ACT NETWORKS INC, S-3, 1996-05-21

ACT NETWORKS INC
S-3, 1996-05-21
COMPUTER COMMUNICATIONS EQUIPMENT

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ACT NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 3661 77-0396887
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

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188 CAMINO RUIZ
CAMARILLO, CALIFORNIA 93012
(805) 388-2474
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MARTIN SHUM
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACT NETWORKS, INC.
188 CAMINO RUIZ
CAMARILLO, CALIFORNIA 93012
(805) 388-2474
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:

<TABLE>
<S> <C>
FREDERIC A. RANDALL, JR., ESQ. NEIL J. WOLFF, ESQ.
SUSAN N. CAYLEY, ESQ. ADAM D. LEVY, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
4675 MACARTHUR COURT, SUITE 1000 PROFESSIONAL CORPORATION
NEWPORT BEACH, CALIFORNIA 92660 650 PAGE MILL ROAD
(714) 752-7535 PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

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, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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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
for the same
offering. / /
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If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2)(3) FEE(3)
<S> <C> <C> <C> <C>
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Common Stock........................... 3,450,000 $44.50 $153,525,000 $52,940
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</TABLE>

(1) Includes up to 450,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.

(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee.

(3) In accordance with Rule 457(c), the aggregate offering price and
registration fee for 3,450,000 shares of Common Stock was based on an
estimated maximum offering price of $44.50 per share.
------------------------

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 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> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MAY 21, 1996

PROSPECTUS

3,000,000 SHARES

LOGO

COMMON STOCK

Of the 3,000,000 shares of Common Stock offered hereby, 1,510,000 shares
are being sold by ACT Networks, Inc. (the "Company" or "ACT") and 1,490,000
shares are being sold by the Selling Stockholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders."

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol ANET. On May 17, 1996, the last reported sale price of the Common
Stock was $44.50 per share. See "Price Range of Common Stock."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS

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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
</TABLE>

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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $857,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about June , 1996, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.

HAMBRECHT & QUIST WESSELS, ARNOLD & HENDERSON

, 1996
<PAGE> 3

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions of documents filed by the Company (File
No. 0-25740) with the Commission are incorporated herein by reference: (a)
Annual Report of the Company on Form 10-K for the fiscal year ended June 30,
1995; (b) Quarterly Reports of the Company on Form 10-Q for the fiscal quarters
ended September 30, 1995, December 31, 1995 and March 31, 1996; (c) the Current
Reports of the Company on Form 8-K and 8-K/A for a reportable event dated
November 30, 1995; (d) Proxy Statement for the Annual Meeting of Stockholders
held on December 4, 1995; and (e) the description of the Company's Common Stock
which is contained in its Registration Statement on Form 8-A filed under the
Exchange Act on March 21, 1995, including any amendments or reports filed for
the purpose of updating such description.

All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement contained in a
document incorporated by reference herein shall be deemed modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Chief Financial Officer, ACT Networks, Inc., at the Company's
executive offices located at 188 Camino Ruiz, Camarillo, CA 93012 (805)
388-2474.

ACT(TM), ACT Networks(TM), ACTnet(R), ACTview(R), Presticom(TM),
NetPerformer(TM) and SkyFrame(). are trademarks of the Company. This Prospectus
also includes trade names and trademarks of companies other than the Company.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information including "Risk Factors" and Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus or incorporated by reference in
this Prospectus. The shares of Common Stock offered hereby involve a high degree
of risk. Investors should carefully consider the information set forth under the
heading "Risk Factors."

THE COMPANY

ACT Networks, Inc. develops, manufactures, markets and sells Frame Relay
wide-area network access products which support a broad range of voice, data and
integrated network applications. End-users and service providers worldwide use
the Company's products to build cost-effective, bandwidth efficient,
easy-to-manage wide area networks ("WANs"). The Company's products incorporate
advanced voice and data compression algorithms, voice and data access switching
capabilities, and proprietary voice, data and facsimile integration
technologies. The Company's products are designed to work with either
terrestrial or wireless media.

The WAN solutions available to an organization vary substantially depending
on the organization's size and communications needs, and the state of
development of the local telecommunications infrastructure. In countries where
public Frame Relay services are available, the Company believes that there is an
emerging market for voice, data and integrated Frame Relay networking solutions
which allocate bandwidth on demand and minimize network expenditures. In
countries where public Frame Relay services are generally not available and
bandwidth is scarce and expensive, there is an increasing demand for integrated
networking solutions which maximize the use of available bandwidth and minimize
network expenditures.

The Company's integrated Frame Relay access devices ("IFRADs") allow
organizations with access to public Frame Relay services to establish a
cost-effective, integrated networking solution. Organizations without access to
public Frame Relay services can use the Company's products to build integrated
private networks. Carriers and alternative service providers in countries with
developing telecommunications infrastructures can use the Company's products to
provide turn-key integrated networking solutions to their customers.

The Company's objective is to be a leading worldwide provider of Frame
Relay access solutions. The Company believes increased availability and
acceptance of Frame Relay services is creating new applications for Frame Relay
access products. These new applications include voice and data specific
applications as well as Frame Relay over satellite. The Company's strategy is to
leverage its existing resources, including its expertise in voice over Frame
Relay, its recently introduced SkyFrame product family and the data capabilities
acquired from Presticom, to pursue opportunities in the emerging Frame Relay
access market.

The Company markets and sells its Frame Relay network access devices
worldwide primarily through over 120 resellers and original equipment
manufacturers ("OEMs"). The Company has established strategic marketing and
sales relationships with major telecommunication service and equipment
providers. As of March 31, 1996, the Company had delivered more than 12,600
integrated network access devices to customers in over 50 countries.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,510,000 shares
Common Stock offered by the Selling
Stockholders................................... 1,490,000 shares
Common Stock to be outstanding after the
offering....................................... 8,966,830 shares(1)
Use of proceeds.................................. General corporate purposes, working
capital requirements and, potentially,
acquisitions of complementary businesses
and technologies
Nasdaq National Market symbol.................... ANET
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................................... $ 6,207 $12,654 $20,566 $14,823 $19,299
Gross profit.................................................. 3,022 6,715 11,322 8,231 9,279
Acquired in-process research and development.................. -- -- -- -- 5,600
Income (loss) from operations................................. (1,417) 482 1,215 861 (7,251)
Net income (loss)............................................. $(1,435) $ 209 $ 1,262 $ 704 $(6,472)
Net income (loss) per share................................... $ (0.52) $ 0.05 $ 0.24 $ 0.15 $ (0.89)
Shares used in per share calculations......................... 2,739 3,852 5,211 4,726 7,234
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
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ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $30,529 $ 93,346
-------
Total assets.......................................................................... 39,031 101,848
-------
Accumulated deficit................................................................... (8,781) (8,781)
Total stockholders' equity............................................................ 35,275 98,092
</TABLE>

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(1) Based on the number of shares outstanding at March 31, 1996. Excludes
1,472,173 shares of Common Stock issuable upon the exercise of stock options
outstanding as of March 31, 1996 with a weighted average exercise price of
$9.03 per share and 4,286 shares of Common Stock issuable upon the exercise
of outstanding warrants with a weighted average exercise price of $3.50 per
share.

(2) Adjusted to reflect the sale of 1,510,000 shares of Common Stock by the
Company in the offering at an assumed offering price of $44.50 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
---------------

Except as otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." See
"Glossary of Technical Terms" for the definition of certain terms used in this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ substantially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in "Risk Factors."

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RISK FACTORS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements. Certain of the factors that could cause actual
results to differ materially are discussed below. The following Risk Factors
should be considered carefully in addition to the other information contained in
this Prospectus before purchasing the shares of Common Stock offered hereby:

Fluctuations in Quarterly Operating Results. The Company has experienced
operating losses in recent quarters. The Company has experienced and may in the
future experience significant fluctuations in revenues and operating results
from quarter to quarter as a result of a number of factors including, without
limitation, the volume and timing of orders from, and shipments to, major
customers; market acceptance of the Company's products; the rate of end-user
adoption of voice over Frame Relay; the ability of the Company's customers,
particularly international customers, to obtain financing for the purchase of
the Company's products; changes in pricing policies or price reductions by the
Company or its competitors; variations in the Company's sales channels or the
mix of product sales; the timing of new product announcements and product
introductions by the Company or its competitors; product obsolescence resulting
from new product introductions or changes in customer demand; the availability
and cost of supplies; the financial stability of major customers; expenses
associated with the acquisition of technologies or businesses; changes in
regulatory requirements; the development of public telecommunications
infrastructures, particularly in international markets; and currency
fluctuations. While the Company regularly engages in price discounting,
significant discounts in a particular quarter could adversely affect the results
of operations for such quarter. In addition, significant and continuing
discounts due to competition or other factors could adversely affect the
Company's business, operating results and financial condition. The Company has
generally not experienced seasonality in its net sales, although the Company has
from time to time experienced decreased net sales to customers in Europe in the
third calendar quarter of each year and has experienced some decreases in net
sales in other international markets during certain periods during the year. Due
to all of the foregoing factors, it is likely that in some future periods the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
could be materially adversely affected. In the quarter ended September 30, 1995,
the Company's revenues decreased when compared to the preceding quarter,
primarily due to a reduced demand for certain point-to-point products. As a
result, the price of the Company's Common Stock was adversely affected.
Quarterly results are not necessarily indicative of future performance for any
particular period, and there can be no assurance that the Company will attain or
sustain growth in net sales and profitability on a quarterly or annual basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company's sales are primarily through resellers and are typically
characterized by several large orders and a large number of small orders.
Resellers typically do not stock a supply of the Company's products and place
orders with the Company only after they have received orders from their
customers. In addition, the Company's backlog at the beginning of a quarter is
generally insufficient to achieve expected net sales for the quarter. While it
is difficult for the Company to accurately forecast the timing and quantity of
orders on a quarter to quarter basis, the Company intends to increase expenses
with the expectation of future sales. The failure of the Company to accurately
forecast the timing and volume of orders for a quarter would adversely affect
the results of operations for such quarter and, potentially, for future periods.
Fluctuations in quarterly results may result in significant volatility in the
market price of the Company's Common Stock. In addition, sales of networking
products fluctuate from time to time based on numerous factors, including
capital spending levels and general economic and market conditions. Future
declines in networking product sales, as a result of general economic conditions
or for any other reason, could have a material adverse effect on the Company's
business, operating results and financial condition.

Limited History of Operations and Profitability. The Company was organized
in May 1987 and commenced shipments of its first product in October 1988. While
the Company first achieved

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profitability in the fourth calendar quarter of 1990, it incurred losses in
periods subsequent to that time. Due to the Company's limited history of
profitable operations, there can be no assurance that it will be profitable in
future periods. The Company plans to continue to expand its level of operations,
resulting in increased fixed costs and operating expenses. The Company's
operating results and net income will be adversely affected to the extent that
net sales and gross profits do not increase sufficiently to offset such
increased expenses. There can be no assurance that the Company will be able to
maintain or increase net sales or gross profits. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Technological Change, Changing Markets and New Products. The market for
the Company's products is characterized by rapid technological advances,
evolving industry standards, frequent new product introductions and
enhancements, and significant price competition. The introduction of products
involving superior or alternative technologies, the emergence of new industry
standards, governmental regulation or changes in a market's pricing structure
could render the Company's existing products, as well as products currently
under development, obsolete and unmarketable in one or more markets which could
adversely affect the Company's business, operating results and financial
condition. The Company has experienced instances where one or more of those
factors resulted in a significant decrease in sales of the Company's products in
particular markets. For example, a rapid decline in the market for certain
point-to-point products resulted in reduced sales and an inventory write-down in
the quarter ended December 31, 1995.

The market for Frame Relay products, especially access devices such as
those produced by the Company, is currently emerging and may not continue to
develop, whether as a result of competition, technological change, market forces
or otherwise. In addition, the transmission of voice over a Frame Relay network
is a new application that has not received widespread acceptance. The Company's
future operating results and ability to implement its strategy successfully will
be dependent in part upon the development and growth of the public Frame Relay
services market for voice, data and integrated applications. Public carriers
such as AT&T and MCI offer services which may adversely affect the adoption of
services and products based on Frame Relay technologies. For example, the
availability of inexpensive voice communications services in the United States
may reduce or eliminate the cost advantages of voice over Frame Relay services
in the United States, particularly those based on voice over Frame Relay. If the
costs of telecommunications services in the United States and other markets
decline, the market for the Company's products may either not materialize or
could be adversely affected. There can be no assurance that such markets will
develop. Even if such markets develop, the Company's success will depend, in
part, on the viability of the Company's products in such markets, and the
ability of the Company to develop effective distribution channels to address
these markets. There can be no assurance that the Company's products will be
widely accepted in this market. In addition, the widespread acceptance of
Asynchronous Transfer Mode ("ATM"), an alternative fast packet technology, could
have a material adverse effect on the Company's ability to obtain market
acceptance of its Frame Relay products. Failure of the Company's products to
achieve market acceptance could have a material adverse effect on the Company's
business, operating results and financial condition.

The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop or acquire and introduce new products designed to meet changing customer
needs on a cost-effective and timely basis. Failure by the Company to respond on
a timely basis to technological developments, changes in industry standards or
customer requirements, or any significant delay in product development or
introduction, could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will respond effectively to technological changes or new product
announcements by others or that the Company will be able to successfully develop
and market new products or product enhancements and that any new product or
product enhancement will gain market acceptance. The Company expects that the
average sales prices of its products will decline in the future primarily due to
increased competition and the introduction of new technologies. Accord-

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ingly, the Company's ability to maintain or increase net sales and gross margins
will depend in part upon its ability to reduce its cost of sales, to increase
unit sales volumes of existing products and to introduce and sell new products.
There can be no assurance that the Company will be able to reduce its cost of
sales in the future to respond effectively to declining sales prices.

The Company budgets research and development expenditures based on planned
product introductions and enhancements; however, actual expenditures may
significantly differ from budgeted expenditures. Inherent in the product
development process are a number of risks. The development of new,
technologically advanced products and product enhancements is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will successfully identify, develop or introduce new products or
product enhancements. Products such as those offered by the Company may contain
undetected or unresolved software errors when they are first introduced or as
new versions are released. There can be no assurance that, despite extensive
testing by the Company, software errors will not be found in new products or
upgrades after commencement of commercial shipments, resulting in delay in or
loss of market acceptance. Future delays in the introduction or shipment of new
or enhanced products, the inability of such products to gain market acceptance
or problems associated with new product transitions could adversely affect the
Company's operating results, particularly on a quarterly basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Substantial Competition. The market for the Company's products is highly
competitive. The Company competes directly domestically and internationally with
a variety of companies offering Frame Relay access products including FastComm
Communications ("FastComm"), Memotec Communications, Inc. ("Memotec"), MICOM
Communications Corp. ("MICOM"), Motorola Information Systems Group ("Motorola"),
Sync Research, Inc. ("Sync") and other companies. The Company anticipates
competition from manufacturers of Frame Relay switches, such as Cascade
Communications Corp. ("Cascade") and StrataCom, Inc. ("StrataCom") who are also
suppliers to, or customers of, the Company.

Unlike the Company, many competitors of the Company are ISO-9000 certified.
Many telecommunications firms will not purchase products from suppliers that do
not meet ISO-9000 specifications. Accordingly, until it has obtained ISO-9000
certification, the Company may be precluded from selling its products to such
organizations and its ability to compete with other suppliers of network
communications equipment may be adversely affected, resulting in loss of sales,
loss of market share and lack of acceptance of the Company's products.

The Company expects substantial additional competition from existing
competitors and from a number of other companies which may enter the Company's
existing or future markets. Many of the Company's current and potential
competitors have substantially greater name recognition and financial,
marketing, technical and other resources than the Company. Many of these
companies sell directly to end-users, which the Company believes may provide a
competitive edge over the Company when marketing either similar products or
alternative networking solutions. Consolidations in the industry, such as the
proposed acquisitions of StrataCom by Cisco Systems Inc. and MICOM by Northern
Telecom Limited, could enhance the capabilities of the Company's competitors.
There can be no assurance that the Company will be able successfully to compete
against either current or potential competitors or that competition will not
have a material adverse effect on the Company's business, operation results and
financial condition. See "Business -- Competition" and "-- Manufacturing."

Integration of Presticom; Future Acquisitions. A component of the
Company's strategy is to acquire complementary technologies and businesses. Such
acquisitions involve significant risks. The Company acquired Presticom in
November 1995. To obtain benefits from this acquisition, the Company must
successfully integrate Presticom's and the Company's sales, research and
development and administrative functions. In addition, the Company also must
integrate Presticom's technology,

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which is primarily based on the transmission of data using Frame Relay, into the
Company's products, which emphasize voice transmission using Frame Relay, and
must also integrate the Company's technology into Presticom's products.
Developing Presticom's business as a part of the Company will also require the
use of cash resources. Due in part to consolidation in the Company's industry,
the Company may in the future pursue acquisitions of related businesses,
products or technologies. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt, and the creation and amortization of goodwill and the
incurrence of acquisition related expenses, all of which could adversely affect
the Company's profitability. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products of the acquired companies, the diversion of management's attention from
other business concerns, risks associated with the Company's entering markets in
which it has no or limited direct prior experience and the potential loss of key
employees of the acquired company. In the event that an acquisition does occur,
no assurances can be given as to the effect thereof on the Company's business,
operating results and financial condition.

Customer Concentration. A small number of customers have historically
accounted for a substantial portion of the Company's net sales. In particular,
Scientific Atlanta accounted for approximately 7% and 20% of the Company's net
sales for the fiscal year ended June 30, 1995 and for the nine months ended
March 31, 1996, respectively. In addition, StrataCom and IMPSAT accounted for 8%
and 14% of the Company's net sales for the fiscal year ended June 30, 1995 and
8% and 12% for the nine months ended March 31, 1996, respectively. During those
periods the Company's five largest customers accounted for 43% and 49%,
respectively, of net sales. There can be no assurance that a major customer will
not reduce or delay the amount of products ordered from the Company or
significantly change the terms upon which the Company and such customer do
business. Any such reduction, delay or change could have a material adverse
effect on the Company's business. In general, the Company's major customers
either sell or deploy the Company's products outside the United States, which
subjects the Company to a variety of other risks. See "-- International Sales,
Tariffs and Regulatory Matters."

Management of Growth. The Company has recently experienced growth in its
operations, both internally and as a result of the acquisition of Presticom.
During the last 12 months, the Company has significantly increased the number of
sales, marketing, engineering and other personnel and expects to continue to
increase the number of its personnel. The Company's growth has placed, and will
continue to place, strain on the Company's managerial, operational and financial
resources and systems and controls. This is particularly true with respect to
sales in international markets since each specific international market has its
own unique regulatory, financial, technical, customer and other characteristics
which often require the Company to devote significant resources to sell products
in that country. In addition, the Company engages from time to time in customer
development activities for customers which require the allocation of significant
resources. The Company's future operating results will depend on its ability to
attract, hire and retain skilled employees, and to expand and improve the
Company's operational, product development, management information and financial
systems and controls. The Company continues to upgrade its management
information and product development systems. The Company's failure to manage
growth effectively, successfully upgrade its systems or to hire, retain and
integrate necessary qualified personnel could adversely affect the Company's
business, operating results and financial condition.

International Sales, Tariff and Regulatory Matters. Sales of the Company's
products to customers outside the United States accounted for approximately 70%
and 66% of the Company's net sales for the fiscal years ended June 30, 1994 and
June 30, 1995, respectively, and approximately 56% of the Company's net sales
for the nine months ended March 31, 1996. In addition, the Company believes that
a majority of its sales to customers inside the United States represent sales of
products which are used or resold in markets outside the United States. The
Company expects that international sales will continue to account for a
significant portion of the Company's net sales in future periods. International
sales are subject to certain inherent risks, including unexpected changes in
regulatory requirements and tariffs, difficulties in staffing and managing
foreign operations, potentially adverse tax conse-

8
<PAGE> 10

quences and problems in collecting accounts receivable. A significant number of
the Company's products are sold or installed in countries, including several in
South America, where political or economic issues could adversely affect the
purchasing decision of the customer. Although the Company's sales are currently
denominated in U.S. dollars, fluctuations in currency exchange rates could cause
the Company's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. Furthermore, future international activity may result in foreign
currency denominated sales and, in such event, gains and losses on the
conversion to U.S. dollars of accounts receivable and accounts payable arising
from international operations may contribute to fluctuations in the Company's
results of operations. The financial stability of foreign markets could also
affect the Company's international sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."

Rates for telecommunications services are governed by tariffs of licensed
carriers that are subject to regulatory approval. Future changes in these
tariffs could have a material adverse effect on the Company's business. For
example, should tariffs for public switched digital services increase in the
future relative to tariffs for private leased services, the cost-effectiveness
of certain of the Company's products would be reduced, and its business and
results of operations could be adversely affected. In addition, the Company's
products must meet standards and receive certification for connection with the
public telecommunications networks of a country prior to their sale in such
country. In the United States, for example, the Company's products must comply
with certain regulations promulgated by the Federal Communications Commission,
and to date all of the Company's products have so complied. The Company's
products must also be certified by domestic telecommunications carriers. In
foreign countries, the Company's products are subject to a wide variety of
governmental review and certification requirements. From time to time, foreign
governments have altered certification or regulatory requirements which has
adversely impacted the Company's ability to sell products in such markets. Any
future inability to obtain on a timely basis or retain domestic certificate or
foreign regulatory approvals could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Governmental Regulation."

Reliance on Third Party Suppliers. The Company relies on third party
suppliers who supply the components used in the Company's products. The
unavailability of certain components from current suppliers, especially
components custom designed for the Company, could result in delays in the
shipment of the Company's products as well as additional expenses associated
with obtaining and qualifying a new supplier. In addition, certain key
components used in the Company's products are available only from single sources
and the Company does not have long term contracts ensuring the supply of such
components. As the Company typically maintains less than 90 days supply of such
components, there can be no assurance that components will be available to meet
the Company's future requirements at favorable prices, if at all. The Company's
inability to obtain components in a timely manner would materially and adversely
affect the Company's business and financial condition. In addition, any
significant increase in component prices could also adversely affect the
Company's results of operations. See "Business -- Manufacturing" and
"-- Proprietary Rights."

The Company resells Frame Relay switches purchased from Cascade. Although
the Company believes similar products can be purchased from other sources, the
process of qualifying replacement suppliers, generating the supporting
documentation, performing system level integration, obtaining
standards-compliant approval for its products, and retraining sales and
marketing channels would require a significant amount of time and expense. The
Company's ability to offer an integrated, cost-effective networking solution is
based, in part, on its ability to sell such products as part of its present
line. The Company's inability to source these products at satisfactory quality
and quantity levels and with the appropriate lead time would adversely affect
the Company's business and operations. See "Business -- Manufacturing."

Reliance on Indirect Distribution. The Company markets and sells products
domestically and internationally primarily through resellers, such as
distributors, value-added resellers and system integrators. The number of
qualified resellers in certain countries is limited. Resellers typically are not

9
<PAGE> 11

effective at selling the Company's products until they have been trained and
have successfully completed several sales. The Company's performance depends in
part on attracting, retaining and motivating such resellers. Certain of the
Company's resellers also act as resellers for competitors of the Company and
could devote greater effort and resources to marketing competitive products. The
Company's resellers are generally provided discounts and, occasionally, are
entitled to special pricing or distribution arrangements, the effect of which is
to decrease the Company's gross margins. While the Company has contractual
relationships with many of its resellers, these agreements do not require the
resellers to purchase the Company's products and can generally be terminated on
short notice by the reseller. Resellers in many countries have title to the
governmental authorizations and certifications necessary to market the Company's
products in such country, and there is no assurance that, in the event a
reseller ceased marketing the Company's products, the reseller would transfer
such authorization or certification to the Company or that the expense and delay
associated with obtaining a new authorization or certification would not
adversely affect the Company's business and operations in such country. There
can be no assurance that resellers will continue to market the Company's
products or devote the resources necessary to provide effective sales and
marketing support to the Company. In addition, the Company is dependent on the
continued viability and financial stability of its resellers, many of which are
small organizations with limited capital. In the first fiscal quarter of 1993,
one of the Company's European resellers filed for bankruptcy, ceased operations,
and was subsequently replaced by a number of nonexclusive resellers. The
Company's inability to collect a significant sum from the reseller, the time
involved in reestablishing a new distribution channel in that market and the
difficulties in having certain regulatory approvals transferred to the Company
all adversely affected the Company's business. The loss of any key reseller
could adversely affect the Company's business. See "Business -- Governmental
Regulation."

The Company's sales through original equipment manufacturers ("OEMs") who
purchased custom products for the fiscal years ended June 30, 1994 and 1995, and
for the nine month period ended March 31, 1996 accounted for approximately 6.3%,
9.0% and 21.5%, respectively, of the Company's net sales. The Company does not
classify private label sales of standard products as OEM sales. In 1995 and the
nine months ended March 31, 1996, virtually all of the Company's OEM sales were
generated by sales of custom voice cards to Scientific Atlanta for use in its
satellite based communication system. The Company does not anticipate that
Scientific Atlanta will maintain its current level of sales. None of the OEMs
have contracts with the Company which require the OEMs to purchase any products.
The Company's OEM and private label business is subject to risks such as
contract termination, products developed by a third party or by the third
party's internal development team, change in corporate ownership, business
direction or product mix by the third party, and assumption of manufacturing
rights by the third party. There can be no assurance that these factors will not
adversely affect the Company's business, operating results and financial
condition. See "Business -- Sales and Marketing."

Dependence on Proprietary Technology. The Company's future success will
depend in part on its proprietary technology. In addition, certain technology
licensed from third parties is incorporated in the Company's products. In
particular, the Company licenses certain of its voice compression algorithms,
the right to commercialize its SkyFrame products, components of its network
management system software and other software and technology embedded in the
hardware incorporated into the Company's products pursuant to nonexclusive
license agreements. The failure of the Company to retain such licenses or obtain
new licenses as improvements in such technology are developed and new technology
is introduced could adversely affect the Company's business. The Company does
not currently hold any patents. The Company relies principally on copyright,
trade secret and contract law to protect its proprietary technology. There can
be no assurance that such measures are adequate to protect the Company's
proprietary technology. The Company has substantial international operations and
the laws of foreign countries treat the protection of proprietary rights
differently from, and may not protect the Company's proprietary rights to the
same extent as do, laws in the United States. See "Business -- Proprietary
Rights."

10
<PAGE> 12

Since patent applications in the United States are not publicly disclosed
until the patent is issued, applications may have been filed which, if issued as
patents, would relate to the Company's products. In addition, the Company has
never conducted a comprehensive patent search relating to the technology used in
its products. Accordingly, there can be no assurance that third parties will not
assert infringement claims against the Company in the future or that such claims
will not be successful. The Company could incur substantial costs in defending
itself and its customers against any such claims, regardless of the merits of
such claims. Parties making such claims may be able to obtain injunctive or
other equitable relief which could effectively block the Company's ability to
sell its products in the United States and abroad, and could result in an award
of substantial damages. In the event of a successful claim of infringement, the
Company, its customers and end-users may be required to obtain one or more
licenses from third parties. The Company has in the past, and may in the future,
pay significant sums to obtain licenses from third parties to avoid the costs
and uncertainties associated with defending a potential claim. There can be no
assurance that the Company or its customers could obtain necessary licenses from
third parties at a reasonable cost or at all. The defense of any lawsuit could
result in time consuming and expensive litigation, damages, license fees,
royalty payments and restrictions on the Company's ability to sell its products,
any of which could have a material adverse effect on the Company's business,
operating results and financial condition.

Dependence on Key Personnel. The success of the Company is dependent in
large part on its ability to retain its executive officers, the loss of one or
more of whom could adversely affect the Company's business. The Company does not
have any employment contracts with its executive officers. The Company is also
dependent on other members of management and its sales and technical personnel.
The Company believes that its future success will depend in large part upon its
continued ability to attract, retain and motivate highly skilled employees, who
are in great demand. There can be no assurance that the Company will be able to
do so. See "Management."

