputed in any audit or assessment of Supplier or a claim for refund for such
Taxes is refused by any jurisdiction, then Supplier shall promptly notify
Company in writing of such assessment or refusal. Company shall have the right,
by notifying Supplier within 30 days of receipt by Company of such notice, to
assume control of the conduct and resolution of such dispute, provided that
Company shall have acknowledged in writing that it shall indemnify and hold
harmless Supplier from and against any damages, liabilities, fines, penalties,
and expenses (including reasonable attorneys' fees) that arise out of or

45
<PAGE>

result from any claim that Company has failed to pay any such Taxes and fees.
Failure by Supplier to provide this notification to Company shall relieve
Company of its indemnification obligation to the extent that such failure
materially prejudices the rights of Company to fully defend its position with
respect to the non-taxability of these transactions.

TIMELY PERFORMANCE
If either party has knowledge that anything prevents or threatens to prevent the
timely performance of the Services under this Agreement, either party shall
immediately notify the other party thereof and include all relevant information
concerning the delay or potential delay.

TOOLS AND EQUIPMENT
Unless otherwise specifically provided in an Order, Supplier shall be
responsible for providing all labor, tools and equipment ("Tools") for
performance of an Order. If Supplier actually uses any Tools owned or rented by
Company or its customers, Supplier acknowledges that Supplier accepts the Tools
"as is, where is" and that neither Company nor its customers have any
responsibility for the condition or state of repair of the Tools and that
Supplier shall have risk of loss and damage to such Tools. Supplier shall not
remove the Tools from Company's or its customers' premises and shall return the
Tools to Company or its customers upon completion of use, or at such earlier
time as Company or its customers may request, in the same condition as when
received by Supplier, reasonable wear and tear excepted.

USE OF INFORMATION
Supplier shall view as Company's property any Information or Medium, however
conveyed, provided to, or acquired by, Supplier under or in contemplation of
this Agreement or an Order. Supplier shall, at no charge to Company, and as
Company directs, destroy or surrender to Company promptly at its request any
such Medium or any copy of such Information. Supplier shall keep Information
confidential and use it only in performing under this Agreement or an Order and
obligate its employees, subcontractors and others working for it to do so,
provided that the foregoing shall not apply to Information previously known to
Supplier free of obligation, made public through no fault imputable to Supplier.

VARIATION OF QUANTITY
Company assumes no liability for Equipment, Software, or Materials produced,
processed or shipped in excess of the amount specified in any Order placed with
Supplier.

WAIVER
The failure of either party at any time to enforce any right or remedy available
to it under this Agreement or otherwise with respect to any breach or failure by
the other party shall not be construed to be a waiver of that right or remedy
with respect to any other breach or failure by the other party.

46
<PAGE>

WORK DONE BY OTHERS
If any part of the Services performed by Supplier is dependent upon Services
done by others, Supplier shall inspect and promptly report to Company any defect
that renders the other work unsuitable for Supplier's proper performance.
Supplier's silence shall constitute approval of the other work as fit, proper
and suitable for Supplier's performance of the Services or other work.

ENTIRE AGREEMENT
This Agreement shall incorporate the typed or written provisions on Company's
Orders issued pursuant to this Agreement and shall constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and the Order(s) and shall not be modified or rescinded, except by a
writing signed by duly authorized representatives of Supplier and AT&T Corp.

The provisions of this Agreement shall apply to:

1. any Orders issued pursuant to this Agreement, and

2. any Services, Material, Equipment, intellectual property rights and
Software or other Information furnished under, in performance of,
pursuant to, or in contemplation of, this Agreement.

Printed provisions on the reverse side of Company's Orders (except as specified
otherwise in this Agreement) and all provisions on Supplier's forms shall be
deemed deleted. Additional or different provisions inserted in this Agreement
by either party, or deletions thereto, whether by alterations, addenda, or
otherwise, shall be of no force and effect, unless expressly consented to by
both parties in writing. Estimates or forecasts furnished by Company shall not
constitute commitments. The provisions of this Agreement supersede all
contemporaneous oral agreements and all prior oral and written quotations,
communications, agreements and understandings of the parties with respect to
the subject matter of this Agreement.

47
<PAGE>

AGREED:

Clarent Corporation AT&T Corp.

/s/ Mark McIlvane /s/ Theodore T. Pasternak
By:________________________ By:__________________________
(signed) (signed)

Mark McIlvane Theodore T. Pasternak
Name:______________________ Name:_________________________
(printed) (printed)

Vice President Group Procurement
Worldwide Sales Manager
Title:______________________ Title:__________________________

10/15/98 10/15/98
Date:______________________ Date:________________________

<PAGE>

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 12, 1999 (except for the second paragraph of Note 4 and Note 13, as to
which the date is June , 1999), in Amendment No. 2 to the Registration
Statement (Form S-1) and related Prospectus of Clarent Corporation for the
registration of 4,600,000 shares of its common stock.

Our audits also included the financial statement schedule of Clarent
Corporation for the period from July 2, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998 listed in item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Palo Alto, California

- --------------------------------------------------------------------------------

The foregoing consent is in the form that will be signed upon the approval
of the Certificate of Incorporation in the State of Delaware as discussed in
Note 13 to the consolidated financial statements.

/s/ Ernst & Young LLP

Palo Alto, California

June 10, 1999

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from S-1 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 11,903 7,267
<SECURITIES> 0 0
<RECEIVABLES> 6,943 11,008
<ALLOWANCES> 807 1,204
<INVENTORY> 3,620 5,593
<CURRENT-ASSETS> 22,944 24,526
<PP&E> 2,233 4,078
<DEPRECIATION> 607 953
<TOTAL-ASSETS> 25,177 28,627
<CURRENT-LIABILITIES> 11,413 17,530
<BONDS> 0 0
0 0
21,024 21,024
<COMMON> 2,746 14,622
<OTHER-SE> (10,006) (25,333)
<TOTAL-LIABILITY-AND-EQUITY> 25,177 28,627
<SALES> 14,647 6,714
<TOTAL-REVENUES> 14,647 6,714
<CGS> 6,653 3,281
<TOTAL-COSTS> 13,818 8,928
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 172 45
<INCOME-PRETAX> (5,792) (5,479)
<INCOME-TAX> 40 0
<INCOME-CONTINUING> (5,832) (5,479)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,832) (5,479)
<EPS-BASIC> (.42) (.29)
<EPS-DILUTED> (.42) (.29)

</TABLE>