Future Capital Needs; Uncertainty of Additional Funding. The Company
anticipates that its existing capital resources, including bank borrowings, cash
flow from operations and the net proceeds of this offering, will be adequate to
satisfy its capital requirements through at least the next 12 months. The
Company's future capital requirements will depend on many factors including, but
not limited to, the cost of acquisitions of businesses, products and
technologies, the levels at which the Company maintains inventory, the market
acceptance of the Company's products, the levels of promotion and advertising
required to launch such products and attain a competitive position in the
marketplace, and the extent to which the Company invests in new technology and
improvements to its existing technology. To the extent that existing resources
and future earnings are insufficient to fund the Company's activities, the
Company may need to raise additional funds through public or private financings
including equity financings. If additional funds are raised through the issuance
of equity securities, the percentage ownership of then current stockholders of
the Company will be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's Common
Stock. No assurance can be given that additional financing will be available or
that, if available, it can be obtained on terms favorable to the Company and its
stockholders. The Company's lack of authorized Preferred Stock and the right of
the Board representatives of the Company's two largest stockholders to approve
certain below market sales of securities (which right may terminate upon the
consummation of this offering) could hinder the Company's ability to obtain
financing. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate some or all of its research and development, to
curtail its operations significantly or to obtain funds through arrangements
with strategic partners or others that may require the Company to relinquish
rights to certain of its technologies or potential markets. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Control by Existing Stockholders. As of May 15, 1996, the executive
officers and directors, together with their affiliates, in the aggregate, owned
approximately 41% of the Company's outstanding shares of Common Stock. In
addition, such stockholders hold options and warrants to purchase additional
shares of the Company's Common Stock. Accordingly, these stockholders, acting
together,

11
<PAGE> 13

may have the ability to control the approval of most matters requiring approval
by the Board of Directors and stockholders of the Company, including the
election of at least a majority of the Board of Directors of the Company and the
authorization of Preferred Stock. This concentration of ownership under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company or a financing of the Company. In addition, the Company
has entered into an agreement with its two largest stockholders, Promon Ltda.
("Promon") and Pacific Technology Fund ("PTF"), that obligates the Company to
nominate a representative of each such stockholder to the Board of Directors as
long as such stockholder owns at least 10% of the Company's then outstanding
voting securities. The Company has agreed that it will not issue securities at
less than 95% of market value, or at a price below 85% of market value with
respect to employee stock purchases or option plans, without the approval of the
representatives of Promon and PTF, again provided that such stockholder owns at
least 10% of the Company's then outstanding voting securities. However, upon the
closing of this offering, Promon and PTF will no longer hold 10% of the
Company's voting securities and the agreement with such stockholders will
terminate. See "Principal and Selling Stockholders."

Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the offering could adversely affect the market
price of the Common Stock. Upon completion of this offering, the Company will
have 8,966,830 shares of Common Stock outstanding. Subject in certain cases to
the volume and other limitations of Rule 144 and Rule 701 under the Securities
Act, substantially all of such shares will be available for immediate sale in
the public market as of the date of this Prospectus. However, the Selling
Stockholders and all officers and directors of the Company who hold, in the
aggregate, approximately 2,000,000 shares, have agreed not to sell their shares
without the consent of Hambrecht & Quist LLC during the 90 day period commencing
the effective date of this Prospectus. See "Principal and Selling Stockholders."

Volatility of Stock Price. The trading price of the Common Stock has
undergone significant fluctuations and is expected to continue to be subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
announcements of technological innovations or new products by the Company or its
competitors, legislative or regulatory changes, general trends in the industry
and other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Potential Effect of Anti-Takeover Provisions. The Company's Certificate of
Incorporation provides for a Board of Directors with staggered terms which may
discourage or prevent certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices. Certain provisions of Delaware law applicable to the
Company, including Section 203 of the Delaware General Corporation Law, could
have the effect of delaying, deferring or preventing a change of control of the
Company. It is possible that the staggered board and Section 203 of the Delaware
General Corporation Law may have the effect of delaying, deferring or preventing
a change of control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.

Forward-Looking Statements. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements under "Business" include, without limitation, the Company's
strategies of maintaining its leadership position in voice over Frame Relay,
penetrating the integrated Frame Relay market, engaging in strategic alliances
and selective acquisitions to address the data over Frame Relay market, and
expanding its OEM and distribution relationships. The forward-looking

12
<PAGE> 14

statements also include the Company's expectation that sales of its Frame Relay
access products will increase due to factors affecting the markets for these
products, such as demand for increased bandwidth, growth in the overall market
for Frame Relay services, increased Frame Relay transmission services, the
cost-effectiveness of integrated networks and voice over Frame Relay solutions
and the broad availability of technology alternatives to Frame Relay, such as
ATM. Such forward-looking statements also include the Company's projections of
the product mix of future revenues; expenditures for research and development,
sales and marketing and general and administrative purposes; and the sufficiency
of capital resources under the "Management's Discussion and Analysis of
Financial Conditions and Results of Operations." Actual results could differ
from those projected in any forward-looking statement for the reasons detailed
in the other sections of this "Risk Factors" portion of this Prospectus. The
forward-looking statements are made as of the date of this Prospectus, and the
Company assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.

Lack of Dividends. The Company has never paid cash dividends on shares of
its capital stock. The Company currently intends to retain any future earnings
in its business and does not anticipate paying any cash dividends in the future.
Furthermore the Company's agreement with its lender currently limits the
Company's ability to pay cash dividends. See "Dividend Policy."

13
<PAGE> 15

THE COMPANY

The Company was incorporated in California in May 1987 under the name
Advanced Compression Technology, Inc., changed its name to ACT Networks, Inc. in
May 1994, and reincorporated in Delaware in May 1995. The Company's executive
offices are located at 188 Camino Ruiz, Camarillo, California 93012 and its
telephone number at that location is (805) 388-2474. As used in this Prospectus,
the "Company" and "ACT" refer to ACT Networks, Inc. and its subsidiaries.

USE OF PROCEEDS

The net proceeds to the Company from the sale of 1,510,000 shares of Common
Stock offered hereby by the Company are estimated to be approximately $62.8
million ($81.8 million if the over-allotment option is exercised in full), at an
assumed public offering price of $44.50 per share and after deducting estimated
underwriting discounts, commissions and offering expenses. The Company will not
receive any proceeds from the sale of the shares of Common Stock by the Selling
Stockholders.

The Company has not yet identified specific uses for the net proceeds of
this offering. The Company expects to use the proceeds of this offering for
general corporate purposes, including the funding of working capital
requirements, expansion of its sales and marketing activities for existing
products and new products, expansion of its research and development personnel
and activities, investment in new technology and broadening of its network
integration capabilities, and acquisitions of complementary business and
technologies. The Company currently has no agreement or understanding with
respect to any such acquisitions. From time to time the Company may evaluate
opportunities to enter into new strategic alliances, joint ventures or other
similar transactions and may use a portion of the proceeds to enter into such
transactions. The Company has not determined the amounts it plans to expend on
each of the listed uses or the timing of such expenditures. The amounts actually
expended for each purpose may vary significantly depending on a number of
factors, including future revenue growth, if any, the amount of cash generated
or used by the Company's operations, the progress of the Company's new product
development efforts, technological advances, the status of competitive products
and acquisition opportunities presented to the Company. Pending the use thereof,
the Company intends to invest the proceeds of this offering in short-term
interest bearing marketable securities.

14
<PAGE> 16

PRICE RANGE OF COMMON STOCK

The Company's Common Stock commenced trading on the Nasdaq National Market
on May 3, 1995 and is traded under the symbol "ANET." The following table sets
forth the range of high and low closing sale prices for the Common Stock for the
periods indicated, as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ----------- ---------- ----------
<S> <C> <C>
1996
4th Quarter (through May 17, 1996)....................................... $46 1/2 $22 1/8
3rd Quarter.............................................................. 26 11 3/4
2nd Quarter.............................................................. 16 1/2 6 1/8
1st Quarter.............................................................. 17 7/8 9 3/4
1995
4th Quarter (From May 3, 1995)........................................... 22 15 3/4
</TABLE>

On May 17, 1996, the closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market was $44.50 per share, and there were
approximately 125 holders of record of the Common Stock on such date.

DIVIDEND POLICY

The Company has never paid cash dividends on shares of its capital stock.
The Company currently intends to retain any future earnings for use in its
business and does not anticipate paying any cash dividends in the future.
Furthermore, the Company's agreement with its lender currently limits the
Company's ability to pay cash dividends.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth the total capitalization of the Company as
of March 31, 1996 and as adjusted to reflect the receipt and application of the
net proceeds from the sale of the 1,510,000 shares of Common Stock offered by
the Company hereby at an assumed offering price of $44.50 per share, after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Common stock, $.001 par value per share; Authorized shares --
40,000,000; Issued and outstanding -- 7,456,830;
As adjusted -- 8,966,830: (1)................................... 7 9
Additional paid in capital......................................... 44,059 106,874
Accumulated deficit................................................ (8,781) (8,781)
------- -----------
Accumulated translation adjustment................................. (10) (10)
------- -----------
Total stockholders' equity...................................... 35,275 98,092
------- -----------
Total capitalization....................................... $35,275 $ 98,092
======= =========
</TABLE>

- ---------------
(1) Excludes 1,472,173 shares of Common Stock issuable upon the exercise of
stock options outstanding as of March 31, 1996 with a weighted average
exercise price of $9.03 and 4,286 shares of Common Stock issuable upon the
exercise of outstanding warrants with a weighted average exercise price of
$3.50 per share.

16
<PAGE> 18

SELECTED FINANCIAL DATA

The following selected financial data with respect to the Company's
statement of operations for each of the fiscal years ended June 30, 1993, 1994
and 1995, and the balance sheet data at June 30, 1993, 1994 and 1995, are
derived from the audited financial statements of the Company. The financial data
of the Company as of and for the nine months ended March 31, 1995 and 1996 are
unaudited and were prepared by management of the Company on the same basis as
the audited consolidated financial statements included elsewhere herein and, in
the opinion of the Company, include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results for the nine months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year
ending June 30, 1996. The following information should be read in conjunction
with the Financial Statements of the Company and the related notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 6,207 $12,654 $20,566 $14,823 $19,299
Cost of goods sold............................. 3,185 5,939 9,244 6,592 10,020
------- ------- ------- ------- -------
Gross profit................................ 3,022 6,715 11,322 8,231 9,279
Operating expenses:
Research and development.................... 1,504 1,955 3,586 2,696 3,550
Sales and marketing......................... 1,777 2,943 4,785 3,383 5,069
General and administrative.................. 1,158 1,335 1,736 1,292 2,311
Acquired in-process research and
development............................... -- -- -- -- 5,600
------- ------- ------- ------- -------
Total operating expenses....................... 4,439 6,233 10,107 7,371 16,530
------- ------- ------- ------- -------
Income (loss) from operations.................. (1,417) 482 1,215 861 (7,251)
Net interest income and other income
(expense)................................... (18) 8 69 (142) 912
Loss due to earthquake......................... -- (281) -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes.............. (1,435) 209 1,284 718 (6,339)
Provision for income taxes..................... -- -- 22 14 133
------- ------- ------- ------- -------
Net income (loss).............................. $(1,435) $ 209 $ 1,262 $ 704 $(6,472)
======= ======= ======= ======= =======
Net income (loss) per share.................... $ (0.52) $ 0.05 $ 0.24 $ 0.15 $ (0.89)
======= ======= ======= ======= =======
Shares used in per share calculations.......... 2,739 3,852 5,211 4,726 7,234
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------- ---------
1993 1994 1995 1996
------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 2,284 $ 3,923 $38,235 $30,529
Total assets..................................... 3,837 6,398 42,897 39,031
Total long-term debt, excluding current
maturities.................................... 10 -- -- --
Accumulated deficit.............................. (3,780) (3,571) (2,309) (8,781)
Total stockholders' equity....................... 2,739 4,847 40,316 35,275
</TABLE>

17
<PAGE> 19

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

The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes thereto contained elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve a
number of risks and uncertainties including, without limitation, those set forth
in "Risk Factors." The Company's actual results may differ materially from any
future performance discussed in the forward-looking statements and in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

GENERAL

ACT was founded in May 1987 to design, manufacture and market wide area
network communication products incorporating advanced compression and
integration technologies. Until September 1988, the Company was primarily
engaged in research and development. In fiscal 1989, the Company shipped its
first integrated product, a point-to-point multiplexer designed for use on a
voice-band analog circuit. In fiscal 1991, the Company began shipping a
point-to-point integrated multiplexer designed for use over digital leased
lines. In fiscal 1993, the Company introduced its integrated Frame Relay access
product.

In November 1995 the Company acquired all the outstanding shares of
Presticom, a developer of multiprotocol Frame Relay access devices. The Company
recorded an acquisition cost of approximately $9.1 million, of which
approximately $7.3 million in cash and 176,365 shares of Common Stock
represented the consideration paid to Presticom's shareholders and of which
approximately $0.6 million represented transaction expenses. As a result of the
acquisition, the Company expensed approximately $5.6 million in the quarter
ended December 31, 1995 as acquired in-process research and development and is
amortizing approximately $2.1 million of goodwill over seven years. Presticom
had sales of approximately $2.2 million for its fiscal year ended September 30,
1995.

The Company's future operating results will be dependent upon the
development and growth of the public and private wide area network
communications market for its Frame Relay access products. This market and
product applications within this market are currently emerging and may not
continue to develop, whether as a result of competition, technological change,
market forces or otherwise.

The Company anticipates that, in general, the average sales price for its
products will decrease over time due to competition and other factors. In
addition, the Company has from time to time introduced new products which are
less expensive alternatives to the Company's older products. In such instances,
the Company must sell more units to maintain the same level of aggregate net
sales. Price erosion of existing products and the Company's introduction of less
expensive networking alternatives could adversely affect the Company's margins
and results of operations.

Sales to customers outside the United States accounted for approximately
70% and 66% of the Company's net sales for the fiscal years ended June 30, 1994
and 1995, respectively, and approximately 56% of the Company's net sales for the
nine months ended March 31, 1996. The Company expects that international sales
will continue to account for a significant portion of the Company's net sales in
future periods. In addition, the Company believes that a majority of its sales
to customers inside the United States represent sales of products which are used
or resold in markets outside the United States. International sales are subject
to certain inherent risks, including unexpected changes in regulatory
requirements and tariffs, problems and delays in collecting accounts receivable
and economic downturns in foreign markets. A significant number of the Company's
products are sold or installed in countries, including several in South America,
where political or economic issues could adversely affect the purchasing
decision of the customer. In addition, fluctuations in currency exchange rates
could cause the Company's products to become relatively more expensive to
customers in a particular country, leading to a reduction in sales or
profitability in that country. See Note 1 to Notes to Financial Statements.

18
<PAGE> 20

A small number of customers have historically accounted for a substantial
portion of the Company's net sales. In particular, Scientific Atlanta accounted
for approximately 7% and 20% of the Company's net sales for the fiscal year
ended June 30, 1995 and for the nine months ended March 31, 1996, respectively.
In addition, StrataCom and IMPSAT accounted for approximately 8% and 14% for the
fiscal year ended June 30, 1995 and 8% and 12% for the nine months ended March
31, 1996, respectively, of net sales. During those periods the Company's five
largest customers accounted for 45% and 49%, respectively, of net sales. Any
reduction, delay or change in orders from such customers could have a material
adverse effect on the Company's business.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, the percentages
of net sales represented by each item in the Company's statement of operations.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE NINE MONTHS
30, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 51.3 46.9 44.9 44.5 51.9
----- ----- ----- ----- -----
Gross profit....................................... 48.7 53.1 55.1 55.5 48.1
Operating expenses:
Research and development......................... 24.2 15.5 17.4 18.2 18.4
Sales and marketing.............................. 28.6 23.3 23.3 22.8 26.3
General and administrative....................... 18.7 10.5 8.4 8.7 12.0
Acquired in-process research and development..... 0.0 0.0 0.0 0.0 29.0
----- ----- ----- ----- -----
Total operating expenses........................... 71.5 49.3 49.1 49.7 85.6
----- ----- ----- ----- -----
Income (loss) from operations...................... (22.8) 3.8 5.9 5.8 (37.6)
Net interest and other income (expense)............ (0.3) -- 0.3 (1.0) 4.7
Loss due to earthquake............................. -- (2.2) -- -- --
----- ----- ----- ----- -----
Income (loss) before taxes......................... (23.1) 1.6 6.2 4.8 (32.8)
Provision for income taxes......................... -- -- 0.1 0.1 0.7
----- ----- ----- ----- -----
Net income (loss).................................. (23.1)% 1.6% 6.1% 4.7% (33.5)%
===== ===== ===== ===== =====
</TABLE>

Net sales

Net sales increased 30.2% to $19.3 million for the nine months ended March
31, 1996 from $14.8 million for the nine months ended March 31, 1995. This
increase was primarily due to increased sales of the Company's Frame Relay and
OEM products and, to a lesser extent, shipments of products acquired in the
Presticom acquisition which accounted for $1.2 million, or 26.7% of the increase
in net sales. Net sales of Frame Relay products were $12.2 million and $6.3
million for the nine month periods ended March 31, 1996 and March 31, 1995,
respectively. Net sales of point-to-point products decreased to $3.0 million
from $7.3 million for the nine month periods ended March 31, 1996 and March 31,
1995, respectively. While the Company anticipated the continued decline of sales
of point-to-point products due primarily to the conversion of customers to Frame
Relay products, the decrease in such sales during the period was greater than
anticipated by the Company. The Company anticipates that sales of point-to-point
products will continue to decline, although significant orders for large
point-to-point networks, if any, could contribute to variability in net sales
from quarter to quarter. Net sales of OEM products increased to $4.1 million for
the nine months ended March 31, 1996 from $1.2 million for the nine months ended
March 31, 1995. The increase in OEM shipments was primarily due to unusually
large orders received from Scientific Atlanta and the Company does not
anticipate this level of OEM sales to continue in the future.

Net sales increased 62.5% to $20.6 million for fiscal 1995 from $12.7
million for fiscal 1994. This increase was primarily due to increased sales of
the Company's Frame Relay products and, to a lesser

19
<PAGE> 21

extent, increased sales of its point-to-point products. Net sales of Frame Relay
products were $2.8 million and $9.2 million for fiscal 1994 and 1995,
respectively. Net sales of point-to-point products were $9.1 million and $9.6
million for fiscal 1994 and 1995, respectively.

Net sales increased 103.9% to $12.7 million in fiscal 1994 from $6.2
million in fiscal 1993. This increase was primarily due to increased sales of
the Company's point-to-point products to telecommunications service providers
and, to a lesser extent, sales of Frame Relay products, first introduced in
1993, and custom voice cards.

Gross profit

Gross profit represents net sales less the cost of goods sold, which
includes cost of materials, manufacturing overhead costs and direct labor
expenses. The Company's gross profit was $9.3 million, or 48.1% of net sales,
for the nine months ended March 31, 1996. The nine months ended March 31, 1996
included a $0.7 million charge for obsolete inventory that was taken to
recognize the decreased demand for certain point-to-point products. Gross
profit, not including this charge, was $10.0 million, or 51.7%, of net sales,
for the nine months ended March 31, 1996, as compared to 55.5% of net sales for
the comparable period in 1995. This decrease in gross profit as a percentage of
sales was primarily attributable to changes in product mix, including increased
OEM sales and decreased sales of voice cards. The gross margins generated from
OEM product sales are typically lower than those from certain of the Company's
other products. In the future, gross profit may be affected by price competition
and discounts, product mix, product configuration, changes in unit volume, cost
of components and manufacturing and other factors.

The Company's gross profit was $11.3 million, or 55.1% of net sales, for
fiscal 1995 compared to $6.7 million, or 53.1% of net sales, for fiscal 1994.
This increase in gross margin was primarily attributable to a decline in the
Company's unit cost of certain components due to decreases in supplier prices
and volume discounts and, to a lesser extent, increased manufacturing
efficiencies and increased sales of the Company's voice cards, which generally
have a higher margin than the Company's multiplexer products. The Company
generally experiences higher manufacturing, component and other costs, and
commensurately lower margins, for new products for a period of time following
their introduction.

The Company's gross profit was $6.7 million, or 53.1% of net sales, in
fiscal 1994 compared to $3.0 million, or 48.7% of net sales, in fiscal 1993.
This increase was primarily due to unit cost decreases in certain components, an
increase in sales of the Company's voice cards and increased manufacturing
efficiencies.

Operating expenses

Research and development. Research and development expense increased to
$3.6 million, or 18.4% of net sales, for the nine months ended March 31, 1996
from $2.7 million, or 18.2% of net sales, for the nine months ended March 31,
1995. These increases were primarily attributable to the costs of personnel for
the development of new products and enhancement of existing products, which
increased to approximately $2.3 million from approximately $1.6 million during
the preceding comparable period. While the actual amount expended will depend
upon a variety of factors, the Company anticipates increasing research and
development expenses in the near term.

Research and development expense increased to $3.6 million, or 17.4% of net
sales, for fiscal 1995 from $2.0 million, or 15.5% of net sales, for fiscal
1994. These increases were primarily attributable to the costs of personnel for
the development of new products and enhancement of existing products, which
increased to approximately $1.7 million from approximately $1.0 during the
preceding comparable period; payments to third party developers, which increased
to $0.3 million from zero during the preceding comparable period; and costs
associated with obtaining product approvals in certain countries, which
increased to approximately $0.2 million from approximately $0.1 million during
the preceding comparable period.

20
<PAGE> 22

Research and development expense increased to $2.0 million, or 15.5% of net
sales, for fiscal 1994 from $1.5 million, or 24.2% of net sales, for fiscal
1993. This dollar increase in expense levels was primarily attributable to the
addition of personnel for the development of new products and enhancement of
existing products and payments to third party developers. The decrease as a
percentage of net sales was due to a more rapid increase in net sales than these
expenses.

Sales and marketing. Sales and marketing expense increased to $5.1
million, or 26.3% of net sales, for the nine months ended March 31, 1996 from
$3.4 million, or 22.8% of net sales, for the nine months ended March 31, 1995.
This dollar increase was primarily attributable to the addition of personnel and
increased marketing activities. The Company anticipates adding sales personnel
and increasing sales and marketing expenses in the near term.

Sales and marketing expense increased to $4.8 million, or 23.3% of net
sales, for fiscal 1995 from $2.9 million, or 23.3% of net sales, for fiscal
1994. This dollar increase was primarily attributable to the addition of
personnel and increased marketing activities. Sales and marketing expense as a
percentage of net sales remained relatively constant between these periods.

Sales and marketing expense increased to $2.9 million, or 23.3% of net
sales, for fiscal 1994 from $1.8 million, or 28.6% of net sales, for fiscal
1993. This dollar increase was primarily attributable to the addition of sales
personnel and increased marketing activities. The decrease as a percentage of
net sales was due to a more rapid increase in net sales than these expenses.

General and administrative. General and administrative expense increased
to $2.3 million, or 12.0% of net sales, for the nine months ended March 31, 1996
from $1.3 million, or 8.7% of net sales, for the nine months ended March 31,
1995. This increase in expense levels was primarily attributable to the addition
of administrative personnel and additional expenses incurred as a result of
being a public company. General and administrative expenses will be impacted by
approximately $300,000 per year for seven years commencing November 30, 1995 due
to amortization of goodwill associated with the acquisition of Presticom.

General and administrative expense increased to $1.7 million, or 8.4% of
net sales, for fiscal 1995 from $1.3 million, or 10.5% of net sales, for fiscal
1994. This dollar increase in expense levels was primarily attributable to the
addition of administrative personnel. The decrease as a percentage of net sales
was due to a more rapid increase in net sales than these expenses.

General and administrative expense increased to $1.3 million, or 10.5% of
net sales, for fiscal 1994 from $1.2 million, or 18.7% of net sales, for fiscal
1993. This dollar increase in expense levels remained relatively constant
between these periods. The decrease as a percentage of net sales was due to a
more rapid increase in net sales than these expenses.

The Company expects to continue to expand its operations, resulting in
potentially substantial dollar increases in each category of operating expenses.
The Company's operating results and net income will be adversely affected to the
extent that net sales and gross profits do not increase sufficiently to offset
such increased expenses.

Net interest and other income (expense)

Net interest income was approximately $0.9 million for the nine months
period ended March 31, 1996 compared to net interest expense of approximately
$0.1 million in the corresponding period in 1995. Net interest income was
approximately $68,400 for fiscal 1995 compared to net interest income of
approximately $8,800 for the fiscal 1994. These changes were primarily
attributable to interest received on the proceeds from the Company's public
offering in May 1995. The Company incurred net interest expense of approximately
$18,000 in fiscal 1993.

21
<PAGE> 23

Income taxes

There was no provision for income taxes for the nine month periods ended
March 31, 1995, and the provision for March 31, 1996 totaled $0.1 million. The
provision for income taxes differs from the federal statutory rate due to the
foreign income taxes related to the Company's Canadian subsidiary, the effect of
Federal and state alternative minimum taxes, net operating losses incurred for
the period that are not benefited and certain expenses including a $5,600,000
charge for acquired in-process research and development which are not deductible
for tax purposes. At June 30, 1995 subject to certain limitations, the Company
has approximately $301,000 and $196,000 of research and development tax credit
carryforwards and approximately $1,673,000 in federal net operating loss
carryforwards, a portion of which it expects to apply against its income tax
liability for 1996.

There was no provision for income taxes for either fiscal 1994 or 1993, and
only a nominal provision of $21,800 for income taxes for the year ended June 30,
1995 due to reductions in the deferred tax valuation allowance attributable to
utilization of net operating loss carryforwards by the Company. See Note 3 to
Notes to Financial Statements.

The Company adopted the provisions of the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," effective July 1, 1993. The
adoption of this statement did not have a material effect on the Company's
financial position or results of operations.

22
<PAGE> 24

QUARTERLY RESULTS

The following table presents selected quarterly financial information for
each of the seven quarters through March 31, 1996. This information is
unaudited, but in the opinion of the Company's management, reflects all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of this information in accordance
with generally accepted accounting principles. Such quarterly results are not
necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------
SEPTEMBER DECEMBER MARCH JUNE SEPTEMBER DECEMBER MARCH
1994 1994 1995 1995 1995 1995 1996
--------- -------- ------ ------ --------- -------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................. $ 4,411 $4,877 $5,535 $5,743 $ 5,102 $ 6,167 $8,030
Cost of goods sold......................... 1,996 2,151 2,445 2,652 2,642 3,691 3,687
------ ------ ------ ------ ------ ------ ------
Gross profit............................. 2,415 2,726 3,090 3,091 2,460 2,476 4,343
Operating expenses:
Research and development................. 787 936 973 890 1,037 1,241 1,271
Sales and marketing...................... 1,026 1,051 1,306 1,402 1,406 1,752 1,910
General and administrative............... 419 461 412 444 600 807 904
Acquired in-process research and
development............................ -- -- -- -- -- 5,600 --
------ ------ ------ ------ ------ ------ ------
Total operating expenses................... 2,232 2,448 2,691 2,736 3,043 9,400 4,085
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations.............. 183 278 399 355 (584) (6,925 ) 258
Net interest and other income (expense).... (12) (48) (82 ) 211 374 308 230
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes................. 171 230 317 566 (211) (6,617 ) 488
Provision for income taxes................. -- 14 -- 8 -- 39 94
------ ------ ------ ------ ------ ------ ------
Net income (loss).......................... $ 171 $ 216 $ 317 $ 558 $ (211) $(6,656 ) $ 395
====== ====== ====== ====== ====== ====== ======
Net income (loss) per share................ $ 0.04 $ 0.05 $0.07 $ 0.09 $ (0.03) $ (0.92 ) $0.05
====== ====== ====== ====== ====== ====== ======
Shares used in per share calculations...... 4,517 4,752 4,818 6,340 7,735 7,206 7,991
====== ====== ====== ====== ====== ====== ======

AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------------
Net sales.................................. 100.0% 100.0% 100.0 % 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 45.3 44.1 44.2 46.2 51.8 59.9 45.9
------ ------ ------ ------ ------ ------ ------
Gross profit............................. 54.7 55.9 55.8 53.8 48.2 40.1 54.1
Operating expenses:
Research and development................. 17.8 19.2 17.6 15.5 20.3 20.1 15.8
Sales and marketing...................... 23.3 21.5 23.6 24.4 27.6 28.4 23.8
General and administrative............... 9.4 9.5 7.4 7.7 11.8 13.1 11.3
Acquired in-process research and
development............................ -- -- -- -- -- 90.8 --
------ ------ ------ ------ ------ ------ ------
Total operating expenses................... 50.5 50.2 48.6 47.6 59.6 152.4 50.9
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations.............. 4.2 5.7 7.2 6.2 (11.4) (112.3) 3.2
Net interest and other income (expense).... (0.3) (1.0) (1.5) 3.7 7.3 5.0 2.9
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes................. 3.9 4.7 5.7 9.9 (4.1) (107.3) 6.1
Provision for income taxes................. -- 0.3 -- 0.1 -- 0.6 1.2
------ ------ ------ ------ ------ ------ ------
Net income (loss).......................... 3.9% 4.4% 5.7 % 9.7% (4.1)% (107.9)% 4.9%
====== ====== ====== ====== ====== ====== ======
</TABLE>

In the quarter ended September 30, 1995, the Company experienced a faster
than anticipated decline in the demand for certain point-to-point products,
which reduced net sales relative to the Company's expectations and resulted in a
$0.7 million write-down of point-to-point inventory, recorded in cost of goods
sold in the quarter ended December 31, 1995. In the quarter ended December 30,
1995, the Company recorded a $5.6 million in-process research and development
expense in connection with the Presticom acquisition. Net sales in that quarter
and in the quarter ended March 31, 1996 were positively impacted by increased
sales of the Company's Frame Relay and OEM products, as well as by the inclusion
of Presticom's operations with the Company's.

23
<PAGE> 25

The Company has experienced and may in the future experience significant
fluctuations in revenues and operating results from quarter to quarter as a
result of a number of factors including, without limitation, the volume and
timing of orders from, and shipments to, major customers; market acceptance of
the Company's products; the rate of end-user adoption of voice over Frame Relay;
the ability of the Company's customers, particularly international customers, to
obtain financing for the purchase of the Company's products; changes in pricing
policies or price reductions by the Company or its competitors; variations in
the Company's sales channels or the mix of product sales; the timing of new
product announcements and product introductions by the Company or its
competitors; product obsolescence resulting from new product introductions or
changes in customer demand; the availability and cost of supplies; the financial
stability of major customers; expenses associated with the acquisition of
technologies or businesses; changes in regulatory requirements; the development
of public telecommunications infrastructures, particularly in international
markets; and currency fluctuations. While the Company regularly engages in price
discounting, significant discounts in a particular quarter could adversely
affect the results of operations for such quarter. In addition, significant and
continuing discounts due to competition or other factors could adversely affect
the Company's business, operating results and financial condition. The Company
has generally not experienced seasonality in its net sales, although the Company
has from time to time experienced decreased net sales to customers in Europe in
the third calendar quarter of each year and has experienced some decreases in
net sales in other international markets during certain periods during the year.
Due to all of the foregoing factors, it is likely that in some future periods
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
could be materially adversely affected. Quarterly results are not necessarily
indicative of future performance for any particular period and there can be no
assurance that the Company will attain or sustain growth in net sales and
profitability on a quarterly or annual basis.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily from the sale of stock,
borrowings from investors and borrowings under a bank facility. Proceeds, net of
offering costs, from sales of preferred stock were $2.6 million and $2.1 million
for the fiscal years ended June 30, 1993 and 1994, respectively. Net proceeds
from the sale of Common Stock in the Company's initial public offering in May
1995 were $33.8 million. For the nine months ended March 31, 1996, the Company's
operating activities used cash of approximately $5.6 million. At March 31, 1996,
the Company had approximately $30.7 million in working capital, including $10.3
million in cash.

Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, computer software and leasehold improvements amounted
to approximately $1.4 million for the nine months ended March 31, 1996. The
Company currently has no material commitments for capital expenditures. However,
the Company anticipates spending between $2.0 million and $3.0 million during
the next 12 months to acquire test equipment, computer equipment, office
furniture, tooling and leasehold improvements.

The Company has loan agreements (the "Loan Agreements") with Silicon Valley
Bank (the "Bank"), which provide for two revolving credit facilities and a term
loan secured by a blanket lien on all of the Company's assets. Under the two
revolving credit facilities, the Company may borrow up to the lesser of $1.5
million or a total of (i) 90% of the net amount of the Company's approved
accounts receivable owing from customers outside the United States plus (ii) 70%
of the value of the Company's inventory held for export outside the United
States, provided that such borrowings are guaranteed by the Export-Import Bank
of the United States. Alternatively, borrowings under the facilities may be made
up to the lesser of $3.0 million or 75% of the net amount of the Company's
accounts receivable from customers within the United States. The Bank may also
issue up to $500,000 in letters of credit for the account of the Company. The
amount available for borrowing under the revolving credit facilities is reduced
by the aggregate amount of such Letters of Credit outstanding from time to time.
In no

24
<PAGE> 26

event may the aggregate outstanding principal balance of all loans made to the
Company under the Loan Agreements exceed $3.0 million.

The Loan Agreements also require the Company to maintain certain financial
ratios and limit the Company's ability to incur additional debt, to repurchase
the Company's stock and to pay dividends. The Company is currently in compliance
with all such financial ratios and covenants. As of March 31, 1996, the Company
had no outstanding balance under its revolving credit facilities and under its
term loan. As of March 31, 1996, an aggregate of $3.0 million was available
under the Loan Agreements. The Company believes that available cash, together
with amounts available under its credit facilities, cash flow from operations
and the net proceeds of this offering, will be sufficient to meet its normal
operating and capital requirements for at least the next twelve months.

25
<PAGE> 27

BUSINESS

ACT Networks, Inc. develops, manufactures, markets and sells Frame Relay
wide-area network access products which support a broad range of voice, data and
integrated applications. End-users and service providers worldwide use the
Company's products to build cost-effective, bandwidth efficient, easy-to-manage
wide area networks ("WANs"). The Company's products incorporate advanced voice
and data compression algorithms, voice and data access switching capabilities,
and proprietary voice, data and facsimile integration technologies. The
Company's products are designed to work with either terrestrial or wireless
media.

INDUSTRY BACKGROUND

The communications traffic of many organizations has grown steadily during
the past two decades due to increased use of office automation, distributed
computing, electronic mail, facsimile transmission, electronic transaction
processing and corporate-wide voice communications systems. This evolution has
led to the use of wide area networks to provide interoffice information access
and communications, which in turn has produced an increasing need for
cost-effective, reliable and flexible WAN solutions.

The WAN solutions available to an organization vary substantially depending
on the organization's size and communications needs, and the state of
development of the local telecommunications infrastructure. Large organizations
in the United States and certain countries in Europe with large amounts of data
traffic have traditionally relied upon wideband digital transmission circuits
(such as T1 and E1) leased from public carriers to provide voice, facsimile and
data communications between regional offices. Organizations in these countries
with less data traffic, including middle market companies and branch offices of
large organizations, have traditionally used a combination of low speed leased
digital circuits (such as DDS 56K) for data and analog lines or public switched
telephone networks for voice and facsimile communications. In certain other
international markets, such as Korea, Spain and Italy, carriers are implementing
digital circuits which organizations are using to build private networks which
connect geographically disparate offices. The cost of these circuits generally
limits their use to large organizations with substantial communications traffic.
In other international markets where the public telecommunication infrastructure
is less developed, such as Argentina, China, India and Russia, organizations are
increasingly relying on satellite transmission and other wireless media to build
or lease private digital networks to transmit voice, facsimile and data between
multiple locations.

Conventional WANs are typically comprised of leased dedicated circuits,
circuit switching mechanisms and network access equipment based on time division
multiplexing ("TDM"). This WAN solution has inherent limitations which may
reduce its cost-effectiveness in certain applications. The deployment of a
leased circuit to connect two remote sites is often inefficient because the
entire bandwidth capacity is dedicated to the organization 24 hours a day even
during periods of little or no communications traffic. Leased circuits are also
expensive and in many cases can comprise a significant portion of an
organization's total networking budget. In addition, conventional WAN solutions
are inflexible as bandwidth within the network is static between two fixed
points and cannot be dynamically switched among multiple locations on demand. As
a result, conventional WAN solutions are not ideally suited to voice and
facsimile transmissions.

In response to the need for services that allow the flexible allocation and
efficient utilization of bandwidth among multiple network sites, public carriers
began providing packet-based services such as X.25. Although these services
generally cost less than dedicated digital circuits and provide reliable
transmission of low-speed asynchronous data, they impose substantial
transmission delays and thus are not well suited for high-speed synchronous
data, voice, facsimile and other delay-sensitive applications. Two "fast packet"
networking technologies, Frame Relay and Asynchronous Transfer Mode ("ATM"),
have emerged to address the need for integrated, cost-effective, flexible WAN
solutions. Fast packet networks provide significantly reduced network delays
while still permitting bandwidth

26
<PAGE> 28

capacity to be allocated on demand between any two endpoints on a WAN, thereby
improving utilization efficiency and supporting a broader range of
communications applications. A number of public carriers and alternative service
providers in the United States and around the world are increasingly providing
public fast packet services for high-speed communications traffic. In countries
where carriers do not provide public fast packet transmission services,
organizations can build private fast packet networks that offer many of the same
benefits. While ATM is not generally available through public carriers, Frame
Relay services are now widely offered in the United States and certain countries
in Europe as a cost-effective, variable bandwidth networking solution. Vertical
Systems Group, a telecommunications consulting group, has estimated that
worldwide revenues from Frame Relay services will increase from approximately
$250 million in 1994 to over $2 billion in 1997 and that worldwide Frame Relay
equipment revenues will increase from approximately $525 million in 1994 to over
$1.5 billion in 1997.

The Company believes the increased availability and acceptance of Frame
Relay services is creating new applications for Frame Relay access products.
Enterprises are using Frame Relay to integrate voice, data and facsimile traffic
over public and private Frame Relay networks. Data service providers may use
Frame Relay to offer voice over their existing networks. Carriers and
alternative service providers may use Frame Relay to improve the cost-efficiency
of their voice services. Large data communications users may migrate from
private leased lines to public Frame Relay services for the transmission of SNA
and other legacy protocol data. Finally, enterprises in countries lacking a
developed terrestrial infrastructure may use Frame Relay over satellite to
fulfill their integrated networking needs.

THE ACT SOLUTION

ACT's technologies and products are designed to support a wide variety of
applications in the emerging Frame Relay marketplace. ACT provides
cost-effective, bandwidth efficient WAN solutions to customers worldwide for the
transmission of voice, data and facsimile communications traffic using Frame
Relay. The Company's products incorporate advanced voice and data compression
algorithms, voice and data access switching capabilities, and proprietary voice,
data and facsimile integration technologies. ACT's products are based on current
international standards and are designed to work with either terrestrial media
(such as copper, fiber and coaxial transmission lines) or wireless media (such
as satellite and microwave).

COMPANY STRATEGY

The Company's strategy is to be a leading worldwide provider of Frame Relay
access solutions. The Company intends to implement this strategy by pursuing the
following initiatives:

- Maintain Leadership in Voice Over Frame Relay. The Company believes it
was the first to offer products commercially which allow the transmission
of toll-quality, compressed voice over Frame Relay networks. The Company
believes its technical capabilities in switching, signaling, echo
cancellation, congestion management, telephony interfaces and other areas
have resulted in the Company being a leader in voice over Frame Relay.
Expanding commercial applications demand a variety of new functions which
the Company believes it is uniquely positioned to develop due to its
technological expertise. The Company intends to maintain its leadership
position by building on its existing technology and developing or
acquiring new technologies to enhance the functions and features of the
Company's products. See "-- Product Development."

- Penetrate Integrated Frame Relay Market. The Company believes it is a
pioneer in the market for integrated Frame Relay access products and
intends to increase its penetration of this market. The Company
identified enhanced data capabilities, a satellite based solution and
additional sales resources as important to the Company's success in this
market. In response, during the last year the Company acquired data
expertise and products through its acquisition of Presticom, developed
and recently released its SkyFrame product family, and doubled the

27
<PAGE> 29

size of its direct sales force. The Company intends to leverage these
additional resources, while continuing to develop product capabilities
and build its sales force, to continue to address this growing market.

- Capitalize on Voice Over Frame Relay Opportunities. To date, Frame Relay
service providers have not included voice as a integral component of
their Frame Relay service offering to end-users. The Company believes,
however, that the bandwidth requirement of voice combined with the
bandwidth efficiency of Frame Relay makes voice over Frame Relay an
attractive service offering. Data-only providers can complement their
existing services by adding cost effective Frame Relay voice services.
Service providers that offer both voice and data may use Frame Relay to
decrease the cost of their voice services. However, end users in this
market will demand superior voice quality and extensive telephony
features. The Company believes that, due to its leadership in voice over
Frame Relay, the Company is well positioned to offer products designed to
meet the evolving needs of this market.

- Address Data Over Frame Relay Market. While the Company has historically
focused primarily on voice applications, it has also developed and
acquired expertise in data over Frame Relay applications. In particular,
the Company's unique cell-based prioritization technology developed by
Presticom provides it with a foundation to develop products to support
multiple legacy data protocols such as SNA as well as token ring and
Ethernet LAN applications. However, the Company does not believe its
current products or marketing channels are adequate to effectively
compete in the data market. The Company believes that a data solution is
critical to the penetration of the domestic market. The Company intends
to engage in strategic alliances and selective acquisitions to enhance
its capabilities in this market.

- Leverage Distribution Through Strategic Alliances. The Company believes
there are a broad range of applications for its Frame Relay technologies.
In order to more rapidly capitalize on the demand for products
incorporating such technologies, the Company has established strategic
distribution and OEM relationships with several telecommunications
equipment manufacturers, including StrataCom, Scientific Atlanta and
Infonet Services Corporation. The Company intends to expand its existing
relationships and form new strategic alliances with additional
telecommunications companies.

MARKETS AND APPLICATIONS

The following describes the primary markets and applications for the
Company's current products:

Integrated Frame Relay Networks. The integrated Frame Relay networks
market is currently the primary market for the Company's products. This market
consists of companies that consolidate their voice, data and facsimile
applications over a public or private network. ACT's customers in this market
include domestic and international end users who choose to build a private
network or to access public Frame Relay networks, as well as alternative service
providers primarily in international markets who offer their customers a
cost-effective networking alternative to local public carriers. Representative
applications in this market include:

- Private Frame Relay Network. In markets with developing public
telecommunications infrastructures, large companies use the Company's
products to access terrestrial or wireless media to establish
cost-effective and bandwidth efficient private networks using leased
transmission circuits. The application of advanced compression
technologies in the Company's networking products to voice, data and
facsimile traffic allows multinational users to connect their remote
sites while reducing bandwidth requirements. For example, a large bank in
Korea has deployed the Company's IFRADs to build an integrated private
frame relay network connecting approximately 350 sites. This network
provides switched voice and fax connectivity among these locations and
concurrently supports both SNA and LAN data applications.

28
<PAGE> 30

- Public Frame Relay Network Access. Service providers in the United
States and certain European countries offer public Frame Relay services.
The Company's IFRADs allow end-users, whose telecommunications bandwidth
requirements do not justify leasing wideband dedicated digital circuits,
to connect directly to a public Frame Relay network and to eliminate many
of the problems and costs associated with managing and supporting a
private network. Middle market companies in the domestic market use ACT's
IFRADs to access public Frame Relay services. For example, a large food
broker and distribution company in the southeast United States uses
public Frame Relay services in conjunction with the Company's IFRADs to
provide corporate-wide voice, voice mail, facsimile and full data and LAN
connectivity. Currently, this network covers five remote sites and, since
its installation, has significantly reduced this customer's annual
intra-company communications expenses.

- Frame Relay Over Satellite. Organizations in countries without a
developed terrestrial public network have limited alternatives to meet
their networking needs. By deploying the Company's products, alternative
service providers in developing countries can provide businesses with
toll-quality voice, facsimile and data transmission services.
Alternatively, businesses can use the Company's products to implement a
private satellite-based network. Historically, the Company has served
this market through the deployment of point-to-point products. The
Company believes that its recently introduced SkyFrame product line is
well-suited for this market. For example, a major Latin American
satellite-based alternative service provider uses the Company's
integrated point-to-point products and IFRADs to provide turn-key
integrated private networks to major corporate clients in Argentina,
Columbia, Venezuela and Mexico. These wireless networks now provide more
than 250 companies with voice, fax and data services to over 1,200
locations.

Voice Over Frame Relay Market. Frame Relay service providers have, to
date, focused on data-only applications. The Company believes that carriers
currently offering data-only services can, by using the Company's products to
add a Frame Relay voice component to their service, offer voice services at a
lower cost than the customer is currently paying for their separate voice
network. The Company believes that a voice offering enhances the competitive
position of this type of carrier. The domestic acceptance of voice-specific
applications has been limited to date by a variety of factors. However, ACT
believes that its recent development of many functional telephony capabilities
necessary to support this application, combined with the growing acceptance of
voice over Frame Relay as a technology, will result in increased utilization of
this application. For example, EMI Communications Corp., a regional service
provider, has announced a voice over Frame Relay service and has entered into a
supply agreement with the Company. In addition, Infonet Services Corporation, a
global provider of data services, has announced it intends to offer integrated
services over its Frame Relay network and has entered into a supply agreement
with the Company.

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<PAGE> 31

PRODUCTS

The Company's product families consist of ACTnet Frame Relay, NetPerformer
and SkyFrame. The chassis of each of the Company's products has a modular
architecture which enables the Company to upgrade its products to meet changing
market needs by adding enhancement cards or plug-in modules. The Company also
offers Actview, a Microsoft Windows-based network management system. This
software product allows users to perform network configuration, diagnostics,
software downloading and network alarms reporting. ACTview can manage a network
of up to 255 SDM-FPs or SDM-JFPs. In addition, the Company continues to sell,
but not actively market, its ACTnet point-to-point products. These products
provide networking communications between two fixed locations and include an
integrated time division multiplexer, data compression devices, inverse
multiplexers and point-to-point digital radio modems.

ACTnet Frame Relay products include IFRADs and Frame Relay switches which
enable organizations to access public Frame Relay services and build private
Frame Relay networks. The Company's MS-1000 and MS-2000 Frame Relay switches are
supplied by Cascade under a private label agreement. ACTnet Frame Relay products
are described below.

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
NAME DESCRIPTION
- -----------------------------------------------------------------------------------
SDM-FP IFRAD with 5 low speed data channels, 1 high speed data channel
and
8 expansion slots
- -----------------------------------------------------------------------------------
SDM-JFP IFRAD with 1 low speed data channels, 1 high speed data channel
and
4 expansion slots
- -----------------------------------------------------------------------------------
VFC-03 4.8 to 16 Kbps voice and fax module
- -----------------------------------------------------------------------------------
LB-01 Multiport Ethernet LAN module
- -----------------------------------------------------------------------------------
DSM-03 3-port Frame Relay access module
- -----------------------------------------------------------------------------------
DSE-03 3-port expansion module for DSM-03
- -----------------------------------------------------------------------------------
</TABLE>

NetPerformer products include multiprotocol data FRADs, multiprotocol
IFRADs and central site units, which enable organizations to build public or
private networks supporting legacy data (e.g. SNA) applications as well as
token-ring or Ethernet LAN traffic. NetPerformer products are described below.

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
NAME DESCRIPTION
- -----------------------------------------------------------------------------------
SN-8600 4 port multiprotocol data FRAD with token ring or Ethernet support
- -----------------------------------------------------------------------------------
SN-8700 4 port multiple protocol data FRAD
- -----------------------------------------------------------------------------------
SN-7040 SN-8600 combined with SDM-JFP
- -----------------------------------------------------------------------------------
SN-7080 SN-8600 combined with SDM-FP
- -----------------------------------------------------------------------------------
CS-9500 Central site shelf
- -----------------------------------------------------------------------------------
</TABLE>

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<PAGE> 32

SkyFrame products include IFRADs and satellite modulators and demodulators,
which enable organizations to build integrated Frame Relay networks using
satellite transmission facilities. SkyFrame products are described below:

The price of the Company's products depends on the type of network access
device, the number and type of expansion modules and the software selected. The
average list price of a complete network access device ranges from $5,000 to
$10,000. For example, an SDM-JFP equipped with two voice channel cards and one
master data channel card has a list price of approximately $7,050 and ACTview
for ACTnet Frame Relay has a list price of $2,000. The Company customarily
discounts from the list price of its products.

CUSTOMERS

End-users of the Company's products include government agencies, financial
institutions, retail chains, distribution companies and manufacturing
organizations. The Company's products are also used by public carriers and
alternative telecommunications service providers. A small number of customers
have historically accounted for a substantial portion of the Company's net
sales. In particular, StrataCom, IMPSAT and Scientific Atlanta accounted for 8%,
14% and 7% of the Company's net sales for the fiscal year ended June 30, 1995,
and 8%, 12% and 20% for the nine months ended March 31, 1996, respectively. A
representative list of end-users, alternative service providers, OEMs and
private label resellers of the Company's products is set forth below:

DOMESTIC END-USERS

Bonnecker & Leigh
First Chicago Bank
Idaho National Guard
Intelsat
National Semiconductor
Pyrodyne
South East Frozen Food
Worldex

ALTERNATIVE SERVICE PROVIDERS

AT&T Wireless
Department of Telecom, India
Entel-Chile
IMPSAT
Infonet Services Corporation
Philippine Long Distance Company
Russtel, Russia
Telefonica de Espana
Telefonica de Peru
Teleport Europe, Germany
Victori

INTERNATIONAL END-USERS

American Express, Argentina
Bank of Brazil
Cheietsee, Japan
Duty-Free, Australia
Industrial Bank of Korea
Memorex Telex, Australia
RadioCel/Biper, Mexico
Samsung, Korea
Ssangyong, Korea
TAM, Brazil

OEMS AND PRIVATE LABEL RESELLERS

Daimler-Benz
IS Networks
LNR Communications
Scientific Atlanta
StrataCom
Vitacom (Cable & Wireless)

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<PAGE> 33

SALES AND MARKETING

The Company markets and sells its products primarily through a worldwide
network of approximately 120 resellers, including distributors, value-added
resellers and systems integrators. Because the WAN needs of end-users vary
significantly from market to market, the Company focuses on contracting with
local resellers who have the technical capability and the market presence to
assist end-users in developing networking solutions to meet their particular
needs. The Company devotes resources to educating resellers as to the benefits
of the Company's products and to training them in the proper installation and
support of the Company's products. The Company's salespersons support the
Company's resellers in their marketing and sales efforts.

To enhance the Company's ability to reach broader markets and to increase
its customer base, the Company has entered into agreements with OEMs for the
development and distribution of custom versions of the Company's products. For
example, the Company has developed custom voice modules for Scientific Atlanta
for their satellite-based communications systems. The Company also sells its
products through a number of private label resellers, including StrataCom. The
Company intends to focus on developing additional OEM and private label reseller
relationships to increase the distribution of its products.

The Company also sells its products directly to carriers, alternate service
providers and large end-users. The Company believes that these customers can
best be addressed by a direct sales force and the Company intends to continue to
increase the number of sales personnel focused on these customers.

The Company's marketing efforts include participating in major
telecommunication trade shows held annually in the United States, Europe, Asia
Pacific and Latin America; advertising in major trade journals; conducting
direct mail marketing campaigns; publishing newsletters and technical articles;
and conducting conferences for resellers. As of March 31, 1996, the Company's
marketing department consisted of eleven full-time employees.

CUSTOMER SUPPORT AND TRAINING

The Company considers on-going technical support, training, service and
repair of its products an integral part of its business. The Company's standard
product warranty includes one-year factory hardware repair, one-year telephone
and facsimile technical support and a 90-day dead-on-arrival express replacement
service. In addition, the Company offers extended out-of-warranty hardware
repair and maintenance programs, software upgrades, a modem dial-in service and
a 24-hour priority technical support hot line. Other service programs include
network design and analysis, network optimizing and tuning, network staging and
on-site installation and troubleshooting. Resellers and certain third party
service organizations provide additional customer support.

The Company offers its resellers a variety of one-week training modules
covering product sales, technical matters and new products. In certain
circumstances, the Company also offers similar training programs to end-users.
Classes are conducted regularly at the Company's facility in Camarillo,
California, as well as in the field. The Company intends to expand its training
program strategy to include in-country training seminars for resellers and
end-users.

PRODUCT DEVELOPMENT

The Company's product development efforts are directed toward enhancing
existing products and developing new products in order to meet changing end-user
needs and to support an increasing number of applications. The Company believes
its existing expertise in compression and integration, including proprietary
echo cancellation technology, international standards-compliant telephone
interfaces and protocols, embedded coding techniques, congestion management and
packet jitter-

32
<PAGE> 34

correction methodology, provide the Company with a strong technology base to
pursue this objective. The Company's product development efforts focus on the
following principles:

- Develop New Products and Technology. The Company continually assesses
market trends, both domestic and international, with the focus of
developing new products designed to meet emerging market demands. In
developing new products, the Company attempts to combine its existing
technology base with new technologies to provide a broader range of
networking solutions to the end-user.

- Improve Existing Technology. The Company seeks to expand the features
and functionality of its existing product lines through technology
modifications and enhancements to meet the changing needs of its
customers. The Company continuously reviews the design and manufacturing
process of its products to determine areas of product cost savings or
enhanced product quality.

- Leverage Software-defined Products. The Company has designed and
continues to develop a small number of programmable hardware designs,
each of which can be used for multiple products through the installation
of application software that define features and functionality. This
strategy allows the Company to reduce hardware design changes and
retooling costs and to accelerate the certification processes for new
products.

As of March 31, 1996, the Company employed 48 persons in engineering, 32 of
which were engaged primarily in software development.

The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop and introduce new products designed to meet changing customer needs on a
cost-effective and timely basis. Failure by the Company to respond on a timely
basis to technological developments, changes in industry standards or customer
requirements, or any significant delay in product development or introduction,
could have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will respond effectively
to technological changes or new product announcements by others or that the
Company will be able to successfully develop and market new products or product
enhancements.

COMPETITION

The market for the Company's products is highly competitive. The Company
competes directly domestically and internationally with a variety of companies
offering Frame Relay access products including FastComm, Memotec, MICOM,
Motorola, Sync and other companies. The Company anticipates competition from
manufacturers of Frame Relay switches, such as Cascade and StrataCom, who are
also suppliers to, or customers of, the Company.

33
<PAGE> 35

be no assurance that the Company will be able successfully to compete against
either current or potential competitors or that competition will not have a
material adverse effect on the Company's business, operation results and
financial condition. See "Business -- Competition" and "-- Manufacturing."

MANUFACTURING

The Company's manufacturing operations consist primarily of quality
control, functional testing, final assembly, burn-in and shipping. The Company
uses third parties for circuit board assembly and in-circuit testing. This
approach minimizes both inventory and capital expenditures while providing
production scheduling and capacity flexibility. The Company performs extensive
testing and inspection of all of its products prior to shipment.

The Company currently procures all of its components from outside
suppliers. The Company has generally been able to obtain adequate supplies of
all components in a timely manner from existing sources. In order to minimize
the risk of supply interruption, the Company maintains quantities of selected
parts and has arrangements with various suppliers to maintain shelf stock to
support its near-term requirements. None of these arrangements with alternative
suppliers and subcontractors obligate the Company to purchase the suppliers
shelf stock.

The Company resells Frame Relay switches purchased from Cascade. Although
the Company believes similar products can be purchased from other sources, the
process of qualifying replacement suppliers, generating the supporting
documentation, performing system level integration, obtaining
standards-compliant approval for its products, and retraining sales and
marketing channels would take a significant amount of time and expense. The
Company's ability to offer an integrated, cost-effective networking solution is
based, in part, on its ability to sell such products as part of its present
line. The Company's inability to source these products at satisfactory quality
and quantity levels and with the appropriate lead time would adversely affect
the Company's business and operations.

Certain components used in the Company's products are available only from
single sources. These include digital signal processors, microprocessors,
programmable gate array devices, power supplies and passive components. Although
the Company generally buys components under purchase orders and does not have
long-term agreements with its suppliers, it expects its suppliers, most of whom
are large companies such as Texas Instruments and Motorola, to be able to
continue to satisfy its requirements. Although the Company believes that
alternative sources are available, if the Company's ability to obtain these
components were impaired or interrupted for any reason, there could be a
substantial disruption in the supply of the Company's products, which could
adversely affect the Company's business and financial condition and results of
operations.

The Company is not currently certified as an ISO-9000 supplier meeting the
manufacturing and testing requirements established by the Industry Standards
Organization. ISO-9000 is an internationally recognized quality assurance
certification. The Company intends to implement procedures to bring it fully
within the parameters for ISO-9000 certification and to seek such certification
in the near future. There can be no assurance as to when, or if, the Company
will obtain such certification.

GOVERNMENTAL REGULATION

The Company's products are subject to regulations promulgated by the
Federal Communications Commission (FCC) regarding emission of electromagnetic
energy, which may interfere with other equipment. All of the Company's current
products have been tested and comply with the relevant FCC regulations and with
all required Underwriters Laboratories safety specifications.

The Company's products are also subject to extensive governmental
regulation and product certification in certain foreign countries. These
regulations and product certification requirements are often significantly more
stringent and burdensome than the regulations to which the Company's products
are subject in the United States. In addition, the certification process to
which the Company

34
<PAGE> 36

must subject its products before they can be marketed in such countries is time
consuming and expensive, taking from six to twelve months and costing from
$30,000 to $50,000 per product.

Resellers in many countries have title to the governmental authorizations
and certifications necessary to market the Company's products in such country,
and there is no assurance that, in the event a reseller ceased marketing the
Company's products, the reseller would transfer such authorization or
certification to the Company or that the expense and delay associated with
obtaining a new authorization or certification would not adversely affect the
Company's business and operations in such country. There can be no assurance
that resellers will continue to market the Company's products or devote the
resources necessary to provide effective sales and marketing support to the
Company.

PROPRIETARY RIGHTS

The Company does not hold any patents and historically has relied on a
combination of contractual rights, trade secrets, copyright and trademark law
and technical measures to establish and protect its proprietary rights in its
products. However, the Company intends to seek legal intellectual property
protection for its products, when appropriate, in the future. Although the
Company relies to a great extent on trade secret protection for much of its
technology, and obtains confidentiality agreements from its employees,
consultants and other third parties to whom the Company reveals confidential
information pursuant to their business relationship, there can be no assurance
that third parties will not independently develop the same or similar
technology, obtain unauthorized access to the Company's proprietary technology
or misuse the technology to which the Company has granted them access. The
Company has substantial international operations and the laws of foreign
countries treat the protection of proprietary rights differently from and may
not protect the Company's proprietary rights to the same extent as do, laws in
the United States.

Certain technology licensed from third parties is incorporated in the
Company's products. In particular, the Company licenses certain of its voice
compression algorithms, the right to commercialize its SkyFrame products,
components of its network management system software and other software and
technology embedded in the hardware incorporated into the Company's products
pursuant to nonexclusive license agreements. The failure of the Company to
retain such licenses or obtain new licenses as improvements in such technology
are developed and new technology is introduced could adversely affect the
Company's business and results of operations.

Since patent applications in the United States are not publicly disclosed
until the patent issues, applications may have been filed which, if issued as
patents, would relate to the Company's products. In addition, the Company has
never conducted a comprehensive patent search relating to the technology used in
its products. Accordingly, there can be no assurance that third parties will not
assert infringement claims against the Company in the future or that such claims
will not be successful. The Company could incur substantial costs in defending
itself and its customers against any such claims, regardless of the merits of
such claims. Parties making such claims may be able to obtain injunctive or
other equitable relief which could effectively block the Company's ability to
sell its products in the United States and abroad, and could result in an award
of substantial damages. In the event of a successful claim of infringement, the
Company, its customers and end-users may be required to obtain one or more
licenses from third parties. In addition, the Company has in the past, and may
in the future, pay significant sums to obtain licenses from third parties to
avoid the costs and uncertainties associated with defending a potential claim.
There can be no assurance that the Company or its customers could obtain
necessary licenses from third parties at a reasonable cost or at all. The
defense of any lawsuit could result in time consuming and expensive litigation,
damages, license fees, royalty payments and restrictions on the Company's
ability to sell its products, any of which could have a material adverse effect
on the Company's business and results of operations.

35
<PAGE> 37

EMPLOYEES

As of March 31, 1996, the Company employed 145 full-time persons, including
36 in operations, 32 in sales and marketing, 11 in customer service, 48 in
engineering and 18 in finance and administration. The Company also employs a
small number of temporary and contract employees. None of the Company's
employees is represented by a labor union. The Company is not a party to any
collective bargaining agreement or other similar agreement. The Company has
experienced no work stoppages to date. The Company believes that its
relationship with its employees is good.

FACILITIES

The Company's principal administrative, engineering and manufacturing
facilities are located in one 52,000 square foot leased facility in Camarillo,
California, under a lease that expires on July 1, 1999. The lease was amended
November 17, 1995 to add approximately 16,000 square feet. The base rent is
currently approximately $43,000 a month. In addition to the base rent, the
Company pays its share of the operating expenses, property tax, and insurance
premiums on the building. The Company also leases 6,000 square feet of space in
Montreal, Canada. ACT maintains small sales support offices in the United
Kingdom and in the State of Maryland. The Company believes its facilities are
adequate for its current needs and that suitable additional or substitute space
will be available as needed.

LEGAL PROCEEDINGS

The Company has no material pending legal proceedings.

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<PAGE> 38

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers and directors of the Company as of April 30, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Martin Shum................ 47 Chairman of the Board of Directors, President and Chief
Executive Officer
Suresh Nihalani............ 43 Vice President, Product Marketing
Shaun Manesh............... 40 Vice President, Manufacturing
John W. Tucker............. 50 Vice President, Sales and Marketing
Melvin L. Flowers.......... 43 Vice President, Finance and Administration, and Chief
Financial Officer
Andre de Fusco............. 38 Vice President, Strategic Planning and Business Development
Peter Staab................ 49 Vice President, Engineering
Linda Carlson.............. 50 Vice President, Worldwide Sales
Jean-Guy Lacombe........... 39 Vice President, Operations
Brig. Gen. Harold R.
Johnson(1)............... 72 Director
Dr. Michael Feuer(2)....... 53 Director
Carlos M. Siffert(2)....... 58 Director
William Ambrose(1)......... 38 Director
Archie J. McGill(1)(2)..... 64 Director
</TABLE>

- ------------------------------
(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

Martin Shum founded the Company in May 1987 and has served as Chairman of
the Board of Directors, President and Chief Executive Officer since that time.
Prior to founding ACT, Mr. Shum was employed in various capacities by several
telecommunications companies, including Vice President of marketing and
development at MICOM, Director of Business Planning and Director of Engineering
at General DataComm, and senior member of the technical staff at Plessey
Telecommunications Research.

Suresh Nihalani has served as Vice President, Product Marketing since
December 1995. Mr. Nihalani served as the Company's Senior Vice President of
Business Development from July 1995 to December 1995, Senior Vice President of
Operations from April 1993 to June 1995, Vice President of Business Planning
from 1990 to 1993 and Vice President of Engineering from 1987 to 1990. Before
joining the Company in 1987, Mr. Nihalani was employed as Director of Product
Development at MICOM.

Shaun Manesh has served as Vice President, Manufacturing since 1990. Mr.
Manesh was the Company's Director of Operations from 1988 to 1990. Prior to June
1988, Mr. Manesh was employed in various capacities with Tekelec and MICOM.

John W. Tucker has served as Vice President, Sales and Marketing since
December 1995, and served as the Company's Vice President of Sales from June
1990 until December 1995. Mr. Tucker was employed as a marketing consultant from
1988 to 1990, as Assistant Vice President of North American Sales at MICOM from
1985 to 1988 and as Director of Sales at Interlan, a local area network
component manufacturer, from 1984 to 1985.

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<PAGE> 39

Melvin L. Flowers has served as Chief Financial Officer and Vice President
of Finance since July 1993 and as Vice President, Finance and Administration
since December 1995. Prior to joining the Company, Mr. Flowers served as
President and Chief Financial Officer of Pacific Earth Resources, an ornamental
horticultural company, from 1991 to 1993 and from 1989 to 1991, respectively,
and as Vice President and Chief Financial Officer of Spectramed Incorporated, a
medical device manufacturing company, from 1986 to 1989.

Andre de Fusco has served as Vice President, Strategic Planning and
Business Development since December 1995. Mr. de Fusco joined the Company in
December 1994 and served as its Vice President of Marketing until December 1995.
Mr. de Fusco was employed as Director of International Accounts and Director of
Business Development for Northern Telecom from 1991 to 1994 and as Vice
President of Marketing and President of MaxCom, a developer of electronic mail
systems, from 1984 to 1991.

Peter Staab joined the Company in June 1995 as its Vice President of
Engineering. Before joining the Company, Mr. Staab was employed at General
DataComm as Director of Network Management and Systems from 1992 to 1995 and
Director of Transmission Products from 1985 to 1992.

Linda Carlson has served as Vice President, Worldwide Sales since December
1995. Ms. Carlson served as the Company's Assistant Vice President of
Sales -- Americas from January 1991 to December 1995. Prior to January 1991, Ms.
Carlson was employed at various telecommunication companies, including RED-SAC
and MICOM.

Jean-Guy Lacombe has served as Vice President, Operations of the Company
and the General Manager of Prestiom since December 1995. Mr. Lacombe was the
Chairman of the Board and Chief Executive Officer of Presticom from February
1988 until November 1995.

Brig. Gen. (retired) Harold R. Johnson has served as a member of the Board
of Directors of the Company since 1988. Brig. Gen. Johnson is currently the
Senior Vice President of Business Development at The Fairchild Corporation, an
aerospace and communications company, and has been with Fairchild in various
capacities since 1988. From 1980 to 1988, Brig. Gen. Johnson was founder,
President and Chief Executive Officer of Telebit Corporation, a manufacturer of
modems.

Dr. Michael Feuer has served as a member of the Board of Directors since
1992. Dr. Feuer is a general partner of Pacific Technology Fund, a venture
capital firm with which he has been associated since 1992, and the President of
Santa Clara Associates, Inc., an investment management company and an affiliate
of Pacific Technology Fund with which Dr. Feuer has been associated since 1987.
Since 1991, Dr. Feuer has been a director of Fiberstars, Inc., a manufacturer of
specialized lighting equipment. Dr. Feuer was elected as a director of the
Company in connection with an investment in the Company by Pacific Technology
Fund.

Carlos M. Siffert has served as a member of the Board of Directors since
1993. Mr. Siffert is a Director of Promon, a large Brazilian telecommunications
and engineering services company. Mr. Siffert is also the President of Promon
International and the Chief Executive Officer of Promon Tecnologia, S.A.,
entities controlled by Promon, and has been associated with Promon Tecnologia,
S.A. for over 30 years. Mr. Siffert was elected as a director of the Company
pursuant to a voting agreement entered into in connection with Promon
International's investment in the Company.

William W. Ambrose has served as a member of the Board of Directors since
1993. Mr. Ambrose is the President of Pyramid Research, Inc. a
telecommunications market research organization which he founded in 1986. Mr.
Ambrose was elected as a director of the Company pursuant to a voting agreement
entered into in connection with Promon International's investment in the
Company.

Archie J. McGill has served as a member of the Board of Directors since
1994. Mr. McGill is the President and Chief Executive Officer of Chardonnay
Inc., an investment management company, and has served in such position since
1986. Mr. McGill served as President of Rothschild, Inc., a venture capital
investment firm, from 1983 to 1986. Mr. McGill was previously President of the
AIS/American Bell division of AT&T and a Vice President of Marketing for
International Business Machines.

38
<PAGE> 40

The Board of Directors of the Company is divided into three classes,
designated "Class I," "Class II" and "Class III," respectively. Each director
serves for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which such director was elected. However, each
initial director in Class I (Mr. Siffert and Dr. Feuer) serves for a term ending
on the date of the annual meeting of stockholders held in 1998; each initial
director in Class II (Mr. Ambrose and Mr. McGill) serves for a term ending on
the date of the annual meeting of stockholders held in 1997 and each initial
director in Class III (Mr. Shum and Brig. Gen. Johnson) serves for a term ending
on the date of the annual meeting of stockholders held in 1996.

39
<PAGE> 41

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 15, 1996, and as
adjusted to reflect the sale by the Company and the Selling Stockholders of the
shares of Common Stock offered hereby, by (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each of the Selling Stockholders, (iii) each of the Company's directors, (iv)
each of the executive officers and (v) all directors and executive officers of
the Company as a group:

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES BENEFICIALLY OWNED
DIRECTORS, FIVE PERCENT STOCKHOLDERS, NAMED OWNED NUMBER OF AFTER
EXECUTIVE PRIOR TO OFFERING(1) SHARES OFFERING(1)(2)
OFFICERS AND DIRECTORS AND OFFICERS AS A -------------------- BEING ------------------
GROUP NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Promon Ltda.................................. 1,494,768 19.9% 710,000 784,768 8.7%
AVE Pres. Juscelino Kubitschek, 1830
04543-900 Sao Paulo-SP, Brazil(3)
Pacific Technology Fund...................... 1,238,751 16.5 600,000 638,751 7.1
P.O. Box 1704
Palo Alto, CA 94302-1704
Ardsley Advisory Partners.................... 374,500 5.0 -- 374,500 4.2
646 Steamboat Road
Greenwich, CT 06836(4)
Pyramid Research, Inc........................ 55,155 * 30,000 25,155 *
14 Arrow Street
Cambridge, MA 02138
Martin Shum(5)............................... 264,044 3.4 60,000 204,044 2.2
William W. Ambrose(6)........................ 55,155 * -- 25,155 *
Dr. Michael Feuer(7)......................... 1,238,751 16.5 -- 638,751 7.1
Brig. Gen. H. R. Johnson..................... 38,716 * -- 38,716 *
Carlos M. Siffert(8)......................... 1,494,768 19.9 -- 784,768 8.7
Archie J. McGill(9).......................... 42,857 * 10,000 32,857 *
Melvin L. Flowers(10)........................ 39,074 * 17,000 22,074 *
Suresh Nihalani(11).......................... 44,790 * 18,000 26,790 *
John Tucker(12).............................. 50,632 * 18,000 32,632 *
Andre de Fusco(13)........................... 34,583 * 6,000 28,583 *
Shaun Manesh(14)............................. 39,708 * 8,000 31,708 *
Peter Staab(15).............................. 6,500 * 6,000 500 *
Linda Carlson(16)............................ 11,900 * 7,000 4,900 *
Jean-Guy Lacombe............................. 77,853 1.0 -- 77,853 *
All directors and executive officers as a
group (14 persons)(17)..................... 3,439,331 43.8 1,490,000 1,949,331 20.8
</TABLE>

- ------------------------------
* Less than 1%.

(1) Unless otherwise indicated, the persons named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.

(2) Assumes that the Underwriters' over-allotment option is not exercised.

(3) The shares are owned beneficially and of record by Promon International,
Inc. ("Promon International"), a company controlled by Promon. As such,
Promon may be deemed to have beneficial ownership of such shares. It is
anticipated that, prior to the completion of this offering, record
ownership will be transferred from Promon International to a company also
controlled by Promon pursuant to a restructuring transaction.

40
<PAGE> 42

(4) Based upon information contained in a Statement on Schedule 13G, dated
February 12, 1996, filed with the SEC by Ardsley Advisory Partners and Mr.
Philip J. Hempleman. The Schedule 13G states that Mr. Hempleman is deemed
to have beneficial ownership of 374,500 shares of Common Stock as of
February 12, 1996.

(5) Includes 38,576 shares held by members of Mr. Shum's family and 35,106
shares held by Helen Shum and Martin Shum as Trustees of the Shum Trust,
dated April 15, 1994. Also includes 190,367 shares issuable upon exercise
of options (including 1,704 shares issuable upon exercise of options held
by Mr. Shum's spouse).

(6) Includes 55,155 shares beneficially owned by Pyramid Research, Inc. Mr.
Ambrose, as President of Pyramid Research, Inc., may be deemed to have
beneficial ownership of these shares.

(7) Includes 1,238,751 shares (638,751 shares after the offering) owned by
Pacific Technology Fund. Dr. Feuer and Belfield Services, Inc., as general
partners of Pacific Technology Fund, may be deemed to have beneficial
ownership of these shares. Dr. Feuer disclaims beneficial ownership of
these shares.

(8) Includes 1,494,468 shares (784,765 shares after the offering) beneficially
owned by Promon and Promon International. Mr. Siffert, as President of
Promon and Promon International, may be deemed to have beneficial ownership
of these shares. Mr. Siffert disclaims beneficial ownership of these
shares.

(9) Includes 42,857 shares issuable upon exercise of options.

(10) Includes 7,503 shares issuable upon exercise of options.

(11) Includes 2,143 shares held by members of Mr. Nihalani's family. Also
includes 5,761 shares issuable upon exercise of options (including 1,418
shares issuable upon exercise of options held by Mr. Nihalani's spouse).

(12) Includes 38,312 shares issuable upon exercise of options. Excludes shares
beneficially owned by Mr. Tucker's spouse, Linda Carlson, an officer of the
Company.

(13) Includes 33,583 shares issuable upon exercise of options.

(14) Includes 7,817 shares issuable upon exercise of options.

(15) Includes 6,500 shares issuable upon exercise of options.

(16) Includes 11,900 shares issuable upon exercise of options. Excludes shares
beneficially owned by Ms. Carlson's spouse, John Tucker, an officer of the
Company.

(17) Includes 55,155 shares owned by Pyramid Research, Inc., 1,238,751 shares
(638,751 shares after the offering) owned by Pacific Technology Fund and
1,494,768 shares (784,768 shares after the offering) owned by Promon. Also
includes an aggregate of 344,600 shares issuable to the Company's directors
and executive officers upon the exercise of options held by such directors
and executive officers.

41
<PAGE> 43

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement,
Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C., have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
Wessels, Arnold & Henderson, L.L.C. ............................
---------
Total...........................................................
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, the Selling
Stockholders and the Company's counsel and independent auditors. The nature of
the Underwriters' obligations is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover of this Prospectus and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow and such dealers may reallow a concession
not in excess of $ per share to certain other brokers and dealers.
After the public offering of the shares, the offering price and other selling
terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent the Underwriters exercise such option, each of the Underwriters have a
firm commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the table above
bears to the total number of shares of Common Stock offered hereby. The Company
will be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of shares of
Common Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and is subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereof.

The Underwriters have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.

Certain stockholders of the Company, including the executive officers and
directors, who will beneficially own in the aggregate approximately 2,000,000
shares of Common Stock after the offering, have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options, rights or warrants to
acquire shares of Common Stock, or securities exchangeable for or convertible
into shares of Common Stock, other than shares of Common Stock purchased by such
persons pursuant to the Company's Employee Stock Purchase Plan, owned by them
during the 90-day period commencing on the date of this Prospectus. The Company
has agreed that it will not, without the Representatives' prior written consent,
offer, sell or otherwise dispose of any shares of Common Stock, options, rights
or warrants to acquire shares of

42
<PAGE> 44

Common Stock, or securities exchangeable for or convertible into shares of
Common Stock, during such 90-day period except that the Company may grant
additional options under its stock option plans.

In connection with this offering, the Underwriters and certain selling
group members may engage in passive market making transactions in the Company's
Common Stock on the Nasdaq National Market immediately prior to the commencement
of the sale of the shares in this offering, in accordance with Rule 10b-6A under
the Exchange Act. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the bid prices of market makers not connected
with this offering and making purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited in amount to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified period prior
to the filing of this Prospectus with the Commission and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.

43
<PAGE> 45

LEGAL MATTERS

Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company and the Selling
Stockholders by Brobeck, Phleger & Harrison LLP, Newport Beach, California. As
of May 15, 1996, members of Brobeck, Phleger & Harrison LLP beneficially owned
8,400 shares of the Company's Common Stock. Certain legal matters relating to
the offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich
& Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The financial statements of the Company at June 30, 1995 and 1994 and for
each of the three years in the period ended June 30, 1995 included in this
Prospectus and the Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as stated in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), omits certain of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and to the
exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described above.

The Company is subject to the informational requirements of the Exchange
Act of 1934, as amended, and in accordance therewith files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facility maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and the following regional offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. The Company's Common
Stock is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company may be inspected at the offices of
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available quarterly reports for the first three quarters of each fiscal
year following the end of each such fiscal quarter.

44
<PAGE> 46

GLOSSARY OF TECHNICAL TERMS

Asynchronous Transfer Mode
("ATM").................. A fast packet data communications service that uses
fixed-length cells for the switching and
transmission of voice, video and data. ATM
typically operates at speeds of 45 Mbps and higher
and can be implemented as a private or public
network service. ATM networking services are
generally faster than Frame Relay services but
require greater bandwidth utilization.

Cell....................... A specialized form of frame that has a fixed
length.

Data communications
services................. The movement of computer-encoded information from
one point to another by means of an electrical
transmission system.

E1......................... Standard digital transmission facilities
transmitting information at 2.048 Mbps.

Frame...................... A packet of digitally encoded information
consisting of three parts: a header that identifies
the sender, the destination, the type of
information contained in the frame and the size of
the frame; the actual information; and a trailer
indicating the end of the frame.

Frame Relay................ A fast packet data communications service that uses
variable-length frames for the switching and
transmission of voice, video and data. Frame Relay
typically operates at speeds ranging from 64Kbps to
T1, or 1.544Mbps, and can be implemented as a
private or public network service.

Kbps....................... Thousand bits per second. A measure of the rate of
data transmission.

Local Area Network
("LAN").................. A high-speed data communications network that is
located in a small geographic area, such as an
office or campus. These networks typically do not
use public carrier service.

Mbps....................... Million bits per second. A measure of the rate of
data transmission.

Packet..................... A self-contained block of data containing control
and user information that is switched and
transmitted across a network.

Protocol................... A set of rules governing communication (and the
exchange of data) between two entities or systems.

SNA........................ Systems Network Architecture. A protocol designed
for communication with IBM computer networks.

Switching.................. The process of interconnecting two devices with a
logical connection across a network, using shared
resources.

T1......................... Standard digital transmission facilities
transmitting information at 1.544 Mbps.

Time Division
Multiplexing............... The sharing of a high-speed line by successively
assigning a given channel to different users at
different times.

Topology................... The physical arrangement of nodes and links to form
a network.

X.25....................... A packet switching protocol.

Wide Area Network
("WAN").................. A network spanning a large geographical area with
nodes that span city, state, or national
boundaries. These networks often use public carrier
services.

45
<PAGE> 47

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheets at June 30, 1994 and 1995 and at March 31, 1996 (unaudited)............ F-3
Statements of Operations for the years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1995 and 1996 (unaudited)............................... F-4
Statements of Stockholders' Equity for the years ended June 30, 1993, 1994 and 1995
and for the nine months ended March 31, 1996 (unaudited)............................ F-5
Statements of Cash Flows for the years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1995 and 1996 (unaudited)............................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 48

REPORT OF INDEPENDENT AUDITORS

Board of Directors
ACT Networks, Inc.

We have audited the accompanying balance sheets of ACT Networks, Inc. as of
June 30, 1994 and 1995, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. 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 financial statements referred to above present fairly,
in all material respects, the financial position of ACT Networks, Inc. at June
30, 1994 and 1995, and the results of its operations and its cash flows each of
the three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Woodland Hills, California
August 15, 1995

F-2
<PAGE> 49

ACT NETWORKS, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents......................... $ 796,476 $30,546,278 $10,327,767
Short-term investments............................ -- -- 7,076,470
Accounts receivable, less allowances of $57,000,
$63,000 and $65,000, respectively.............. 2,655,768 4,529,210 7,983,417
Accounts receivable from stockholders............. -- 669,160 446,244
Inventory......................................... 1,800,363 4,677,190 7,268,784
Prepaid expenses.................................. 146,409 244,315 496,699
Deposits.......................................... 75,113 68,100 89,000
Deferred income taxes............................. -- 82,176 82,176
Tax credits and grants receivable................. -- -- 514,250
---------- ---------- ----------
Total current assets...................... 5,474,129 40,816,429 34,284,807
Plant, equipment and other improvements:
Machinery and equipment........................... 970,112 1,696,257 2,627,750
Furniture and fixtures............................ 171,428 359,500 361,349
Computer software................................. 242.513 411,438 720,389
Leasehold improvements............................ -- 284,659 543,667
---------- ---------- ----------
1,384,053 2,751,854 4,253,155
Accumulated depreciation and amortization........... 649,273 1,233,003 1,927,736
---------- ---------- ----------
734,780 1,518,851 2,325,419
Goodwill............................................ -- -- 1,955,797
Other assets........................................ 189,296 561,498 464,486
---------- ---------- ----------
Total assets.............................. $6,398,205 $42,896,778 $39,030,509
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 972,116 $1,475,020 $2,649,490
Accrued expenses.................................. 295,268 625,627 320,985
Accrued vacation.................................. 191,628 239,888 281,078
Accrued commissions............................... 92,361 153,656 46,522
Income taxes payable.............................. -- 86,958 270,089
Note payable...................................... -- -- 187,547
---------- ---------- ----------
Total current liabilities................. 1,551,373 2,581,149 3,755,711
Commitments
Stockholders' equity:
Preferred stock, $.01 par value
Authorized shares -- 45,000,000 in 1994 and
1995
Issued and outstanding -- 17,351,666 in 1994
and none in 1995............................. 7,931,000 -- --
Common stock, $.001 par value
Authorized shares -- 40,000,000
Issued and outstanding -- 1,210,767 in 1994,
7,149,830 in 1995 and 7,456,830 at March 31,
1996........................................... 1,211 7,150 7,457
Common stock paid-in capital in excess of par
value.......................................... 785,259 42,662,121 44,058,220
Promon secured deposit............................ (300,000) (45,000) --
Accumulated deficit............................... (3,570,638) (2,308,642) (8,780,876)
Accumulated translation adjustment................ -- -- (10,003)
---------- ---------- ----------
Total stockholders' equity................ 4,846,832 40,315,629 35,274,798
---------- ---------- ----------
Total liabilities and stockholders'
equity.................................. $6,398,205 $42,896,778 $39,030,509
========== ========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE> 50

ACT NETWORKS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $6,207,138 $12,653,782 $20,566,247 $14,823,421 $19,299,372
Expenses:
Cost of goods sold..................... 3,184,777 5,939,497 9,244,460 6,592,050 10,020,685
Research and development............... 1,503,774 1,955,260 3,586,230 2,696,181 3,550,015
Sales and marketing.................... 1,777,422 2,942,734 4,784,467 3,382,907 5,068,552
General and administrative............. 1,158,444 1,334,641 1,735,759 1,291,741 2,311,262
Acquired in-process research and
development......................... -- -- -- -- 5,600,000
---------- ---------- ---------- ---------- ----------
7,624,417 12,172,132 19,350,916 13,962,879 26,550,514
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............ (1,417,279) 481,650 1,215,331 860,542 (7,251,142)
Other:
Interest and other income (expense).... 8,356 29,498 252,172 (9,233) 951,250
Interest expense....................... (25,921) (20,747) (183,725) (132,957) (39,345)
Loss due to earthquake................. -- (281,203) -- -- --
---------- ---------- ---------- ---------- ----------
(17,565) (272,452) 68,447 (142,190) 911,905
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........ (1,434,844) 209,198 1,283,778 718,352 (6,339,237)
Provision for income taxes............... -- -- 21,782 14,000 132,997
---------- ---------- ---------- ---------- ----------
Net income (loss)........................ $(1,434,844) $ 209,198 $1,261,996 $ 704,352 $(6,472,234)
========== ========== ========== ========== ==========
Net income (loss) per share.............. $ (0.52) $ 0.05 $ 0.24 $ 0.15 $ (0.89)
========== ========== ========== ========== ==========
Shares used in computing net income
(loss) per share....................... 2,739,232 3,851,964 5,210,910 4,726,124 7,233,789
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE> 51

ACT NETWORKS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON
STOCK
PREFERRED STOCK COMMON STOCK PAID-IN CAPITAL PROMON ACCUMULATED
------------------------ ------------------ IN EXCESS OF SECURED ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEPOSIT DEFICIT ADJUSTMENT TOTAL
----------- ---------- -------- ------- --------------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1,
1992...... 5,800,000 $3,100,000 1,116,867 $ 1,117 $ 718,623 $ -- $(2,344,992) $ -- $1,474,748
Issuance
of
Series
C
convertible
preferred
stock... 1,666,666 500,000 -- -- -- -- -- -- 500,000
Issuance
of
Series
D
convertible
preferred
stock... 5,315,000 2,126,000 -- -- -- -- -- -- 2,126,000
Exercise
of
options
to
purchase
common
stock... -- -- 3,500 3 2,447 -- -- -- 2,450
Issuance
of
warrants
to
purchase
common
stock.. -- -- -- -- 71,000 -- -- -- 71,000
Net
loss... -- -- -- -- -- -- (1,434,844 ) -- (1,434,844)
----------- ---------- -------- ------- --------------- --------- ----------- ----------- ----------
Balance at
June 30,
1993..... 12,781,666 5,726,000 1,120,367 1,120 792,070 -- (3,779,836 ) -- 2,739,354
Issuance
of
Series
E
convertible
preferred
stock... 4,570,000 2,205,000 -- -- (70,000) -- -- -- 2,135,000
Deposit
secured
by
Series
E
preferred
stock.. -- -- -- -- -- (300,000) -- -- (300,000)
Exercise
of
options
to
purchase
common
stock.. -- -- 81,829 82 57,198 -- -- -- 57,280
Exercise
of
warrants
to
purchase
common
stock.. -- -- 8,571 9 5,991 -- -- -- 6,000
Net
income... -- -- -- -- -- -- 209,198 -- 209,198
----------- ---------- -------- ------- --------------- --------- ----------- ----------- ----------
Balance at
June 30,
1994..... 17,351,666 7,931,000 1,210,767 1,211 785,259 (300,000) (3,570,638 ) -- 4,846,832
Amortization
of deposit
secured
by
Series
E
preferred
stock... -- -- -- -- -- 255,000 -- -- 255,000
Exercise
of
options
to
purchase
common
stock... -- -- 167,740 168 117,512 -- -- -- 117,680
Exercise
of
warrants
to
purchase
common
stock.. -- -- 144,907 145 33,255 -- -- -- 33,400
Conversion
of
convertible
preferred
stock
to
common
stock... (17,351,666) (7,931,000) 2,721,416 2,721 7,928,279 -- -- -- --
Initial
public
offering... -- -- 2,905,000 2,905 33,797,816 -- -- -- 33,800,721
Net
income... -- -- -- -- -- -- 1,261,996 -- 1,261,996
----------- ---------- -------- ------- --------------- --------- ----------- ----------- ----------
Balance at
June 30,
1995..... -- -- 7,149,830 7,150 42,662,121 (45,000) (2,308,642 ) -- 40,315,629
Exercise
of
options
and
warrants
to
purchase
common
stock... -- -- 130,635 131 115,424 -- -- -- 115,555
Issuance
of
stock
for
purchase
of
Presticom
Inc.... -- -- 176,365 176 1,280,675 -- -- -- 1,280,851
Amortization
of deposit
secured
by
Series
E
preferred
stock... -- -- -- -- -- 45,000 -- -- 45,000
Translation
adjustment... -- -- -- -- -- -- -- (10,003) (10,003)
Net
loss... -- -- -- -- -- -- (6,472,234 ) -- (6,472,234)
----------- ---------- -------- ------- --------------- --------- ----------- ----------- ----------
Balance
at
March
31,
1996 -- $ -- 7,456,830 $ 7,457 $44,058,220 $ -- $(8,780,876) $ (10,003) $35,274,798
=========== ========== ======== ======= ============== ========= ============ ============ ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 52

ACT NETWORKS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $(1,434,844) $ 209,198 $ 1,261,996 $ 704,352 $(6,472,233)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization.................... 195,204 269,979 583,730 421,415 792,797
Write-off of in-process research and
development.................................... -- -- -- -- 5,600,000
Provision for allowances on accounts
receivable..................................... 241,770 27,193 6,492 -- --
Provision (benefit) for deferred taxes........... -- -- (82,176) -- --
Loss on equipment disposals...................... -- 37,853 -- -- --
Amortization of shareholder research and
development deposit............................ -- -- 255,000 225,000 45,000
Changes in operating assets and liabilities:
Accounts receivable............................ (833,526) (982,110) (2,549,094) (1,175,376) (2,201,182)
Inventory...................................... (388,934) (789,338) (2,876,827) (2,172,820) (2,240,628)
Prepaid expenses............................... 71,401 (129,917) (97,906) (18,109) (776,803)
Deposits....................................... 17,254 (54,109) 7,013 46,440 --
Accounts payable and accrued expenses.......... 131,928 481,397 1,029,776 720,532 (263,982)
---------- ---------- ------------ ----------- ----------
Net cash used in operations........................ (1,999,747) (929,854) (2,461,996) (1,248,566) (5,517,031)
INVESTING ACTIVITIES
Increase in short-term investments................. -- -- -- -- (6,596,398)
Purchase of plant, equipment and other fixed
assets........................................... (215,572) (610,601) (1,367,801) (1,025,662) (1,388,199)
Acquisition of Presticom Inc. net of cash
acquired......................................... -- -- -- -- (6,880,470)
Proceeds from sale of equipment and other.......... 1,000 -- -- -- --
Other assets....................................... -- (156,067) (372,202) (633,251) 97,012
---------- ---------- ------------ ----------- ----------
Net cash used in investing activities.............. (214,572) (766,668) (1,740,003) (1,658,913) (14,768,055)
FINANCING ACTIVITIES
Stock warrants and options....................... 73,450 63,280 151,080 128,319 115,801
Issuance of preferred stock, net of offering
costs............................................ 2,626,000 2,135,000 -- -- --
Shareholder secured research and development
deposit.......................................... -- (300,000) -- -- --
Borrowings on line of credit....................... -- -- 2,850,000 3,250,000 75,675
Repayments on line of credit....................... -- -- (2,850,000) (2,150,000) --
Proceeds from note payable......................... 400,000 -- -- 1,100,000 --
Repayment of note payable.......................... (581,978) -- -- -- (124,900)
Principal payments on capital lease................ (22,189) (27,424) -- -- --
Net proceeds from stock offerings.................. -- -- 33,800,721 -- --
---------- ---------- ------------ ----------- ----------
Net cash provided by financing activities.......... 2,495,283 1,870,856 33,951,801 2,328,319 66,576
---------- ---------- ------------ ----------- ----------
Net increase (decrease) in cash.................... 280,964 174,334 29,749,802 (579,160) (20,218,510)
Cash and cash equivalents at beginning of year..... 341,178 622,142 796,476 796,476 30,546,278
---------- ---------- ------------ ----------- ----------
Cash and cash equivalents at end of year........... $ 622,142 $ 796,476 $ 30,546,278 $ 217,316 $10,327,768
============ ============ ============= ============ ============
Cash and cash equivalents paid during the year for:
Interest......................................... $ 72,659 $ 20,747 $ 183,725 $ 141,031 $ 7,575
Income taxes..................................... $ 800 $ -- $ 17,000 $ 14,000 $ 12,012
Non-cash investing and financing activities:
Acquisition of Presticom Inc.
Fair market value of assets (including
goodwill) acquired........................... $ -- $ -- $ -- $ -- $3,856,115
Fair market value of in-process research and
development.................................. -- -- -- -- 5,600,000
Fair market value of liabilities assumed....... -- -- -- -- (887,769)
Issuance of stock.............................. -- -- -- -- (1,280,851)
Cash acquired.................................. -- -- -- -- (407,025)
---------- ---------- ------------ ----------- ----------
Cash paid for acquisition of Presticom,
Inc..................................... $ -- $ -- $ -- $ -- $6,880,470
============ ============ ============= ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 53

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

Organization and Operations

ACT Networks, Inc. (formerly Advanced Compression Technology, Inc.) (the
Company) was incorporated on May 15, 1987. The Company develops, manufactures
and markets integrated wide area network (WAN) access products which use Frame
Relay and Time Division Multiplexing. The Company's products utilize advanced
compression algorithms, access switching capabilities and proprietary
integration technologies to build cost-effective, bandwidth efficient WANs.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany accounts and transactions 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.

Cash Equivalents and Short Term Investments

Short-term investments that are part of the Company's cash management
portfolio are classified as cash equivalents and are carried at amortized cost.
These investments are highly liquid, are of limited credit risk and have
original maturities of three months or less. The carrying amount of cash
equivalents approximates market. Short term investments consist primarily of
commercial paper and corporate notes and are considered available for sale under
Statement of Financial Accounting Standards No. 115. The investments generally
mature within six months and are carried at cost which approximates fair value.

Concentration of Credit Risks and Significant Customers

Accounts receivable consist primarily of amounts due from various original
equipment manufacturers, end users and distributors primarily located in foreign
countries. The Company does not require collateral, however, does perform
periodic credit evaluations and analysis of the amounts due from its customers.
In addition, the Company carries credit insurance on certain foreign accounts
receivable, which is subject to certain limits. Included in accounts receivable
at June 30, 1994, 1995 and March 31, 1996 is $1,712,973, $3,256,939 and
$4,659,715, respectively, of amounts due from foreign customers. Credit losses
have been within management's expectations and management believes that
potential uncollectible accounts have been provided for in the financial
statements.

The three largest accounts receivable from individual customers represented
50.2%, 8.1% and 6.3% at June 30, 1994, 18.1%, 12.7% and 8.2% at June 30, 1995
and 16.8%, 16.8% and 6.6% at March 31, 1996 of total accounts receivable,
respectively.

Sales includes amounts to certain individual customers that exceed 10% of
total sales. Sales to two customers represented 15.4% and 12.9% of total sales
for 1993, sales to one customer represented 23% of total sales for 1994, sales
to one customer represented 14% of total sales for 1995, sales to two customers
represented 17.5% and 10.2% of total sales for the nine months ended March 31,
1995 and sales to two customers represented 19.9% and 11.7% of total sales for
the nine months ended March 31, 1996.

F-7
<PAGE> 54

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

The Company's sales by geographic area are as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
North America............... $2,191,478 $3,841,546 $6,907,360 $4,818,097 $8,467,067
Latin America............... 1,765,900 4,397,680 5,317,735 3,613,017 5,174,230
Europe...................... 655,326 1,073,218 2,404,614 1,680,852 2,220,866
Asia Pacific................ 1,594,434 3,341,338 5,936,538 4,711,455 3,437,209
--------- ---------- ---------- ---------- ----------
Total....................... $6,207,138 $12,653,782 $20,566,247 $14,823,421 $19,299,372
========= ========== ========== ========== ==========
</TABLE>

Revenue Recognition

The Company recognizes revenue from product sales upon shipment. The
Company's products are generally under warranty against defects and are sold
with provisions for certain levels of continuing customer support. The amount of
any potential warranty costs or other customer support costs are estimated and
provided for in the period of sale.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or
market and consists of the following:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Purchased parts.............................. $ 543,602 $ 2,177,590 $ 1,879,420
Sub-assemblies and finished goods............ 1,256,761 2,499,600 5,389,364
----------- ----------- -----------
$ 1,800,363 $ 4,677,190 $ 7,268,784
========= ========= =========
</TABLE>

Plant, Equipment and Other Improvements

Plant, equipment and other improvements are stated on the basis of cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets or the lease term, which vary from
three to seven years.

Accounting for Income Taxes

Effective July 1, 1993 the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards (SFAS)
No. 109, 'Accounting for Income Taxes'. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The adoption of SFAS No. 109 had no material effect on the Company.
Prior to the adoption of SFAS No. 109, income tax expense was determined using
the deferred method.

F-8
<PAGE> 55

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

Credits and Grants

The Company receives foreign credits and grants from Canada and the
Province of Quebec related to research and development expenditures made by its
Canadian subsidiary. These amounts are reflected as a reduction of research and
development expense in the Company's Statement of Operations. Amounts receivable
as of March 31, 1996 of such credits and grants amounted to $514,250. For the
nine months ended March 31, 1996, $78,400 of these credits and grants were
reflected as a reduction of research and development expense in the accompanying
statement of operations.

Loss due to Earthquake

The Company incurred certain expenses and losses relating to the January
17, 1994 Northridge earthquake. These expenses and losses primarily relate to
outside service labor, materials used in repairs, storage rent charges, losses
on destroyed assets and charges incurred in relocating to a new facility after
the earthquake.

Net Income (Loss) Per Share

Net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares from stock
options and warrants (using the modified treasury stock method) have been
included in the computation when dilutive and common equivalent shares from the
convertible preferred stock which converted into common stock in connection with
the Company's initial public offering are included as if converted at the
original date of issuance even though inclusion is anti-dilutive. Pursuant to
the Securities and Exchange Commission (SEC) Staff Accounting Bulletins, all
common and common equivalent shares issued by the Company at an exercise price
below the public offering price during the twelve-month period prior to the
offering (cheap stock) have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method at the
initial public offering price per share and the if-converted method for
convertible preferred stock) through the year ended June 30, 1994. For the year
ended June 30, 1995, such cheap stock shares were treated as being outstanding
through the date of the public offering.

Net income (loss) per share for the years ended June 30, 1993, 1994 and
1995 under "Accounting Principles Bulletin No. 15" (APB No. 15) which excludes
the cheap stock adjustment pursuant to the SEC Staff Accounting Bulletins and
excluding the convertible preferred stock for the year ended June 30, 1993
because it is anti-dilutive are as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) per share......................... $ (1.27) $ .06 $ .24
======== ======== ========
Shares used in computing net income (loss) per
share............................................. 1,128,284 3,620,767 5,303,417
======== ======== ========
</TABLE>

Supplemental earnings per share for the year ended June 30, 1995 was $0.27.
Supplemental earnings per share reflects what earnings per share would have been
under APB No. 15 if the debt retired with the proceeds from the initial public
offering (see footnote 9) had been retired at the beginning of the period. The
weighted average number of shares of common stock whose presumed proceeds are to
be used to retire debt are included in this calculation. The Company had no such
debt

F-9
<PAGE> 56

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

during the year ended June 30, 1994, therefore supplemental calculations of
earnings per share are not applicable.

Reclassification

Certain prior year balances have been reclassified to conform with the
current year presentation.

Interim Financial Data

The unaudited financial statements for the nine months ended March 31, 1995
and 1996 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to state fairly the
financial information set forth therein, in accordance with generally accepted
accounting principles. Income taxes for the nine months ended March 31, 1995 and
1996 are based on the estimated effective annual rate applicable for the full
year.

The results of operations for the nine months ended March 31, 1996 are not
necessarily indicative of results to be expected for the full fiscal year.

2. LINE OF CREDIT AND NOTES PAYABLE

The Company has two loan and security agreements with a bank which provide
for aggregate borrowings from the bank up to a maximum of $3,000,000. Under one
agreement, the Company may borrow up to the lesser of $3,000,000 or 75% of
eligible accounts receivable from customers within the United States (the
revolving line of credit). Under the second agreement the Company may borrow up
to the lesser of $1,500,000 or 90% of eligible accounts receivable from
customers outside the United States, plus 70% of eligible inventory provided
these borrowings are guaranteed by the Export-Import Bank of the United States
(Exim Bank) pursuant to the guarantee agreement between the bank and the Exim
Bank (the Exim line of credit). However, the total amount outstanding under the
revolving line of credit and Exim line of credit is limited to $3,000,000. The
revolving line of credit and Exim line of credit expire on November 5, 1995. At
June 30, 1995, there were no outstanding balances under any of the lines of
credit. Interest is payable monthly at a rate equal to the bank's prime rate (9%
at June 30, 1995) plus 1.0% on the Exim line of credit, the bank's prime rate
plus 1.5% on the revolving line of credit.

The loan and security agreement provide for the issuance of letters of
credit in an aggregate amount outstanding up to $500,000. Letters of credit
outstanding reduce the amount available under the revolving line of credit. At
June 30, 1995, no letters of credit were outstanding.

The loan and security agreements contain certain covenants that, among
other things, require the Company to maintain certain financial ratios and limit
the Company's ability to obtain certain forms of additional debt, to repurchase
the Company's stock and pay dividends.

F-10
<PAGE> 57

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

3. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ 91,307
State............................................ -- -- 18,659
-------- -------- --------
-- 109,966
Deferred:
Federal.......................................... -- -- (88,184)
State............................................ -- -- --
-------- -------- --------
-- (88,184)
-------- -------- --------
$ -- $ -- $ 21,782
======== ======== ========
</TABLE>

A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before tax is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................. (34 )% 34 % 34 %
Net operating loss not benefitted............................. 34 -- --
Change in valuation allowance................................. -- (34 ) (39 )
State income taxes............................................ -- -- 5
Other......................................................... -- -- 2
---- ---- ----
0 % 0 % 2 %
==== ==== ====
</TABLE>

There is no tax provision in 1993 because the Company incurred a loss for
the year. The tax provision for the years ended June 30, 1995 and June 30, 1994
included the application of net operating loss carryforwards which generated tax
benefits of approximately $519,000 and $77,000, respectively.

F-11
<PAGE> 58

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Technology deposit.............................. $ -- $ 110,415
Allowance for losses on receivables............. 24,489 24,219
Vacation accruals............................... 76,319 83,088
Depreciation.................................... 22,508 76,507
Inventory valuation allowance................... 83,569 39,986
Net operating loss carryforwards................ 1,130,345 568,845
Research and development credits................ 538,890 497,331
AMT credits..................................... -- 82,176
Rent holiday.................................... -- 25,980
Other........................................... 23,938 31,658
---------- ----------
Total deferred tax assets............... 1,900,058 1,540,205
Deferred tax liabilities:
Software development costs...................... -- (30,459)
---------- ----------
Net deferred tax assets........................... 1,900,058 1,509,746
Valuation allowance............................... (1,900,058) (1,427,570)
---------- ----------
$ -- $ 82,176
========== ==========
</TABLE>

The valuation allowance increased by $400,000 during the year ended June
30, 1994. At June 30, 1995, the Company has net operating loss carryforwards for
federal tax and state tax purposes of approximately $1,673,000 and $-0-,
respectively, which expire in 2002 through 2009. The Company has research and
development credit carryforwards of $301,000 and $196,000 federal and state tax
purposes, respectively, that expire through 2009. As a result of certain changes
in ownership of the Company under IRC section 382, the use of certain net
operating loss carryforwards and research and development carryforwards are
limited annually to approximately $1,200,000 and $400,000, respectively.

4. STOCK OPTIONS

The Company has a 1987 stock option plan and a 1993 stock option plan which
provides for granting stock options to key employees, directors, outside
consultants and independent contractors. The Company has authorized a total of
1,478,571 shares for issuance under the 1987 and 1993 stock option plans, of
which 397,000 shares remain available for grant at June 30, 1995.

Options granted under the 1987 and 1993 stock option plans carry an
exercise price of not less than 85% of the fair market value as of the date of
the option grant and expire after ten years. The Company executes individual
option agreements under the stock option plans which provide that, in general,
the shares underlying the options become vested at 24% of the total grant after
the completion of the first 12 full months of employment and 2% per month
thereafter.

F-12
<PAGE> 59

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

In October 1994, the Company adopted the 1995 stock option bonus program
(the program). Options granted under the program are to be granted under the
1993 stock option plan. The program provides for granting specific option awards
to be granted to certain individuals based on the achievement of certain Company
performance goals for the year ended June 30, 1995. Options to purchase an
aggregate maximum of 63,989 shares of common stock were granted under the
program.

The following is a summary of all stock option activity for the three years
ended June 30, 1994 and the six months ended March 31, 1995:

<TABLE>
<CAPTION>
EXERCISE PRICE NUMBER OF
PER SHARE SHARES
-------------- ----------
<S> <C> <C>
Outstanding at July 1, 1992............................... $ .07-.70 579,857
Granted................................................. .70 82,143
Canceled................................................ .70 (31,500)
Exercised............................................... .70 (3,500)
----------
Outstanding at June 30, 1993.............................. .07-.70 627,000
Granted................................................. .70-1.05 55,357
Canceled................................................ .70 (20,600)
Exercised............................................... .70 (81,829)
----------
Outstanding at June 30, 1994.............................. .07-1.05 579,928
Granted................................................. 1.75-4.90 263,000
Canceled................................................ .70-4.90 (25,303)
Exercised............................................... .70-1.75 (167,740)
----------
Outstanding at June 30, 1995.............................. .07-4.90 649,885
Granted................................................. .70-17.25 972,308
Canceled................................................ .70-17.25 (21,535)
Exercised............................................... .70-16.50 (128,485)
----------
Outstanding at March 31, 1996............................. $.07-17.25 1,472,173
=========
</TABLE>

At June 30, 1993, 1994 and June 30, 1995, options for 526,191, 579,928 and
649,885 shares were exercisable respectively. At June 30, 1995, 1,046,885 shares
are reserved for issuance upon the exercise of outstanding options and options
available for grant.

5. STOCK WARRANTS

The Company is authorized to issue up to 45,000,000 shares of preferred
stock. The Company has designated 21,058,333 as Series A, Series B, Series C,
Series D and Series E convertible preferred stock (collectively the preferred
stock), of which shares of all series have been issued and are outstanding at
March 31, 1995.

On June 27, 1990, pursuant to a note and warrant purchase agreement (the
Agreement) the Company sold warrants to purchase up to 128,571 shares of the
Company's common stock at an exercise price of $.70 per share to a stockholder
for $10,000. On July 31, 1990, pursuant to the Agreement, the Company sold
warrants to purchase up to 290,571 shares of the Company's common

F-13
<PAGE> 60

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

stock at an exercise price of $.70 per share to certain officers, stockholders
and employees for $22,600. Warrants issued under the Agreement are exercisable
for a five year period. On April 5, 1991, warrants to purchase 270,000 shares of
common stock were exercised. During the year ended June 30, 1995, warrants to
purchase 144,907 shares of common stock were exercised and the remaining
warrants were canceled in consideration of the exercise.

On March 31, 1993, pursuant to a note and warrant purchase agreement dated
October 19, 1992, the Company sold to a lender warrants to purchase up to 14,286
shares of the Company's common stock at an exercise price of $7.00 per share for
$1,000. The warrant expires on October 19, 1997.

In connection with a loan and security agreement executed in March 1993,
the Company issued warrants to purchase up to 4,286 shares of the Company's
Common Stock at an exercise price of $3.50 per shares. These warrants expire in
March 1998.

The following table summarizes the Company's common stock reserved for
issuance upon the exercise of the warrants outstanding at June 30, 1994 and
March 31, 1995.

<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------
JUNE
EXERCISE EXPIRATION 30, MARCH 31,
WARRANT DATE: PRICE DATE 1995 1996
---------------------------- -------- ------------- ------- ---------
<S> <C> <C> <C> <C>
March 23, 1993.............. $ 3.50 October 1997 4,286 4,286
March 31, 1993.............. 7.00 March 1998 14,286 --
------- ---------
18,572 4,286
======= =======
</TABLE>

6. PRODUCT DEVELOPMENT AGREEMENT

In connection with the exercise of warrants to purchase 4,570,000 shares of
Series E preferred stock in 1994, the Company executed a product development
agreement with Promon Technical Services, Inc. (PTS) a company under the control
of Promon International, Inc., the warrant holder and a significant stockholder.
Under the terms of the agreement, the Company made a deposit for future
development funding of a new product. This deposit is fully refundable should
the Company not approve the related product development design specifications or
should PTS fail to develop the product according to approved design
specifications. The deposit is secured by shares of the Company's stock owned by
Promon International, Inc. held in escrow. The payment was made from the
proceeds of the issuance of 4,570,000 shares of Series E preferred stock to
Promon International, Inc. upon the exercise of certain warrants. The deemed
fair value of the contracted development effort was estimated to be
approximately $350,000. Of the total $500,000 payment, $350,000 was for the
development contract and $150,000 was a reduction of the proceeds received from
the preferred stock issuance as an inducement for exercising the warrants. Of
the $350,000 development contract $50,000 was recorded as research and
development expense in the year ended June 30, 1994 and the remaining $300,000
was recorded as a contra-equity account to be charged to research and
development expense over the development period. For the year ended June 30,
1995, the Company charged $225,000 of the $300,000 to research and development
expense based on the efforts expended in that period.

F-14
<PAGE> 61

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

7. COMMITMENTS

The Company leases its office, manufacturing facility and certain equipment
under noncancelable lease agreements. The office and manufacturing facility
lease is subject to annual increases based on the consumer price index. Future
minimum lease payments as of June 30, 1995 are as follows:

<TABLE>
<CAPTION>
JUNE 30,
FISCAL YEAR ENDED JUNE 30, 1995
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 476,232
1997............................................................. 406,885
1998............................................................. 396,396
1999............................................................. 396,396
2000............................................................. --
----------
$1,675,909
=========
</TABLE>

Rental expense under operating leases was $219,000, $240,000, and $537,000
for the years ended June 30, 1993, 1994 and 1995 respectively.

8. EMPLOYEES' RETIREMENT PLAN

In 1994, the Company established a 401(k) Plan (the Plan) covering
substantially all of its full-time employees. Employees may make voluntary
contributions to the Plan. The Company may voluntarily contribute a percentage
of the employees contribution, at its discretion, subject to certain
limitations. The Company made no contributions to the Plan during the year ended
June 30, 1994 1995.

9. STOCKHOLDERS' EQUITY

In March 1995, the Board approved, "reincorporation" in Delaware and a
one-for-seven reverse stock split of the Company's common stock. All share and
per share data has been adjusted retroactively to reflect the reverse stock
split.

In May 1995, the Company completed an initial public offering of 2,905,000
shares of the Company's unissued common stock and 200,000 shares of its
outstanding common stock being offered by certain selling shareholders at $13.00
per share. In connection with this offering all previously outstanding preferred
stock was automatically converted into common stock based on the appropriate
conversion ratios.

F-15
<PAGE> 62

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

10. QUARTERLY OPERATING DATA (UNAUDITED)

The following is a summary of unaudited quarterly results of operations:

<TABLE>
<CAPTION>
QUARTER
---------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year ended
June 30, 1995
Net sales..................................... $4,411 $4,877 $5,535 $5,743
Gross profit.................................. 2,415 2,726 3,090 3,091
Net income.................................... 171 216 317 558
Net income per share.................. $ 0.04 $ 0.05 $ 0.07 $ 0.09
Year ended
June 30, 1994
Net sales..................................... $2,471 $2,816 $3,460 $3,907
Gross profit.................................. 1,276 1,523 1,832 2,084
Net income (loss)............................. 17 172 (76) 97
Net income (loss) per share........... $ 0.01 $ 0.05 $(0.02) $ 0.02
</TABLE>

11. BUSINESS ACQUISITION

On November 30 1995, ACT Networks, Inc. and Canada Inc., a wholly-owned
subsidiary of the Company, acquired all the issued and outstanding shares of
Presticom Inc., a Canadian corporation ("Presticom"). Presticom is a developer
of multiprotocol frame relay access devices with expertise in the SNA
environment. The aggregate purchase price (excluding acquisition costs of
approximately $600,000) paid by the Company was approximately $8,568,346
consisting of $7,287,495 paid in cash and the issuance of 176,365 shares of
common stock of the Company with an estimated fair market value of $1,280,851,
representing a discount from the quoted market price at the date of acquisition
due to certain trading restrictions placed on the stock pursuant to the
agreement

The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values at the date of acquisition. The purchase price plus costs directly
attributable to the completion of the acquisition have been allocated to the
assets and liabilities acquired. Approximately $5,600,000 of the total purchase
price represented the value of in-process research and development that had not
yet reached technological feasibility and was charged to the Company's
operations.

The Company's consolidated results of operations include the operating
results of Presticom from the acquisition date. The following unaudited pro
forma information combines the consolidated results of operations of the Company
and Presticom as if the acquisition had occurred on July 1, 1995 and 1994.
Adjustments have been made to reflect the amortization of goodwill identified in
the purchase price allocation, the reduction in interest income earned or
increase in interest expense incurred due to the decrease in cash position or
increased borrowings resulting from the cash used as part of the acquisition
consideration, and the issuance of common stock as part of the acquisition
consideration. The pro forma information is presented for illustrative purposes
only, and is not necessarily indicative

F-16
<PAGE> 63

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

of what the actual results of operations would have been during such periods or
representative of future operations.

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Net sales........................................ $20,177,453 $22,567,115
Net income (loss)................................ (1,534,523) 303,278
Net income (loss) per share...................... (0.21) 0.06
</TABLE>

The pro forma information presented above does not reflect the write off of
in-process research and development costs of $5,600,000 which was included in
the actual operating results for the nine months ended March 31, 1996.

The following unaudited pro forma condensed combining balance sheet as of
September 30, 1995, and the unaudited pro forma condensed combining statements
of operations of the Company and Presticom Inc. (Presticom) for the year ended
June 30, 1995, and the three months ended September 30, 1995, have been prepared
to illustrate the effect of the Acquisition, which is being accounted for as a
purchase, as though the Acquisition had occurred on September 30, 1995, for
purposes of the pro forma balance sheet and as of July 1, 1994, and July 1,
1995, for purposes of the pro forma statements of operations. The pro forma
adjustments and the assumptions on which they are based are described in the
accompanying Notes to the Unaudited Pro Forma Condensed Combining Financial
Statements.

The pro forma condensed combining financial statements are presented for
illustrative purposes only and are not necessarily indicative of the
consolidated financial position or consolidated results of operations of the
Company that would have been reported had the Acquisition occurred on the dates
indicated, nor do they represent a forecast of the consolidated financial
position of the Company at any future date or the consolidated results of
operations of the Company for any future period. Furthermore, no effect has been
given in the unaudited pro forma condensed combining statements of operations
for operating and synergistic benefits that may be realized by virtue of the
Acquisition. Amounts allocated to the Presticom assets and liabilities, as
reflected in the accompanying pro forma financial statements, are preliminary.
The unaudited pro forma condensed combining financial statements, including the
Notes thereto should be read in conjunction with the historical consolidated
financial statements of the Company and Presticom, which are, respectively,
incorporated herein by reference.

F-17
<PAGE> 64

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

PRO FORMA CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
ACT PRO FORMA PRO FORMA
NETWORKS PRESTICOM ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $27,361,793 $ 666,235(1) $(7,887,495) $20,140,533
Accounts receivable................ 5,695,239 1,210,897(2) (20,000) 6,886,136
Accounts receivable from
stockholder..................... 669,160 -- -- 669,160
Inventory.......................... 6,756,863 345,431(2) (40,000) 7,062,294
Prepaid expense and deposits....... 475,841 18,349 -- 494,190
Deferred tax asset................. 82,176 -- -- 82,176
----------- ---------- ----------- -----------
Total current assets....... 41,041,072 2,240,912 (7,947,495) 35,334,489
Net property, plant and equipment.... 1,932,766 107,188 -- 2,039,954
Other assets......................... 511,347 -- -- 511,347
Acquired in-process research and
development........................ -- --(2) 5,600,000 --
-- --(3) (5,600,000) --
Goodwill............................. -- --(2) 1,920,567 1,920,567
----------- ---------- ----------- -----------
Total assets............... $43,485,185 $2,348,100 $(6,026,928) $39,806,357
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 2,374,136 $ 264,427 $ 2,638,563
Accrued expenses................... 908,833 --(2) $ 40,000 948,833
Income taxes payable............... 86,958 94,516 -- 181,474
----------- ---------- ----------- -----------
Total current
liabilities.............. 3,369,927 358,943 40,000 3,768,870
Long-term debt....................... -- 241,378 -- 241,378
Stockholders' equity:
Contributed capital................ 42,679,403 1,205,584(1) 1,280,851 43,960,254
-- --(2) (1,205,584) --
Promon secured capital............. (45,000) -- -- (45,000)
Accumulated deficit................ (2,519,145) 542,195(3) (5,600,000) (8,119,145)
-- --(2) (542,195) --
Total stockholders'
equity................... 40,115,258 1,747,779 (6,066,928) 35,796,109
----------- ---------- ----------- -----------
Total liabilities and
stockholders' equity..... $43,485,185 $2,348,100 $(6,026,928) $39,806,357
=========== ========== =========== ===========
</TABLE>

See accompanying notes and adjustments to pro forma financial statements.

F-18
<PAGE> 65

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

PRO FORMA ADJUSTMENTS TO CONDENSED COMBINING PRO FORMA BALANCE SHEET

1) Reflects the reductions in cash and issuance of common stock for the
purchase of all the outstanding shares of Presticom Inc.

<TABLE>
<S> <C>
Cash............................................................. $7,287,495
Common stock..................................................... 1,280,851
----------
Total purchase price............................................. 8,568,346
Cash paid for acquisition costs.................................. 600,000
----------
$9,168,346
==========
</TABLE>

2) Reflects the preliminary allocation of the purchase price, based on
estimated fair values, to the historical Presticom Inc. balance sheet as
follows:

<TABLE>
<S> <C>
Purchased in-process research and development.................... $5,600,000
Goodwill......................................................... 1,920,567
Carrying amount of inventory..................................... (40,000)
Carrying amount of allowance for bad debt........................ (20,000)
Accrued liabilities.............................................. (40,000)
Assets and liabilities at book value which approximates market... 1,747,779
----------
$9,168,346
=========
</TABLE>

3) Reflects the one-time write-off of $5,600,000 of purchased in-process
research and development identified in the purchase price allocation.

F-19
<PAGE> 66

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
ACT PRO FORMA PRO FORMA
NETWORKS PRESTICOM ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues and sales..................... $20,566,247 $2,000,868 -- $22,567,115
Cost and expenses:
Cost of goods sold................... 9,244,460 677,382 -- 9,921,842
Research and development............. 3,586,230 242,784 -- 3,829,014
Sales and marketing.................. 4,784,467 795,064 -- 5,579,531
General and administrative........... 1,735,759 233,892(1) $ 274,367 2,244,018
----------- ---------- ----------- -----------
19,350,916 1,949,122 274,367 21,574,405
Income (loss) from continuing
operations........................... 1,215,331 51,746 (274,367) 992,710
----------- ---------- ----------- -----------
Other:
Interest & other income.............. 252,170 22,733(2) (73,617) 201,286
Interest expense..................... (183,727) --(2) (657,291) (841,018)
----------- ---------- ----------- -----------
Income (loss) before taxes............. 1,283,774 74,479 (1,005,275) 352,978
Provision for income taxes............. 21,782 27,918 -- 49,700
----------- ---------- ----------- -----------
Net income (loss)...................... $ 1,261,992 $ 46,561 $(1,005,275) $ 303,278
=========== ========== =========== ===========
Net earnings (loss) per share.......... $0.24 $0.06
Average shares outstanding............. 5,210,910 --(3) 176,365 5,387,275
</TABLE>

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
ACT PRO FORMA PRO FORMA
NETWORKS PRESTICOM ADJUSTMENTS CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues and sales......................... $5,101,782 $ 471,632 $5,573,414
Costs and expenses:
Cost of good sold........................ 2,642,331 169,427 2,811,758
Research and development................. 1,037,496 26,227 1,063,723
Sales and marketing...................... 1,406,039 129,836 1,535,875
General and administrative............... 600,218 63,330(1) $ 68,592 732,140
---------- --------- ----------- ------------
5,686,084 388,820 68,592 6,143,496
Income (loss) from continuing operations... (584,302) 82,812 (68,592) (570,082)
---------- --------- ----------- ------------
Other:
Interest and other income 373,800 4,966(2) (110,425) 268,341
---------- --------- ----------- ------------
Income (loss) before taxes............... (210,502) 87,778 (179,017) (301,741)
Provision for income taxes............... -- (17,446) -- (17,446)
---------- --------- ----------- ------------
Net income (loss).......................... $ (210,502) $ 105,224 $(179,017) $ (284,295)
========= ======== ========= ==========
Net loss per share......................... $ (0.03) $ (0.04)
Average shares outstanding................. 7,734,957 (3) 176,365 7,911,322
</TABLE>

See accompanying notes and adjustments to pro forma financial statements.

F-20
<PAGE> 67

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

PRO FORMA ADJUSTMENTS TO CONDENSED COMBINING
PRO FORMA INCOME STATEMENT

1) Reflects the amortization of goodwill identified in the purchase price
allocation.

2) Reflects lower interest income earned and/or increased interest expense
due to change in cash position as a result of the Acquisition.

3) Reflects the issuance of additional common stock to purchase Presticom
Inc.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL STATEMENTS

The unaudited pro forma combining financial statements and related notes
give effect to the Acquisition as a purchase. The unaudited combined pro forma
balance sheet assumes that the Acquisition was completed as of September 30,
1995, and the unaudited pro forma combined statements of operations assume that
the Acquisition was completed on July 1, 1994, for the year ended June 30, 1995,
and July 1, 1995, for the three months ended September 30, 1995.

All interim financial data of the Company and Presticom Inc. (Presticom),
respectively, used to develop the unaudited pro forma combining balance sheet
and restatements of operations is unaudited, but in the opinions of the Company
and Presticom, respectively, reflect all adjustments necessary (consisting only
of normal recurring entries) for a fair presentation thereof. However, it should
be understood that accounting measurements at interim dates may be less precise
than at year end.

The unaudited pro forma combined statements of operations are not
necessarily indicative of operating results which would have been achieved had
the Acquisition been consummated as of July 1, 1994, or July 1, 1995, and should
not be construed as representative of future operations.

The preliminary allocation of the purchase price among identifiable
tangible and intangible assets, as reflected in the accompanying pro forma
financial statements, was based on an analysis of the estimated fair value of
those assets. Specifically, purchased in-process research and development was
analyzed through interviews and analysis of data concerning each Presticom
project in development. Expected future cash flows of the developmental projects
were discounted to present value taking into account risks associated with the
inherent difficulties and uncertainties in completing the projects, and thereby
achieving technological feasibility, and the risks related to the viability of
the potential changes in future target markets. The Company's expected
post-acquisition business strategies were considered as they relate to
Presticom's current products and projects in development. Presticom's primary
project in development, BCX Netperformer Series, represents a starting point of
continued development for the combined company, which will require substantial
efforts to attain the functionality and reliability of the underlying products
to ultimately reach its intended target market.

The above analysis resulted in approximately $5,600,000 for purchased
in-process research and development. Under generally accepted accounting
principles, purchased in-process research and development will be expensed
immediately after the Acquisition is completed.

F-21
<PAGE> 68

ACT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1995
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND SUBSEQUENT TO JUNE 30, 1995 IS UNAUDITED)

Using the same methodology, developed technology was analyzed. Expected
future cash flows of the developed technology were discounted taking into
account risks related to the characteristics and application of each product,
existing and future markets, and assessments of the life cycle stage of each
product. This analysis resulted in an estimated value of $590,000 of developed
technology, which has reached technological feasibility and therefore is
capitalizable. This amount has been included in Goodwill. The amount of purchase
price allocated to developed technology resulted is a smaller amount than that
allocated to purchase in-process research and development due to the relatively
shorter life remaining in those products.

Goodwill was also identified in this process. The Goodwill will be
amortized over seven years.

For the purposes of the Unaudited Pro Forma Condensed Combining Financial
Statements, a purchase price of $8,568,399 was allocated to Presticom's
September 30, 1995, balance sheet. The purchase price assumes (i) the payment of
$7,287,495 in cash and (ii) the issuance of 176,365 shares of the Company's
Common Stock with an estimated fair market value of $1,280,851, all in exchange
for all outstanding Presticom Capital Stock. The estimated fair market value of
the Company's common stock represents the quoted market price of $10.375
discounted 30% due to certain restrictions on trading such stock pursuant to the
Acquisition Agreement. The purchase price allocation assumes the payment of
approximately $600,000 in fees and expenses related to the Acquisition.

The Unaudited Pro Forma Condensed Combining statements of operations for
the year ended June 30, 1995, and for the three months ended September 30, 1995,
do not include the estimated $5,600,000 write-off of purchased in-process
research and development as it is a material non-recurring charge. The write-off
of purchased in-process research and development will be included in the actual
consolidated statement of operations of the Company in the fiscal quarter ending
December 31, 1995.

F-22
<PAGE> 69

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 14
Use of Proceeds....................... 14
Price Range of Common Stock........... 15
Dividend Policy....................... 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 37
Principal and Selling Stockholders.... 40
Underwriting.......................... 42
Legal Matters......................... 44
Experts............................... 44
Additional Information................ 44
Glossary of Technical Terms........... 45
Index to Financial Statements......... F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
LOGO
COMMON STOCK
-----------------------

PROSPECTUS
-----------------------
HAMBRECHT & QUIST

WESSELS, ARNOLD

& HENDERSON
MAY , 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 70

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 in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee. All of the
expenses below will be paid by the Company.

<TABLE>
<CAPTION>
ITEM AMOUNT
-------------------------------------------------------------------------- ---------
<S> <C>
Registration fee.......................................................... $ 52,940
NASD filing fee........................................................... 15,853
NASDAQ Additional Listing fee............................................. 17,500
Blue Sky fees and expenses................................................ 5,000
Printing and engraving expenses........................................... 100,000
Legal fees and expenses................................................... 150,000
Accounting fees and expenses.............................................. 30,000
Transfer Agent and Registrar fees......................................... 2,000
Directors and officers insurance.......................................... 400,000
Miscellaneous............................................................. 83,707
---------
Total........................................................... $ 857,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Bylaws (the "Bylaws") (Exhibit 3.2 hereto) provide that the
Company shall indemnify its directors and officers if such officer or director
acted (i) in good faith, (ii) in a manner reasonably believed to be in or not
opposed to the best interests of the Company, and (iii) with respect to any
criminal action or proceeding, with reasonable cause to believe such conduct was
lawful. The Company believes that indemnification under its Bylaws covers at
least negligence and gross negligence, and requires the Company to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against an undertaking by the directors and officers to repay such
advances if it is ultimately determined that the director is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws shall not be deemed to be exclusive of any other right such persons may
have or acquire under any agreement, vote of stockholders or disinterested
directors, or otherwise.

In addition, the Company's Certificate of Incorporation (the "Certificate
of Incorporation") provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a directors'
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate of Incorporation further
provides that the Company shall indemnify its directors and officers to the
fullest

II-1
<PAGE> 71

extent permitted by law, and requires the Company to advance litigation expenses
in the case of stockholder derivative actions or other actions, against an
undertaking by the director to repay such advances if it is ultimately
determined that the director is not entitled to indemnification. The Certificate
of Incorporation also provides that rights conferred under such Certificate of
Incorporation shall not be deemed to be exclusive of any other right such
persons may have or acquire under any statute, the Certificate of Incorporation,
the Bylaws, agreement, vote of stockholders or disinterested directors, or
otherwise.

The Company has obtained a directors' and officers' liability insurance
policy that, subject to certain limitations, terms and conditions, will insure
the directors and officers of the Company against losses arising from wrongful
acts (as defined by the policy) in his or her capacity as a director or officer.

In addition, the Company has entered into agreements to indemnify its
directors and certain of its officers in addition to the indemnification
provided for in the Certificate of Incorporation and Bylaws. These agreements
will, among other things, indemnify the Company's directors and certain of its
officers for certain expenses (including attorneys fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
as a director or officer of the Company or as a director or officer of any
subsidiary of the Company, or as a director or officer of any other company or
enterprise that the person provides services to at the request of the Company.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Company and its officers and
directors, and by the Company of the Underwriters, for certain liabilities
arising under the Securities Act or otherwise.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

The following Exhibits are attached hereto and incorporated herein by
reference.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
4.1 -- Specimen certificate representing shares of Common Stock of the Company.
Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-90394.
4.2 -- Form of Warrant of the Company. Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, Registration No. 33-90394.
5.1 -- Form of Opinion of Brobeck, Phleger & Harrison LLP regarding the validity of the
securities being registered.
10.1 -- Standard Industrial/Commercial Multi-Tenant Lease-Modified Net dated May 23, 1994
by and between Herman Bennett and the Company. Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.2 -- Master Lease Agreement dated January 11, 1994 and between the Company and Leasetec
Corporation, as amended and supplemented. Incorporated by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.3 -- Loan and Security Agreement dated March 23, 1993, as amended, between Silicon
Valley Bank and the Company and related agreements and documents. Incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.4 -- Loan and Security Agreement (Exim) dated May 11, 1994, as amended, between Silicon
Valley Bank and the Company and related agreements and documents. Incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
</TABLE>

II-2
<PAGE> 72

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
10.5 -- Executive Employment Agreement dated December 23, 1992, by and between the Company
and Martin Shum. Incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.6 -- Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.7 -- 1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-1, Registration No.
33-90394.
10.8 -- Form of Amended Notice of Grant of Stock Option with respect to holders of
installment incentive stock options granted under the 1987 Plan. Incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.9 -- Form of 1987 Installment Incentive Stock Option Agreement, Immediately Exercisable
Stock Option Agreement and Immediately Exercisable Non-Qualified Stock Option
Agreement generally used in connection with the 1987 Plan. Incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.10 -- Form of 1987 Stock Purchase Agreement generally used in connection with the 1987
Plan. Incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
10.11 -- 1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration
No. 33-90394.
10.12 -- Form of Notice of Grant of Stock Option generally used in connection with the 1993
Plan. Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
10.13 -- Form of 1993 Stock Option Agreement generally used in connection with the 1993
Plan. Incorporated by reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
10.14 -- Form of 1993 Stock Purchase Agreement generally used in connection with the 1993
Plan. Incorporated by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
*10.15 -- Cooperation and Supply Agreement dated as of November 19, 1993 by and between
StrataCom, Inc. and the Company. Incorporated by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.16 -- Technical Information Escrow Agreement dated July 18, 1994 by and between
StrataCom, Inc., the Indianapolis Vault Company and the Company. Incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.17 -- Memorandum of Agreement dated January 19, 1995 by and between the Company, Promon
International, Inc. and Pacific Technology Fund. Incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on Form S-1, Registration
No. 33-90394.
10.18 -- Shareholder Rights Agreement dated as of April 23, 1992, as amended by Amendment
No. 1 to Shareholder Rights Agreement dated as of August 11, 1992, Amendment No. 2
to Shareholder Rights Agreement dated as of October 19, 1992, Amendment No. 3 to
Shareholder Rights Agreement dated as of December 18, 1992, Amendment No. 4 to
Shareholder Rights Agreement dated as of March 15, 1993, Amendment No. 5 to
Shareholder Rights Agreement dated as of November 16, 1993, and Amendment No. 6 to
Shareholder Rights Agreement dated as of December 15, 1994. Incorporated by
reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.19 -- Virtual DAMA Agreement dated December 31, 1993, by and between the Company and
Promon Technical Services, Inc., as amended. Incorporated by reference to Exhibit
10.19 to the Company's Registration Statement on Form S-1, Registration No.
33-90394.
</TABLE>

II-3
<PAGE> 73

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
10.20 -- 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). Incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form S-8, Registration
No. 33-80007.
10.22 -- Form of Stock Option Agreement generally used in connection with the Discretionary
Option Grant Program of the 1995 Plan. Incorporated by reference to Exhibit 99.3
to the Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.21 -- Form of Addendum to Stock Option Agreement (Limited Stock Appreciation Right).
Incorporated by reference to Exhibit 99.4 to the Company's Registration Statement
on Form S-8, Registration No. 33-80007.
10.24 -- Form of Addendum to Stock Option Agreement (Involuntary Termination Following
Change of Control). Incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.25 -- Form of Addendum to Stock Option Agreement (Special Tax Elections). Incorporated
by reference to Exhibit 99.6 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.26 -- Form of Automatic Stock Option Agreement. Incorporated by reference to Exhibit
99.9 to the Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.27 -- Form of Stock Issuance Agreement generally used in connection with the
Discretionary Option Grant Program of the 1995 Plan. Incorporated by reference to
Exhibit 99.10 to the Company's Registration Statement on Form S-8, Registration
No. 33-80007.
10.28 -- Form of Addendum to Stock Issuance Agreement (Involuntary Termination Following
Change of Control). Incorporated by reference to Exhibit 99.11 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.29 -- Form of Addendum to Stock Issuance Agreement (Special Tax Elections). Incorporated
by reference to Exhibit 99.12 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.30 -- Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.13 to the
Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.31 -- The Share Purchase Agreement By and Among the Company, Canada Inc. and Certain
Presticom Stockholders, dated as of November 24, 1995. Incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated November 30,
1995.
10.32 -- License Agreement dated May 8, 1996, by and between the Company and SkyData, Inc.
11.1 -- Statement Regarding Computation of Earnings Per Share.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2 -- Consent of Demers Beaulne & Partners, Chartered Accountants.
23.3 -- Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on page II-6).
27 -- Financial Data Schedule.
</TABLE>

- ------------------------------
* The Company has received confidential treatment for portions of this document
previously filed with the Commission.

II-4
<PAGE> 74

(B) FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
SCHEDULE
- ------------
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

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

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted as to directors, officers, and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Registrant, indemnification agreements entered
into between Registrant and its officers and directors, the Underwriting
Agreement, or otherwise, 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
Registrant of expenses incurred or paid by a director, officer, or controlling
person of 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, 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 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 Securities
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 Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
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 hereof.

II-5
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Camarillo, State of California, on the 20th day of
May, 1996.

ACT NETWORKS, INC.

By: /s/MARTIN SHUM

------------------------------------
Martin Shum
President and Chief Executive
Officer

POWER OF ATTORNEY

We, the undersigned officers and directors of ACT Networks, Inc., do hereby
constitute and appoint Martin Shum and Melvin L. Flowers, and each of them, our
true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement on Form S-3 and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby, ratifying and confirming all
that each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- -------------
<S> <C> <C>
/s/MARTIN SHUM Chairman, President and Chief May 20, 1996
- ---------------------------------------- Executive Officer
Martin Shum
/s/MELVIN L. FLOWERS Vice President, Finance and May 20, 1996
- ---------------------------------------- Administration, and Chief Financial
Melvin L. Flowers Officer (principal financial and
accounting officer)
/s/WILLIAM W. AMBROSE Director May 20, 1996
- ----------------------------------------
William W. Ambrose
/s/MICHAEL FEUER Director May 20, 1996
- ----------------------------------------
Michael Feuer
/s/HAROLD R. JOHNSON Director May 20, 1996
- ----------------------------------------
Harold R. Johnson
/s/CARLOS M. SIFFERT Director May 20, 1996
- ----------------------------------------
Carlos M. Siffert
/s/ARCHIE J. MCGILL Director May 20, 1996
- ----------------------------------------
Archie J. McGill
</TABLE>

II-6
<PAGE> 76

ACT NETWORKS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
CHARGED TO AMOUNTS
BALANCE AT CHARGED TO OTHER ACCOUNTS CHARGED TO
BEGINNING OF COSTS AND (PRIMARILY RESERVE NET OF BALANCE AT
DESCRIPTION PERIOD EXPENSES GROSS SALES) REINSTATEMENT END OF PERIOD
- -------------------------------- ------------ ---------- -------------- -------------- -------------
ADDITIONS DEDUCTIONS
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1993
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
items...................... $ 35,452 $ 24,000 $ -- $ -- $ 59,452
Other (sales return
reserve)................... 15,760 -- 30,000 -- 45,760
-------- ------- ------- ------- --------
$ 51,212 $ 24,000 $ 30,000 $ -- $ 105,212
======== ======= ======= ======= ========
Year ended June 30, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
items...................... $ 59,452 $ 36,445 $ -- $ 39,341 $ 56,556
Other (sales return
reserve)................... 45,760 -- -- 45,760 --
-------- ------- ------- ------- --------
$105,212 $ 36,445 $ -- $ 85,101 $ 56,556
======== ======= ======= ======= ========
Year ended June 30, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
items...................... $ 56,556 $ 4,132 $ -- $ (2,312) $ 63,000
======== ======= ======= ======= ========
</TABLE>
<PAGE> 77

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DESCRIPTION PAGE NO.
- -------- ---------------------------------------------------------------------- ----------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement........................................
4.1 -- Specimen certificate representing shares of Common Stock of the
Company. Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
4.2 -- Form of Warrant of the Company. Incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-1, Registration
No. 33-90394..........................................................
5.1 -- Form of Opinion of Brobeck, Phleger & Harrison LLP regarding the
validity of the securities being registered...........................
10.1 -- Standard Industrial/Commercial Multi-Tenant Lease-Modified Net dated
May 23, 1994 by and between Herman Bennett and the Company.
Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.2 -- Master Lease Agreement dated January 11, 1994 and between the Company
and Leasetec Corporation, as amended and supplemented. Incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394...................................
10.3 -- Loan and Security Agreement dated March 23, 1993, as amended, between
Silicon Valley Bank and the Company and related agreements and
documents. Incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.4 -- Loan and Security Agreement (Exim) dated May 11, 1994, as amended,
between Silicon Valley Bank and the Company and related agreements and
documents. Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.5 -- Executive Employment Agreement dated December 23, 1992, by and between
the Company and Martin Shum. Incorporated by reference to Exhibit 10.5
to the Company's Registration Statement on Form S-1, Registration No.
33-90394..............................................................
10.6 -- Form of Indemnification Agreement. Incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.............................................
10.7 -- 1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.............................................
10.8 -- Form of Amended Notice of Grant of Stock Option with respect to
holders of installment incentive stock options granted under the 1987
Plan. Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.9 -- Form of 1987 Installment Incentive Stock Option Agreement, Immediately
Exercisable Stock Option Agreement and Immediately Exercisable Non-
Qualified Stock Option Agreement generally used in connection with the
1987 Plan. Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.10 -- Form of 1987 Stock Purchase Agreement generally used in connection
with the 1987 Plan. Incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394..............................................................
</TABLE>
<PAGE> 78

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DESCRIPTION PAGE NO.
- -------- ---------------------------------------------------------------------- ----------
<C> <C> <S> <C>
10.11 -- 1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394...................................
10.12 -- Form of Notice of Grant of Stock Option generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394..............................................................
10.13 -- Form of 1993 Stock Option Agreement generally used in connection with
the 1993 Plan. Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394..............................................................
10.14 -- Form of 1993 Stock Purchase Agreement generally used in connection
with the 1993 Plan. Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394..............................................................
*10.15 -- Cooperation and Supply Agreement dated as of November 19, 1993 by and
between StrataCom, Inc. and the Company. Incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.............................................
10.16 -- Technical Information Escrow Agreement dated July 18, 1994 by and
between StrataCom, Inc., the Indianapolis Vault Company and the
Company. Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.17 -- Memorandum of Agreement dated January 19, 1995 by and between the
Company, Promon International, Inc. and Pacific Technology Fund.
Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.18 -- Shareholder Rights Agreement dated as of April 23, 1992, as amended by
Amendment No. 1 to Shareholder Rights Agreement dated as of August 11,
1992, Amendment No. 2 to Shareholder Rights Agreement dated as of
October 19, 1992, Amendment No. 3 to Shareholder Rights Agreement
dated as of December 18, 1992, Amendment No. 4 to Shareholder Rights
Agreement dated as of March 15, 1993, Amendment No. 5 to Shareholder
Rights Agreement dated as of November 16, 1993, and Amendment No. 6 to
Shareholder Rights Agreement dated as of December 15, 1994.
Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.........
10.19 -- Virtual DAMA Agreement dated December 31, 1993, by and between the
Company and Promon Technical Services, Inc., as amended. Incorporated
by reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1, Registration No. 33-90394................................
10.20 -- 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). Incorporated
by reference to Exhibit 99.1 to the Company's Registration Statement
on Form S-8, Registration No. 33-80007................................
10.22 -- Form of Stock Option Agreement generally used in connection with the
Discretionary Option Grant Program of the 1995 Plan. Incorporated by
reference to Exhibit 99.3 to the Company's Registration Statement on
Form S-8, Registration No. 33-80007...................................
10.21 -- Form of Addendum to Stock Option Agreement (Limited Stock Appreciation
Right). Incorporated by reference to Exhibit 99.4 to the Company's
Registration Statement on Form S-8, Registration
No. 33-80007..........................................................
</TABLE>
<PAGE> 79

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DESCRIPTION PAGE NO.
- -------- ---------------------------------------------------------------------- ----------
<C> <C> <S> <C>
10.24 -- Form of Addendum to Stock Option Agreement (Involuntary Termination
Following Change of Control). Incorporated by reference to Exhibit
99.5 to the Company's Registration Statement on Form S-8, Registration
No. 33-80007..........................................................
10.25 -- Form of Addendum to Stock Option Agreement (Special Tax Elections).
Incorporated by reference to Exhibit 99.6 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.........
10.26 -- Form of Automatic Stock Option Agreement. Incorporated by reference to
Exhibit 99.9 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.............................................
10.27 -- Form of Stock Issuance Agreement generally used in connection with the
Discretionary Option Grant Program of the 1995 Plan. Incorporated by
reference to Exhibit 99.10 to the Company's Registration Statement on
Form S-8, Registration No. 33-80007...................................
10.28 -- Form of Addendum to Stock Issuance Agreement (Involuntary Termination
Following Change of Control). Incorporated by reference to Exhibit
99.11 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.............................................
10.29 -- Form of Addendum to Stock Issuance Agreement (Special Tax Elections).
Incorporated by reference to Exhibit 99.12 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.........
10.30 -- Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.13 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.............................................
10.31 -- The Share Purchase Agreement By and Among the Company, Canada Inc. and
Certain Presticom Stockholders, dated as of November 24, 1995.
Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, dated November 30, 1995...........................
10.32 -- License Agreement dated May 8, 1996, by and between the Company and
SkyData, Inc..........................................................
11.1 -- Statement Regarding Computation of Earnings Per Share.................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors....................
23.2 -- Consent of Demers Beaulne & Partners, Chartered Accountants...........
23.3 -- Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit
5.1)..................................................................
24.1 -- Power of Attorney (included on page II-6).............................
27 -- Financial Data Schedule...............................................
</TABLE>

- ------------------------------
* The Company has received confidential treatment for portions of this document
filed with the Commission.

<PAGE> 1
EXHIBIT 1.1

ACT NETWORKS, INC.

3,000,000 Shares

Common Stock

UNDERWRITING AGREEMENT

June __, 1996

HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104

Ladies and Gentlemen:

ACT Networks, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 1,510,000 shares of its authorized but
unissued common stock, $.001 par value (herein called the Common Stock), and
the stockholders of the Company named in Schedule II hereto (herein
collectively called the Selling Securityholders) propose to sell an aggregate
of 1,490,000 shares of Common Stock of the Company (said 3,000,000 shares of
Common Stock being herein called the Underwritten Stock). The Company proposes
to grant to the Underwriters (as hereinafter defined) an option to purchase up
to 450,000 additional shares of Common Stock (herein called the Option Stock
and with the Underwritten Stock herein collectively called the Stock). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.

The Company and the Selling Securityholders severally hereby confirm
the agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof. You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.

1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (herein called the Commission) a
registration statement on Form S-3 (No. 333-______), including the related
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (herein called the Securities Act) of the Stock. Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the
<PAGE> 2
requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.

The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements
and all information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, in the form in which it became effective
and, in the event of any amendment thereto after the effective date of such
registration statement (herein called the Effective Date), shall also mean
(from and after the effectiveness of such amendment) such registration
statement as so amended. The term Prospectus as used in this Agreement shall
mean the prospectus relating to the Stock first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from
and after the filing with the Commission of such supplement, or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus included in such registration statement prior to the
time it becomes effective.

The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.

(a) The Company hereby represents and warrants as
follows:

(i) Each of the Company and its subsidiaries have
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Prospectus and as
being conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned or
leased or the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole).

(ii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
has not been any material adverse change or any development involving a
prospective material adverse change in the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of

-2-
<PAGE> 3
business, the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement and the Prospectus.

(iii) The Registration Statement and the Prospectus
comply, and on the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Option Stock is to be purchased, will not contain any untrue
statement of a material fact or omit 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; provided, however, that none of the
representations and warranties in this subparagraph (iv) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus as set forth in Section 4(b) of
this Agreement.

(iv) The outstanding capital stock has been
validly authorized, is fully paid and nonassessable, was issued in compliance
with applicable federal and state securities laws, and was issued free of any
preemptive right, right of first refusal or similar right. The Stock is duly
and validly authorized, is (or, in the case of shares of the Stock to be sold
by the Company, will be, when issued and sold to the Underwriters as provided
herein) duly and validly issued, fully paid and nonassessable and conforms to
the description thereof in the Prospectus. No further approval or authority of
the stockholders or the Board of Directors of the Company will be required for
the transfer and sale of the Stock to be sold by the Selling Securityholders or
the issuance and sale of the Stock as contemplated herein. No preemptive
right, or right of refusal in favor of the Company, pursuant to the Certificate
of Incorporation or Bylaws of the Company exists with respect to the Stock
being sold by the selling Securityholders or the issue and sale of the Stock.
There is no contractual preemptive right, right of first refusal, right of
co-sale or similar right which exists with respect to the Stock being sold by
the Selling Securityholders or the issue and sale of the Stock that has not
been waived.

(v) The Registration Statement has become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing he use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission.

(vi) The execution and delivery by the Company of
and the performance by the Company of its obligations under this Agreement, and
the issue and sale by the Company of the shares of Stock to be sold by the
Company as provided herein will not conflict with, or result in a

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<PAGE> 4
breach of, the Certificate of Incorporation or Bylaws of the Company or any
material agreement or instrument to which the Company is a party or any
applicable law or regulation, or any judgment, order, writ, injunction or
decree, of any jurisdiction, court or governmental instrumentality.

(vii) All holders of securities of the Company
having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company,
have waived such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement.

(viii) No consent, approval, authorization or order
of any court or governmental agency or body is required for the consummation of
the transactions contemplated herein, except such as have been (or will before
the Closing Date have been) obtained under the Securities Act, the Exchange Act
(as hereinafter defined) and such as may be required under the state securities
or blue sky laws and the rules and regulations of the NASD (as herein defined)
in connection with the purchase and distribution of the Stock by the
Underwriters.

(ix) To the Company's knowledge, neither the
Company or its subsidiaries are infringing or otherwise violating any patent,
copyright, trade secret, trademark, service mark, trade name, technology,
know-how or other proprietary information or material of others. Except as
disclosed in the Prospectus, neither the Company or any of its subsidiaries has
received any notice of infringement or conflict with (and the Company knows of
no conflict or infringement with) asserted rights of others with respect to any
patents, copyrights, trademarks, service marks, trade names, technology or
know-how which could result in any material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. To the Company's knowledge, there is no
infringement by others of any of the Company's or its subsidiaries' patents,
copyrights, trade secrets, trademarks, service marks, trade names, technology,
know-how or other proprietary information or materials which could affect
materially the use thereof by the Company and its subsidiaries, taken as a
whole.

(x) To the Company's knowledge, the Company and
its subsidiaries own or possesses sufficient licenses or other rights to use
all patents, copyrights, trade secrets, trademarks, service marks, trade names,
technology, know-how or other proprietary information or materials that are
material to the conduct of the business being conducted by the Company and its
subsidiaries as described in the Prospectus.

(xi) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms.

(xii) There is no legal or governmental proceeding
pending or, to the Company's knowledge after due inquiry, threatened to which
the Company or its subsidiaries are party or to which any of the properties of
the Company is subject that is required to be described in

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<PAGE> 5
the Registration Statement or the Prospectus and is not so described which (i)
is likely to result in any material adverse change in the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; or (ii) might prevent consummation of the
transactions contemplated hereby. There is no statue, regulation, contract or
other document that is required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
that is not described or filed.

(xiii) The Company and its subsidiaries, or
resellers of the Company's products, have all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and
has made all declarations and filings with, all governmental authorities, to
own, lease, license and use its properties and assets and to conduct its
business in the manner described in the Prospectus, except to the extent that
the failure to obtain or file such would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.

(xiv) To the Company's knowledge after due inquiry,
the Company and its subsidiaries (i) are in compliance with all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.

(xv) The cost and liabilities, if any, associated
with the effect of Environmental Laws on the business, operations and
properties of the Company and its subsidiaries (including, without limitation,
any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a whole.

(xvi) The Company is not, and upon receipt and
pending application of the net proceeds from the sale of the Stock to be sold
by the Company in the manner described in the Prospectus will not be, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.

(xvii) The Common Stock is listed on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market.

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<PAGE> 6
(b) Each of the Selling Securityholders hereby represents
and warrants as follows:

(i) Such Selling Securityholder has good and
marketable title to all the shares of Stock to be sold by such Selling
Securityholder hereunder, free and clear of all liens, encumbrances, equities,
security interests and claims whatsoever, with full right and authority to
deliver the same hereunder, subject, in the case of each Selling
Securityholder, to the rights of U.S. Stock Transfer Corporation, as Custodian
(herein called the Custodian), and that upon the delivery of and payment for
such shares of the Stock hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.

(ii) Certificates in negotiable from for the
shares of the Stock to be sold by such Selling Securityholder have been placed
in custody under a Custody Agreement for delivery under this Agreement with the
Custodian. Such Selling Securityholder specifically agrees that the shares of
the Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and the
Company, that the arrangements made by such Selling Securityholder for such
custody, including the Power of Attorney provided for or referred to in such
Custody Agreement, are to that extent irrevocable, and that the obligations of
such Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity of
such Selling Securityholder (or, in the case of a Selling Securityholder that
is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event. If any such death,
incapacity, dissolution, liquidation or other such event should occur before
the delivery of such shares of the Stock hereunder, certificates for such
shares of the Stock shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.

(iii) Such Selling Securityholder has reviewed the
Registration Statement and Prospectus. Although such Selling Securityholder
has not independently verified the accuracy or completeness of the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that (i)
on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading or (ii) on the Effective Date, the Prospectus contained and, on the
Closing Date and any later date on which Option Stock is to be purchased would
contain any untrue statement of a material fact or omitted or would omit 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;
provided, however that such Selling Securityholder makes no representations and
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information herein or otherwise furnished in writing to the Company by or on

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<PAGE> 7
behalf of the Underwriters for use in the Registration Statement or the
Prospectus as set forth in Section 4(b) of this Agreement.

(iv) All information furnished in writing by or on
behalf of such Selling Securityholder for use in the Registration Statement and
Prospectus is, and on the Closing Date will be, true, correct, and complete,
and does not, and on the Closing Date will not, contain any untrue statement of
a material fact or omit to state any material fact necessary to make such
information not misleading.

(v) The execution and delivery by such Selling
Securityholder of, and the performance by such Selling Securityholder of its
obligations under, this Agreement, the Custody Agreement signed by such Selling
Securityholder and U.S. Stock Transfer Corporation, as Custodian, relating to
the deposit of the Underwritten Stock to be sold by such Selling Securityholder
(the "Custody Agreement") and the Power of Attorney appointing certain
individuals as such Selling Securityholder's attorneys-in-fact to the extent
set forth therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney") will not contravene any
provision of applicable law, or the certificate or articles of incorporation or
by-laws of such Selling Securityholder (if such Selling Securityholder is a
corporation), or any material agreement or other instrument binding upon such
Selling Securityholder or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Selling Securityholder, and
no consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by such Selling
Securityholder of its obligations under this Agreement or the Custody Agreement
or Power of Attorney of such Selling Securityholder, except such as may be
required by the NASD (as hereinafter defined) or under the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Stock by the Underwriters.

(vi) Such Selling Securityholder has, and on the
Closing Date will have, the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Custody Agreement,
and the Power of Attorney and to sell, transfer and deliver the Stock to be
sold by such Selling Securityholder.

(vii) Each of this Agreement, the Custody Agreement
and the Power of Attorney has been duly authorized, executed and delivered by
such Selling Securityholder and constitutes a valid and binding obligation of
such Selling Securityholder enforceable in accordance with its terms.

3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.

(a) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 1,510,000 shares of the Underwritten Stock to the several
Underwriters, each Selling Securityholder agrees to sell to the several
Underwriters the number of shares of the Underwritten Stock set forth in
Schedule II opposite the

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<PAGE> 8
name of such Selling Securityholder, and each of the Underwriters agrees to
purchase from the Company and the Selling Securityholders the respective
aggregate number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be sold
by the Company and the Selling Securityholders and purchased by the several
Underwriters shall be $______ per share. The obligation of each Underwriter to
the Company and each of the Selling Securityholders shall be to purchase from
the Company and the Selling Securityholders that number of shares of the
Underwritten Stock which represents the same proportion of the total number of
shares of the Underwritten Stock to be sold by each of the Company and the
Selling Securityholders pursuant to this Agreement as the number of shares of
the Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the Underwritten
Stock to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional
shares. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraphs (b) and (c) of this Section
3, the agreement of each Underwriter is to purchase from the Company and the
Selling Securityholders only the respective number of shares of the
Underwritten Stock specified in Schedule I.

(b) If for any reason one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 8 or 9 hereof) to
purchase and pay for the number of shares of the Stock agreed to be purchased
by such Underwriter or Underwriters, the Company or the Selling Securityholders
shall immediately give notice thereof to you, and the nondefaulting
Underwriters shall have the right within twenty-four (24) hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the nondefaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each nondefaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the nondefaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences,
the Company and the Selling Securityholders shall have the right, within
twenty-four (24) hours next succeeding the twenty-four (24) hour period above
referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company and the Selling
Securityholders shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven (7) business days after
the date originally fixed as the Closing Date pursuant to said Section 5 in
order that any necessary changes in the

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<PAGE> 9
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the nondefaulting Underwriters nor the Company and the
Selling Securityholders shall make arrangements within the twenty-four (24)
hour periods stated above for the purchase of all the shares of the Stock which
the defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any
nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company or the Selling Securityholders.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.

The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 2.

(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 450,000 shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters shall
pay for the Underwritten Stock. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made as provided in Section 5 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.

4. OFFERING BY UNDERWRITERS.

(a) The terms of the public offering by the Underwriters
of the Stock to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.

(b) The information set forth in the last paragraph on
the front cover page and under "Underwriting" in the Registration Statement,
any Preliminary Prospectus and the Prospectus relating to the Stock filed by
the Company (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and
the Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company and the Selling Securityholders that the

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<PAGE> 10
statements made therein are true and correct and do not omit to state any
material fact necessary in order to make the statements therein not misleading.

5. DELIVERY OF AND PAYMENT FOR THE STOCK.

(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the option granted by Section 3(c)
hereof shall have been exercised not later than 7:00 a.m., San Francisco time,
on the date two (2) full business days preceding the Closing Date), and payment
therefor, shall be made at the Newport Beach office of Brobeck, Phleger &
Harrison, counsel to the Company, at 7:00 a.m., San Francisco time, on the
fifth full business day after the date of this Agreement, or at such time on
such other day, not later than seven (7) full business days after such fifth
business day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.

(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two (2) full
business days preceding the Closing Date, delivery of certificates for the
shares of Option Stock, and payment therefor, shall be made at the Newport
Beach office of Brobeck, Phleger & Harrison, at 7:00 a.m., San Francisco time,
on the third full business day after the exercise of such option.

(c) Payment for the Stock purchased from the Company
shall be made to the Company or its order, and payment for the Stock purchased
from the Selling Securityholders shall be made to the Custodian, for the
account of the Selling Securityholders, in each case by one or more certified
or official bank check or checks in next day funds (and the Company and the
Selling Securityholders agree not to deposit any such check in the bank on
which drawn until the day following the date of its delivery to the Company or
the Custodian, as the case may be). Such payment shall be made upon delivery
of certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the
Stock to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least three (3) full
business days before the Closing Date, in the case of Underwritten Stock, and
at least one (1) full business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 not less than one
(1) full business day prior to the Closing Date or, in the case of the Option
Stock, by 3:00 p.m., New York time, on the business day preceding the date of
purchase.

It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any
later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.

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<PAGE> 11
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. Each of the Company and, for the purposes of paragraph (m) of
this Section only, the Selling Securityholders respectively covenants and
agrees as follows:

(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.

(b) The Company will promptly notify each Underwriter in
the event of (i) the request by the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii), the
institution or notice of intended institution of any action or proceeding for
that purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company will make every
reasonable effort to prevent the issuance of such a stop order and, if such an
order shall at any time be issued, to obtain the withdrawal thereof at the
earliest possible moment.

(c) The Company will (i) on or before the Closing Date,
deliver to you a signed copy of the Registration Statement as originally filed
and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a signed
copy of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously furnished
to you) and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, likewise send to the Underwriters as
many additional copies of the Prospectus and as many copies of any supplement
to the Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.

(d) If at any time during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer any
event relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances

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<PAGE> 12
existing at the time it is delivered to a purchaser of the Stock, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended Prospectus so that the Prospectus as so supplemented
or amended will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time such Prospectus is
delivered to such purchaser, not misleading. If, after the initial public
offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus
or an amended prospectus setting forth such variation. The Company authorizes
the Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations and the rules and regulations of the NASD thereunder for such
period.

(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.

(f) The Company will cooperate, when and as requested by
you, in the qualification of the Stock for offer and sale under the securities
or blue sky laws of such jurisdictions as you may designate and, during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports, and
other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Stock.

(g) During a period of five (5) years commencing with the
date hereof, the Company will furnish to each Underwriter who may so request in
writing copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with
Commission.

(h) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the effectiveness
of the Company's initial public offering, the Company will make generally
available to its security holders an earnings statement in accordance with
Section 11(a) of the Securities Act and Rule 158 thereunder.

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<PAGE> 13
(i) The Company agrees to pay all costs and expenses
incident to the performance of their obligations under this Agreement,
including all costs and expenses incident to (A) the preparation, printing and
filing with the Commission and the National Association of Securities Dealers,
Inc. ("NASD") of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (B) the furnishing to the Underwriters of copies of any Preliminary
Prospectus and of the several documents required by paragraph (c) of this
Section 6 to be so furnished, (C) the printing of this Agreement and related
documents delivered to the Underwriters, (D) the preparation, printing and
filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (E) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (g) of this Section 6
and (F) the printing and issuance of stock certificates, including the transfer
agent's fees. The Selling Securityholders will pay any transfer taxes incident
to the transfer to the Underwriters of the shares the Stock being sold by the
Selling Securityholders.

(j) The Company agrees to reimburse you, for the account
of the several Underwriters, for blue sky fees and related disbursements
(including counsel fees and disbursements and cost of printing memoranda for
the Underwriters) paid by or for the account of the Underwriters or their
counsel in qualifying the Stock under state securities or blue sky laws and in
the review of the offering by the NASD.

(k) The provisions of paragraphs (i) and (j) of this
Section are intended to relieve the Underwriters from the payment of the
expenses and costs which the Company hereby agrees to pay and shall not affect
any agreement which the Company and the Selling Securityholders may make, or
may have made, for the sharing of any such expenses and costs.

(l) The Company agrees that, without the prior written
consent of Hambrecht & Quist LLC, the Company will not, directly or indirectly,
sell, offer, contract to sell, make any short sale, pledge or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock for a period of ninety (90) days following the effective date of the
Registration Statement other than (i) the Stock to be sold to the Underwriters
pursuant to this Agreement, (ii) shares of Common Stock issued upon the
exercise of options granted under the stock option plans of the Company
currently in existence (the "Option Plans"), (iii) options to purchase Common
Stock granted under the Option Plans to the extent shares are currently
reserved for issuance under the Option Plan, provided that each optionee who is
entitled to purchase and sell shares under such option during such ninety (90)
day period signs an agreement reasonably acceptable to the Underwriters,
precluding such optionee from directly or indirectly, selling, offering,
contracting to sell, making any short sale, pledging or otherwise disposing of
such option or any of the securities or rights underlying such option during
such ninety (90) day period, naming the Underwriters as third party
beneficiaries, and (iv) shares of common stock issuable upon the exercise of
warrants outstanding as of the date of this Agreement. For purposes of this
paragraph (l), a sale, offer or other disposition shall be deemed to include
any sale to an institution which can, following such sale, sell Common Stock to
the public in reliance on Rule 144A.

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<PAGE> 14
(m) Each of the Selling Securityholders agrees that,
without your prior written consent, it will not, directly or indirectly, sell,
offer, contract to sell, make any short sale, pledge or otherwise dispose of
("Sell") any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock for a period of ninety (90) days following the effective date of the
Registration Statement, except for (i) the exercise of outstanding options,
provided that the Selling Securityholder will not Sell shares acquired on such
exercise during such ninety (90) day period and (ii) shares acquired under the
Company's existing Employee Stock Purchase Plan.

(n) If at any time during the twenty-five (25) day period
after the Registration Statement becomes effective any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price for the Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.

(o) The Company is familiar with the Investment Company
Act of 1940, as amended, and has in the past conducted its affairs, and will in
the future conduct its affairs, in such a manner to ensure that the Company was
not and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.

(p) The Company agrees not to release or amend any
restrictions on the Company's shares issued to the former shareholders of
Presticom Inc. without the written consent of Hambrecht & Quist LLC.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) Subject to the provisions of paragraph (f) of this
Section 7, the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (herein called the Exchange
Act), or the common law or otherwise, and the Company and the Selling
Securityholders jointly and severally agree to reimburse each such Underwriter
and controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in

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<PAGE> 15
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof or any post-effective amendment
thereto, or 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, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, (2) the indemnity agreement contained
in this paragraph (a) with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Stock which is
the subject thereof (or to the benefit of any person controlling such
Underwriter) if at or prior to the written confirmation of the sale of such
Stock a copy of the Prospectus (or the Prospectus as amended or supplemented)
was not sent or delivered to such person and the untrue statement or omission
of a material fact contained in such Preliminary Prospectus was corrected in
the Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (c) of
Section 6 hereof, and (3) each Selling Securityholder who is not an executive
officer of the Company shall only be liable under this paragraph with respect
to (A) information pertaining to such Selling Securityholder furnished by or on
behalf of such Selling Securityholder expressly for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto or (B) facts that would constitute a
breach of any representation or warranty of such Selling Securityholder set
forth in Section 2(b) hereof. The indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) and the representations
and warranties of the Company and the Selling Securityholders contained in
Section 2 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock and shall be in addition to
any liabilities which the Company or such Selling Securityholders may otherwise
have.

(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of its
directors, each other Underwriter and each person (including each partner or
officer thereof) who controls the Company or any such other Underwriter within
the meaning of Section 15 of the Securities Act, and the Selling
Securityholders and each person, if any, controlling such Selling
Securityholder within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several,
to which such

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<PAGE> 16
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereto or 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 or (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (as amended or
as supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) or the omission or alleged omission to
state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished
in writing to the Company by or on behalf of such indemnifying Underwriter for
use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreement of each Underwriter
contained in this paragraph (b)(i) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party, (ii) shall survive the delivery of and payment for the Stock, and (iii)
shall be in addition to any liabilities which each Underwriter may otherwise
have.

(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 7 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense shall
be conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory

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<PAGE> 17
to the indemnified party or parties; provided, however, that (i) if the
indemnified party or parties reasonably determine that there may be a conflict
between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.

(d) If the indemnification provided for this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party shall, in
lieu of indemnifying such indemnified 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 paragraph (a) or (b) of this Section 7
(i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Stock 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 each
indemnifying party in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, or actions in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Securityholders on the one hand and the
Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received
by the Company and the Selling Securityholders and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Stock. 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 each indemnifying party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission.

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<PAGE> 18
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparing to defend or defending against any
action or claim which is the subject of this paragraph (d). Notwithstanding
the provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Stock purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' and Selling Securityholders'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.

Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in paragraph (c) of this Section 7).

(e) Neither the Company nor the Selling Securityholders
will, without the prior written consent of each Underwriter, which will not be
unreasonably withheld or delayed, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not
such Underwriter or any person who controls such Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.

(f) The Underwriters will not, without the prior written
consent of the Company, which will not be unreasonably withheld or delayed,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification has been or will be sought hereunder (whether or not the
Company or any person who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding).

(g) The liability of each Selling Securityholder under
such Selling Securityholder's representations and warranties contained in
paragraph (a) of Section 2 hereof (if applicable) and under

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<PAGE> 19
the indemnity, contribution and reimbursement agreements contained in the
provisions of this Section 7 and Section 11 hereof shall be limited to an
amount equal to the net amount received (after underwriting discounts) by such
Selling Securityholder through the sale of Stock to the Underwriters. The
Company and the Selling Securityholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible.

8. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States
on or after the date hereof, (ii) any outbreak of hostilities or other national
or international calamity or crisis or material adverse change in economic or
political conditions, the effect of which on the financial markets of the
United States would, in the Underwriter's reasonable judgement, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, the NASD
Automated Quotation System ("Nasdaq") or the Nasdaq National Market, or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or
investigation by, any court, legislative body, agency or other governmental
authority which in the Underwriters' reasonable opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company or the Selling Securityholders to the Underwriters and
no liability of the Underwriters to the Company or the Selling Securityholders;
provided, however, that in the event of any such termination the Company and
the Selling Securityholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholders under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j)) of Section 6 hereof.

9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing
Date or any later date on which Option Stock is to be purchased, as the case
may be, and to the following further conditions:

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<PAGE> 20
(a) The Registration Statement shall have become
effective; and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings therefor shall be pending or threatened by the
Commission.

(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as to
the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters.

(c) You shall have received from Brobeck, Phleger and
Harrison, counsel for the Company and the Selling Securityholders, an opinion,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in Annex A hereto, with such changes as may be approved by you or
your counsel, respectively, and if Option Stock is purchased at any date after
the Closing Date, additional opinions from such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such later
date.

(d) You shall be satisfied that (i) as of the Effective
Date, the statements made in the Registration Statement and the Prospectus were
true and correct in all material respects and neither the Registration
Statement nor the Prospectus omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein,
respectively, not misleading, (ii) since the Effective Date, no event has
occurred which should have been set forth in a supplement or amendment to the
Prospectus which has not been set forth in such a supplement or amendment,
(iii) since the respective dates as of which information is given in the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in or
affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business, and, since
such dates, except in the ordinary course of business, neither the Company nor
any of its subsidiaries has not entered into any material transaction not
referred to in the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein, (iv) neither the Company
nor any of its subsidiaries has any material contingent obligations which are
not disclosed in the Registration Statement and the Prospectus, (v) there are
not any pending or known threatened legal proceedings to which the Company or
any of its subsidiaries is a party or of which property of the Company or any
of its subsidiaries is the subject which are material and which are not
disclosed in the Registration Statement and the Prospectus, (vi) there are not
any franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed as
required and (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any later
date on which Option Stock is to be purchased, as the case may be.

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<PAGE> 21
(e) You shall have received on the Closing Date and on
any later date on which Option Stock is purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the
President and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (vii) of paragraph (d) of
this Section 9 are true and correct in all material respects.

(f) You shall have received on the Closing Date and on
any later date on which Option Stock is purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by or on behalf
of the Selling Securityholders to the effect that (i) all the representations
and warranties of the Selling Securityholders contained in this Agreement shall
be true and correct in all material respects, and (ii) the Selling
Securityholders shall have performed or complied with any of the conditions
required to be performed or complied with by them under this Agreement.

(g) You shall have received from Ernst & Young LLP, a
letter or letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and the applicable published rules and regulations
thereunder and based upon the procedures described in their letter delivered to
you concurrently with the execution of this Agreement (herein called the
Original Letter), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Stock is
purchased on which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date on which Option Stock is
purchased, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information. The
letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business or properties of the Company
which, in your sole judgment, makes it impractical or inadvisable to proceed
with the public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus.

(h) You shall have received from Ernst & Young LLP, a
letter stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at March 31, 1996,
did not disclose any weakness in internal controls that they considered to be
material weaknesses.

(i) You shall have been furnished evidence in usual
written or telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.

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<PAGE> 22
(j) Prior to the Closing Date, the Stock to be issued and
sold by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.

(k) On or prior to the Closing Date, you shall have
received from each director and officer of the Company, whether or not the
individual owns securities of the Company, and from each stockholder and each
holder of an option or other right to acquire the Company's securities who
holds in excess of one (1) percent of the Company's outstanding Common Stock on
a fully diluted basis, an agreement with you that without your prior written
consent, each of such individuals or entities will not, directly or indirectly,
sell, offer, contract to sell, make any short sale, pledge or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock for a period equal to ninety (90) days following the effective date of
the Registration Statement.

All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.

In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company or the Selling Securityholders to perform any material agreement
herein, to fulfill any of the material conditions herein, or to comply with any
material provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with transactions
contemplated hereby.

10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligations of the Company and the Selling
Securityholders to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.

In case either of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving notice to

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<PAGE> 23
you. Any such termination shall be without liability of the Company and the
Selling Securityholders to the Underwriters and without liability of the
Underwriters to the Company or the Selling Securityholders; provided, however,
that in the event of any such termination the Company and the Selling
Securityholders jointly and severally agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholders under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j)) of Section 6 hereof.

11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 7 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.

12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders
and the several Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any
other person, firm or corporation any legal or equitable remedy or claim under
or in respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.

13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht & Quist
LLC, One Bush Street, San Francisco, California 94104; and if to the Company,
shall be mailed, telegraphed or delivered to it at its office, 188 Camino Ruiz,
Camarillo, California 93012, Attention: Martin Shum; and if to the Selling
Securityholders, shall be mailed, telegraphed or delivered to the Selling
Securityholders in care of Attention: Martin Shum or Melvin L. Flowers at 188
Camino Ruiz, Camarillo, California 93012. All notices given by telegraph shall
be promptly confirmed by letter.

14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall

-23-
<PAGE> 24
remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Underwriter or
controlling person thereof, or by or on behalf of the Company or the Selling
Securityholders or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(I) and (m) of Section 6 hereof shall be of no further force or effect.

This Agreement may be executed in two or more counterparts, each of
which shall be deemed and original, but all of which together shall constitute
one and the same instrument.

This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.

-24-
<PAGE> 25
Please sign and return to the Company and to the Selling
Securityholders in care of the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company, the
Selling Securityholders and the several Underwriters in accordance with its
terms.

Very truly yours,

ACT Networks, Inc.
A Delaware Coloration

By: __________________________________________________
Martin Shum
President and Chief Executive Officer

SELLING SECURITYHOLDERS:

[Names to Come]

By: __________________________________________________
Martin Shum, Attorney-in-Fact

-25-
<PAGE> 26
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.

HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the Underwriters
By Hambrecht & Quist LLC

By: ___________________________________________________
Managing Director

Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.

-26-
<PAGE> 27
SCHEDULE I

UNDERWRITERS

<TABLE>
<CAPTION>
Number of Shares
Underwriters to be Purchased
----------------------------------------------------------------------------- ---------------
<S> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wessels, Arnold & Henderson, L.L.C . . . . . . . . . . . . . . . . . . . . . .
---------
Total: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
=========
</TABLE>

<PAGE> 28
ANNEX A

Matters to be Covered in the Opinion of Brobeck, Phleger & Harrison
Counsel for the Company
and the Selling Securityholders

(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware, is duly qualified as a foreign corporation
and in good standing in each state of the United States of America in which its
ownership or leasing of property requires such qualification (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole), and has full corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement;

(ii) the authorized capital stock of the Company consists of
__________ shares of Common Stock, $.001 par value, of which there are
outstanding __________ shares (including the Underwritten Stock plus the number
of shares of Option Stock issued on the date hereof but excluding any warrants
or options disclosed in the Prospectus exercised subsequent to March 31, 1996);
proper corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the outstanding shares of such capital stock
(including the Underwritten Stock and the shares of Option Stock issued, if
any) have been duly and validly issued and are fully paid and nonassessable;
and no preemptive rights exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual preemptive
rights, rights of first refusal, rights of co-sale or similar rights which
exist or that have not been waived with respect to the Stock being sold by the
Selling Securityholders or the issue and sale of the Stock; [To be adjusted to
reflect an exercise of the over-allotment option].

(iii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect, to such counsel's knowledge, and no proceedings
for that purpose have been instituted or are pending or threatened under the
Securities Act;

(iv) the Registration Statement and the Prospectus (except as to
the financial statements, including supporting schedules and notes thereto, and
the schedules and financial and statistical data derived therefrom, as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Securities Act and with the rules and regulations. For
purposes of this opinion, such counsel has assumed the accuracy and
completeness of the information contained in the Registration Statement and
Prospectus);

2
<PAGE> 29
(v) although such counsel has not verified the accuracy or
completeness of the statements contained in the Statement and Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that the Registration Statement (except as to the financial statements,
including supporting schedules and notes thereto, and the schedules and
financial and statistical data derived therefrom, as to which such counsel need
not express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements, including
supporting schedules and notes thereto, and the schedules and financial and
statistical data derived therefrom, as to which such counsel need not express
any opinion or belief) as of its date or at the Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; [To be adjusted
to reflect an exercise of the over-allotment option].

(vi) the information required to be set forth in the Registration
Statement in answer to Items 10 (insofar as it relates to such counsel) and
11(c) of Form S-3 is to such counsel's knowledge, accurately and adequately set
forth therein in all material respects or no response is required with respect
to such Items;

(vii) the information required to be set forth in the Registration
Statement in answer to Item 9 of Form S-3 to the extent that it constitutes
summaries of matters of law or legal conclusions, to such counsel's knowledge
fairly presents in all material respects information required under the
applicable disclosure requirements of Regulation S-K;

(viii) to such counsel's knowledge, there are no material franchises,
contracts, leases, documents or legal proceedings, pending or threatened, which
in the opinion of such counsel are of a character required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;

(ix) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding obligation of the
Company;

(x) to such counsel's knowledge, all holders of securities of the
Company having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have waived such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement, or have been included securities in the Registration Statement
pursuant to the exercise of such rights;

(xi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act or such as may be required under state
securities or Blue Sky laws or by the NASD, in connection with the purchase and
distribution of the Stock by the Underwriters;

3
<PAGE> 30
(xii) the statements in the Prospectus under the caption "Risk
Factors -- Shares Eligible for Future Sale," in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein;

(xiii) to such counsel's knowledge, each of the Underwriting
Agreement, the Custody Agreement and the Power of Attorney has been duly
authorized, executed and delivered by or on behalf of each of the Selling
Securityholders;

(xiv) to such counsel's knowledge, good and marketable title to the
shares of Stock to be sold by each of the Selling Securityholders under the
Underwriting Agreement, free and clear of all liens, encumbrances, equities,
security interests and claims, will be transferred to the Underwriters who
severally purchase such shares of Stock under the Underwriting Agreement,
assuming for the purpose of this opinion that the Underwriters purchase the
same in good faith without notice of any adverse claims;

(xv) to such counsel's knowledge, each of the Selling
Securityholders has the legal right and power, and all authorization and
approval required by law, to enter into the Underwriting Agreement and the
Custody Agreement and the Power of Attorney of such Selling Securityholder and
to sell, transfer and deliver the Stock to be sold by such Selling
Securityholder;

In rendering its opinion, such counsel need not express any opinion
with respect to the laws of any jurisdiction other than the State of
California, the Delaware General Corporation Law, and the applicable laws of
the United States of America. Counsel rendering the foregoing opinion may rely
upon representations or certificates of officers of the Company, the Selling
Securityholders or officers of the Selling Securityholders when the Selling
Securityholder is not a natural person (including, without limiting, the
representations set forth in the Underwriting Agreement, the Power of Attorney
and the Custody Agreement), and of government officials.

Such counsel shall state that, in addition to rendering legal advice
and assistance to the Company in the course of the preparation of the
Registration Statement and the Prospectus, involving, among other things,
discussions and inquiries concerning various legal matters and the review of
certain corporate records, documents and proceedings, such counsel also
participated in conferences with certain offices and other representatives of
the Company, including its independent auditors and with the Underwriters and
the Underwriters' counsel at which the contents of the Registration Statement,
the Prospectus and related matters were discussed. Such counsel has not,
however, except with respect to matters expressly covered above by this
opinion, independently checked or verified the accuracy, completeness or
fairness of the information contained in the Registration Statement or the
Prospectus.

The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Underwriting Agreement (other than
performance of the Company's indemnification and contribution obligations
thereunder, concerning which such counsel expresses no

4
<PAGE> 31
opinion), and the issue and sale by the Company of the shares of Stock to be
sold by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in the breach of, the Certificate of Incorporation or
Bylaws of the Company or any agreement filed as an Exhibit to the Registration
Statement, or so far as is known to such counsel, any judgment, order, writ,
injunction or decree, of any jurisdiction, court or governmental
instrumentality having jurisdiction over the Company or any of its
subsidiaries; provided, however, that such counsel expresses no opinion
concerning state securities or Blue Sky laws.

<PAGE> 1
EXHIBIT 5.1

May 21, 1996

ACT Networks, Inc.
188 Camino Ruiz
Camarillo, California 93012

Attention: Martin Shum

Re: Public Offering of Common Stock
of ACT Networks, Inc.
-------------------------------

Gentlemen:

We have examined the Registration Statement on Form S-3 (Registration
No. 333-______) filed by you with the Securities and Exchange Commission (the
"Commission") on May 21, 1996 (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of 3,450,000
shares of Common Stock of ACT Networks, Inc. (the "Shares"). The Shares
include 1,510,000 shares being offered by you plus an over-allotment option
granted to the Underwriters by you to purchase 450,000 shares of your Common
Stock, and the sale by certain stockholders of the Company of 1,490,000 shares
of Common Stock. The Shares are to be sold to the Underwriters as described in
the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and
are familiar with the proceedings proposed to be taken by you in connection
with the sale and issuance of the Shares.

It is our opinion that, upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when sold in the manner
described in the Registration Statement, will be legally issued, fully paid and
nonassessable.
<PAGE> 2
ACT Networks, Inc. May 21, 1996
Page 2

We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
such Registration Statement, including the prospectus constituting a part
thereof, and any amendment thereto.

Very truly yours,

BROBECK, PHLEGER & HARRISON

<PAGE> 1
Exhibit 10.32

LICENSE AGREEMENT

THIS LICENSE AGREEMENT is made and entered into this 8th day of May,
1996, by and between ACT NETWORKS, INC., a Delaware corporation with its
headquarters located at 188 Camino Ruiz, Camarillo, California (hereinafter
referred to as "ACT") and SKYDATA, INC., a Florida corporation with its
headquarters located at 7780 Technology Drive, West Melbourne, Florida 32904
(hereinafter referred to as "SKYDATA"). SKYDATA and ACT are collectively
referred to as the "Parties."

WHEREAS, SKYDATA owns all rights, titles and interest to that certain
United States Patent Number 5,434,850; Frame Relay Protocol based Multiplex
Switching Scheme for satellites (the "Patent"); and

WHEREAS, SKYDATA is in the business of developing, supplying,
installing, and servicing products for the satellite communications industry;
and

WHEREAS, SKYDATA, by and through its employees, has developed new and
useful technology and devices for use in earth station as part of a satellite
communications network; and

WHEREAS, the Patent is an important and valuable asset of SKYDATA; and

WHEREAS, SKYDATA is currently engaged in litigation for patent
infringement against ORION Network Systems, Inc., International Private
Satellite Partners, L.P., and Orion Satellite Corporation (collectively referred
to as "ORION") for alleged infringement of the Patent; and

WHEREAS, SKYDATA is willing to license ACT for compensation that
SKYDATA believes is substantially lower than what would be a reasonable
compensation if SKYDATA were not experiencing pressing financial conditions
resulting from the infringement litigation and the failure of ORION to purchase
its patented equipment from SKYDATA; and

WHEREAS, ACT is willing to become licensed at the royalty rate set
forth herein; therefore

NOW, THEREFORE, in consideration of mutual covenants contained herein
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties, intending to be bound, hereby agree as follows:
<PAGE> 2
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings hereinafter set forth:

(a) "Net Revenue" shall mean revenue of ACT or entities
owned by ACT (a "Subsidiary") from the sale of Products by ACT or an entity
owned by ACT, but not including any freight, delivery, insurance, handling,
customs duties or other duties, taxes (including value added taxes), imposts,
transfer prices between entities owned by ACT or similar fees.

(b) "Patent" shall mean U.S. Patent 5,434,850, as well as
any and all continuations, continuations-in-part, divisionals, reexaminations,
reissues, and any and all extensions or improvements thereof, and any and all
other patents incorporating in whole or in part the disclosure thereof, and any
and all patents, utility models, inventor's certificates, or similar documents,
applied for or issued in any jurisdiction anywhere in the world relating to the
foregoing.

(c) A "Product" shall mean one or more chassis
incorporating a frame relay protocol switch which, at the time sold by ACT,
includes one or more modulator cards and demodulator cards, and which is sold
for incorporation in an earth station of a satellite based communications system
(e.g., the Skyframe SF-800 and SF-400); provided, however, a product shall not
be a Product unless the sale of the product at the location of its sale would,
except for this license, infringe at least one claim of the Patent according to
the law of the jurisdiction where the product is sold. For purposes of
calculating Net Revenues, the term Products shall also include other products
sold by ACT which are not manufactured by or on behalf of ACT which ACT knows
will be used in an earth station in conjunction with the Products.

2. GRANT OF LICENSE.

(a) SKYDATA grants to ACT a nonexclusive license under
all claims of the Patent to make, have made, use, sell, offer to sell, import
and have imported, the claimed invention, and to do, authorize, or cause any and
all other acts or omissions which would, except for this license, be regarded as
infringing the Patent under the law of any jurisdiction anywhere in the world.
SKYDATA acknowledges that this license includes, without limitation, the right
to fully commercialize a system that will incorporate products other than the
Products, and that ACT has the right to sublicense the Patent to distributors
and users of the Products to the extent appropriate to enable them, without
liability to SKYDATA, to build, integrate, commercialize and use systems which
incorporate one or more Products. It is understood that the right to sublicense
only applies to distributors and users of the Products, and does not give ACT
the right to sublicense a third party to commercialize a system unless Products
are incorporated in the system. The license granted hereunder shall inure to the
benefit of ACT and its Subsidiaries.

(b) Subject to ACT performing its obligations hereunder,
SKYDATA covenants not to sue ACT, and waives all damages for, any and all acts
or omissions up to the

2
<PAGE> 3
date of execution of this License, for which ACT would otherwise have liability
by reason of the existence of the Patent.

3. MARKING.

Each chassis constituting a Product will be labeled prior to
shipment by ACT with a label , the size, placement and contents of which shall
be reasonably acceptable to both ACT and SKYDATA. ACT will be liable for any
damages to SKYDATA resulting from its failure to affix the label prior to
shipment.

4. COMPENSATION. In consideration of the license granted by
SKYDATA to ACT, ACT shall pay as compensation to SKYDATA upon such terms and in
such amounts as follows:

(a) ACT shall pay on or before May 13, 1996, the
nonrefundable sum of Seven Hundred and Fifty Thousand Dollars ($750,000.00); and

(b) Within 45 days of the end of each calendar quarter,
ACT shall pay SKYDATA five percent (5%) of Net Revenue for that calendar
quarter, less credits due to Products returned to ACT. At that time, ACT shall
provide SKYDATA with a written statement specifying the total number of Products
sold during that calendar quarter and the total amount of Net Revenues therefor.

(c) ACT shall keep such records and books of account of
all Products sold by ACT and its Subsidiaries, as may be necessary for SKYDATA
to determine whether royalties are due for such Products, and to determine the
amount of such royalties due. Such records and books of account shall be open to
inspection, not more often than once per twelve (12) months, during ACT's normal
business hours by an independent accountant or accountants of national
reputation selected by SKYDATA and not objected to by ACT (which objection shall
not be unreasonably made), to the extent necessary to verify the correctness of
the reports and the royalty payments provided for herein. Such accountants
shall, as a precondition to such inspection, agree in writing to hold such
information in confidence except as necessary to carry out the provisions of
this License Agreement. In any event, no customer names or other customer
identification shall be provided to SKYDATA except for serial numbers of
Products and the Net Revenues associated therewith. Any such audit shall be at
SKYDATA's expense; provided, however, that if such audit reveals an underpayment
of royalties for any particular quarter of five percent (5%) or more of the
amount actually due for that quarter, ACT shall bear all reasonable expenses of
the audit. ACT and SKYDATA agree to resolve in good faith and on a timely basis
any dispute or discrepancy in such accounting. Any such underpayment shall not
be a material breach if paid to SKYDATA within fifteen (15) days of ACT's
receipt of the independent accountant or accountants' written report or if
contested in good faith.

(d) All compensation due hereunder shall be paid and
computed in U.S. Dollars.

3
<PAGE> 4
5. WARRANTIES AND REPRESENTATIONS.

(a) ACT represents and warrants as follows:

(1) The execution and delivery by ACT of this
Agreement and the performance by ACT of its obligations hereunder have been duly
authorized by all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the Certificate of
Incorporation of the Company, as amended, or any provision of any indenture,
agreement or other instrument to which ACT is a party.

(2) This Agreement has been duly executed and
delivered by ACT and constitutes a legal, valid and binding obligation of ACT.

(b) SKYDATA represents and warrants as follows:

(1) The execution and delivery by SKYDATA of
this License Agreement and the performance by SKYDATA of its obligations
hereunder have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation of the Company as amended, or the
Bylaws of SKYDATA, Inc., as amended, or any provision of any indenture,
agreement or other instrument to which SKYDATA is a party. SKYDATA has full
right, title and interest to grant the license hereunder.

(2) This Agreement has been duly executed and
delivered by SKYDATA and constitutes a legal, valid and binding obligation of
the Company.

(3) If SKYDATA is, or becomes party to, any
agreement or arrangement which results in any person or entity (except Samsung
and Matra Marconi and their wholly-owned affiliates) with a royalty rate less
than that provided for in Section 4(b), ACT shall be notified in writing within
thirty (30) days thereof and shall be entitled to the more favorable royalty
rate effective as of the date that the more favorable rate is provided to such
person or equity or, if later, effective as of the third anniversary of this
Agreement.

(4) SKYDATA shall keep such records and books of
account as may be necessary for ACT to determine whether SKYDATA is in
compliance with the preceding paragraph. Such records and books of account shall
be open to inspection, not more often than once per twelve (12) months, during
SKYDATA's normal business hours by an independent accountant or accountants of
national reputation selected by ACT and not objected to by SKYDATA (which
objection shall not be unreasonably made), to the extent necessary to verify
that. Such accountants shall, as a precondition to such inspection, agree in
writing to hold such information in confidence except as necessary to carry out
the provisions of the preceding paragraph. In any event, no customer names or
other customer identification shall be provided to ACT. Any such audit shall be
at ACT's expense; provided, however, that if such audit reveals an overpayment
of royalties for any particular quarter of five percent (5%) or more of the
amount actually due for that quarter, SKYDATA shall bear all reasonable expenses
of the

4
<PAGE> 5
audit. SKYDATA and ACT agree to resolve in good faith and on a timely basis any
dispute or discrepancy in such accounting. Any such overpayment shall not be a
material breach if refunded to ACT within fifteen (15) days of SKYDATA's receipt
of the independent accountant or accountants' written report or if contested in
good faith.

6. RELATIONSHIP OF PARTIES. Nothing contained in this Agreement
shall be deemed to (i) make either party or any employee of such party the
employee, joint venturer or partner of the other party; or (ii) provide either
party or any employee of such party with the power or authority to act on behalf
of the other party or to bind the other party to any contract, agreement or
arrangement with any other person, except to the extent specifically provided
herein.

7. DURATION AND TERMINATION.

(a) Unless otherwise terminated as provided herein, this
Agreement and the licenses granted hereunder as well as the obligation to pay
royalties shall continue in full force and effect for three (3) years from the
date of execution of this Agreement.

(b) ACT shall have the option to extend this Agreement
beyond the initial three (3) year period for the duration of the Patent upon
written notice to SKYDATA. In the event ACT exercises this option, royalties due
under Section 5(b) shall continue to be five percent (5%) of Net Revenues after
the initial three (3) year period, subject to Section 5(b)(3).

(c) ACT's royalty obligations shall terminate in each
country upon expiration of the last said Patent to expire in that respective
country.

(d) This Agreement may be terminated by ACT upon entry or
publication of a final holding of a court, arbitrator, administrative entity, or
other tribunal of competent jurisdiction (although a court shall be considered
to be the only competent jurisdiction in the United States), that all claims of
the Patent are invalid or unenforceable, which holding shall have become final
and not appealable, such termination to occur separately in each country for
which said Patent is held to be invalid or unenforceable. In the event that
there are multiple Patents in a country, this Agreement shall terminate upon a
holding that all claims of each of said multiple Patents are invalid and
unenforceable.

(e) ACT shall have the option to terminate this License
Agreement for its convenience upon written notice to SKYDATA.

(f) (1) SKYDATA shall have the right to terminate this
License Agreement by giving written notice of termination to ACT in the event of
any one of the following events, such termination being effective upon receipt
of such notice or ten (10) days after such notice is mailed, whichever is
earlier;

5
<PAGE> 6
(A) liquidation of ACT;

(B) except as otherwise set forth
herein, failure of ACT to materially meet its obligations hereunder subsequent
to thirty (30) days after receipt by ACT of written notice from SKYDATA
specifying the obligation(s) not then being met.

(2) In addition to any rights or remedies
hereunder, ACT shall have the right to terminate this Agreement by giving
written notice of termination to SKYDATA in the event of any one of the
following events, such termination being effective upon receipt of such notice
or ten (10) days after such notice is mailed, whichever is earlier;

(A) liquidation of SKYDATA;

(B) except as otherwise set forth
herein, failure of SKYDATA to materially meet its obligations hereunder
subsequent to thirty (30) days after receipt by SKYDATA of written notice from
ACT specifying the obligation(s) not then being met.

(g) The waiver of any default under this License
Agreement by ACT and/or SKYDATA shall not constitute a waiver of the right to
terminate this License Agreement for any subsequent or/like default, and the
exercise of the right of termination shall not impose any liability by reason of
termination or have the effect of waiving any damages to which a party might
otherwise be entitled.

(h) Termination of this License Agreement, for any cause
whatsoever, shall in no manner interfere with, affect or prevent the collection
by SKYDATA of any and all sums of compensation due under this License Agreement
through the date of termination. Upon termination of this Agreement for any
reason, payments required by Paragraph 4, but not yet due, shall remain payable
pursuant to the terms herein. Upon termination of this Agreement for any reason,
(i) the obligation of ACT to pay for royalties accrued as of the date of
expiration hereof shall survive, (ii) ACT shall have the option to declare
Products then held in stock, or in process of manufacture, to have been sold at
the time of the termination, and (iii) all Products for which royalty has been
paid shall be deemed licensed and shall be deemed sublicensed to all eventual
customers of said Products.

8. PROTECTION OF RIGHTS; INDEMNIFICATIONS.

(a) ACT shall promptly notify SKYDATA in writing of any
infringements or suspected infringements by third parties of the Patent which
may come to ACT's attention and of which SKYDATA does not already have notice.

(b) (1) SKYDATA agrees to indemnify, defend, and hold ACT
harmless against and in respect of any claims, demands, losses, costs, expenses,
obligations, fines, penalties, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorneys' fees, that
ACT incurs or suffers, which arises from any breach of, or

6
<PAGE> 7
failure by SKYDATA to perform any of its representations, warranties, covenants
or agreements in, this License Agreement.

(2) ACT agrees to indemnify, defend, and hold
SKYDATA harmless against and in respect of any claims, demands, losses, costs,
expenses, obligations, fines, penalties, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorneys' fees, that
SKYDATA incurs or suffers, which arises from any breach of, or failure by ACT to
perform any of its representations, warranties, covenants or agreements in, this
License Agreement.

(c) Notwithstanding anything contained herein to the
contrary, no breach or alleged breach of any terms herein, or any termination
hereof, shall affect the licenses granted hereunder and products and systems
sold prior to the date of such termination.

9. NOTICES.

(a) All notices, requests, demands and other
communications under this Agreement or in connection therewith shall be given to
or made upon the respective parties hereto in writing and may be personally
served or sent by facsimile (with confirmation by mail), or by next-day mail
service, private or governmental service, with written receipt evidencing
delivery as follows:

(1) If to ACT, ACT Networks, Inc. 188 Camino
Ruiz, Camarillo, California, and to Frederic A. Randall, Jr., Esquire, 4675
MacArthur Court, Suite 1000, Newport Beach, California 92660, Fax No. (714)
752-7535; and

(2) If to SKYDATA, SKYDATA, Inc., Attention:
John Todd, President, 7780 Technology Drive, West Melbourne, Florida 32904, Fax
No. (407) 729-8475, and to James M. O'Brien, Esquire, 1686 West Hibiscus Blvd.,
Melbourne, Florida 32901, Fax No. (407) 728-0002; or in any such case, at such
other address or addresses as shall have been furnished in writing by such
party to the others.

(b) All notices requests, demands and other
communications given or made in accordance with the provisions of this Agreement
shall be in writing, shall be deemed to have been given as follows: for mail,
private or governmental, when deposited postage prepaid, addressed as specified
in the preceding paragraph; for facsimile, on the second business day after
transmission thereof on a facsimile machine to the proper facsimile number; or
if personally served, the date when served.

10. BENEFITS. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the Parties hereto, their
subsidiaries and their respective successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this License Agreement;
specifically, and without limitation, no rights as third party beneficiary or

7
<PAGE> 8
otherwise shall accrue by reason of this Agreement except for the rights of
ACT's sublicensees as provided in Section 2.

11. FUTURE ACTS. The Parties hereto agree to perform all future
acts and execute any and all documents reasonably necessary to fulfill the
performance and intent of this Agreement.

12. SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
performance of this License Agreement.

13. ASSIGNMENT. No assignment or transfer of this License
Agreement or any part thereof shall be valid without written consent of both
Parties, said consent may not be unreasonably withheld; provided, however, no
consent of the other Party shall be required to assign or transfer this License
Agreement to a third party who is the successor to all or substantially all of
the business to which this License Agreement relates.

14. PARTIES IN INTEREST. All representations, covenants and
agreements contained in this License Agreement by or on behalf of any of the
Parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the Parties hereto whether so expressed or not.

15. GOVERNING LAW; VENUE. The Parties agree to be governed by and
interpreted according to the substantive laws of the State of Florida and the
United States Federal laws and regulations, and this provision shall not be
changed due to any conflicts of law. Further, the Parties hereby agree to the
personal jurisdiction and venue in the courts of the County of Brevard, Florida
and the United States District Court for the Middle District of Florida.

16. COUNTERPARTS. This License Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same Agreement,
and shall become a binding Agreement when one or more counterparts have been
signed by each party and delivered to the other party.

17. SEVERABILITY. If any provision of this License Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.

18. TITLES AND SUBTITLES. The titles and subtitles used in this
License Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.

19. MISCELLANEOUS.

(a) No modification of this Agreement or waiver of the
terms and conditions thereof shall be binding upon the Parties unless in writing
signed by the Parties. No

8
<PAGE> 9
waiver by either party of any breach of any of the terms or conditions contained
herein shall be construed as a waiver of any succeeding breach of the same or
any other term or condition.

(b) If any legal action is brought for the enforcement of
this Agreement or because of an alleged dispute, breach, default or
non-performance in connection with any of the provisions of this Agreement, the
prevailing party or parties shall be entitled to recovery of reasonable
attorneys' fees and costs incurred in that action or proceeding, including those
on appeal. This right shall be in addition, and not by way of limitation, to any
other remedy at law or in equity.

20. ENTIRE AGREEMENT. This Agreement, Paragraphs 1 through 21
including the Schedules hereto, constitutes the sole and entire agreement of the
Parties with respect to the subject matter hereof.

21. ARBITRATION. The parties hereby waive all right to proceed in
court for any disputes arising solely with respect to the amount of royalties
payable under this Agreement, which may include disputes such as the amount of
Products sold, but which will not include disputes regarding the validity of the
Patent. The parties agree to submit such disputes to one or more arbitrators
selected and proceeding according to the rules of the American Arbitration
Association, or other mutually agreed rules. The arbitrators shall be skilled in
patent law and in engineering, shall render a written opinion within ninety (90)
days of hearing on the matter, and their award shall be limited to contract
rights under this Agreement.

9
<PAGE> 10
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed this day and year first written.

ACT NETWORKS, INC.

By: ___________________________
______________________(Name)
______________________(Title)

ATTEST:

"ACT"

___________________________
______________________(Name)
______________________(Title)

SKYDATA, INC.

By: ___________________________
______________________(Name)
______________________(Title)

ATTEST:

"SKYDATA"

___________________________
______________________(Name)
______________________(Title)

<PAGE> 1

EXHIBIT 11.1 -- STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30 MARCH 31
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Primary
Average common shares
outstanding................. 1,117,447 1,149,212 1,752,954 1,329,526 7,233,789
Effect of assumed conversion of
preferred stock............. 1,379,751 2,393,507 2,722,619 2,721,416 --
Options and warrants issued
during twelve-month period
prior to the initial public
offering at an exercise
price below the assumed
public offering price in
accordance with staff
accounting Bulletin No.
83.......................... 242,034 242,034 212,908 242,034 --
Net effect of dilutive options
and warrants -- based on the
treasury stock method (or
modified treasury stock
method if applicable) using
average market price........ -- 67,211 522,429 433,148 --
--------- ----------- --------- --------- ---------
2,739,232 3,851,964 5,210,910 4,726,124 7,233,789
========= =========== ========= ========= =========
Net Income (loss).............. $(1,435,844) $ 209,198 $ 1,261,996 $ 704,352 $(6,472,234)
========= =========== ========= ========= =========
Per Share amount............... $ (0.52) $ 0.05 $ 0.24 $ 0.15 $ (0.89)
Fully Diluted
Average common shares
outstanding................. 1,117,447 1,149,212 1,752,954 1,329,526 7,233,789
Effect of assumed conversion of
preferred stock............. 1,379,751 2,393,507 2,722,619 2,721,416 --
Options and warrants issued
during twelve-month period
prior to the initial public
offering at an exercise
price below the assumed
public offering price in
accordance with staff
accounting Bulletin No.
83.......................... 242,034 242,034 212,908 242,034 --
Net effect of dilutive options
and warrants -- based on the
treasury stock method (or
modified treasury stock
method if applicable) using
year-end market price....... -- 255,711 586,710 533,982 --
--------- ----------- --------- --------- ---------
2,739,232 4,040,464 5,275,191 4,826,958 7,233,789
========= =========== ========= ========= =========
Net Income (loss).............. $(1,435,844) $ 209,198 $ 1,261,996 $ 704,353 $(6,472,234)
========= =========== ========= ========= =========
Per Share amount............... $ (0.52) $ 0.05 $ 0.24 $ 0.15 $ (0.89)
</TABLE>
<PAGE> 2

EXHIBIT 11.1 -- STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS (CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, 1995 JUNE 30, 1995
----------------- --------------
<S> <C> <C>
Supplemental Per-Share Earnings
Average common shares outstanding............................ 1,329,526 1,752,954
Effect of assumed conversion of preferred stock.............. 2,721,416 2,722,619
Options and warrants issued during twelve-month period prior
to the initial public offering at an exercise price below
the assumed public offering price in accordance with staff
accounting Bulletin No. 83................................. 242,034 212,908
Net effect of dilutive options and warrants -- based on the
treasury stock method (or modified treasury stock method if
applicable) using average market price..................... 433,148 522,429
Weighted average number of shares of common stock whose
presumed proceeds from the initial public offering are to
be used to retire debt..................................... 93,405 105,284
---------
Total.............................................. 4,819,529 5,316,199
=========
Net Income................................................... $ 704,352 $1,261,996
Adjustment to income assuming the retirement of debt had
taken place at the beginning of the period................. 82,125 180,050
---------
Total.............................................. $ 786,477 $1,442,046
=========
Per Share amount............................................. $ 0.16 $ 0.27
</TABLE>

- ------------------------------
Note: There were no borrowings during the year ended June 30, 1994 and thus
supplemental per-share earnings is not presented.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 15, 1995, in the Registration Statement Form
S-3 and related Prospectus of ACT Networks, Inc. for the registration of its
3,450,000 shares of Common Stock.

Our audits also included the financial statement schedule of ACT Networks,
Inc. listed in Item 16(b). 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

Woodland Hills, California
May 20, 1996

<PAGE> 1

EXHIBIT 23.2

CONSENT OF CHARTERED ACCOUNTANTS

We consent to the incorporation by reference into the Form S-3 Registration
Statement and related Prospectus of ACT Networks, Inc. for the registration of
3,450,000 shares of Common Stock, of our report dated November 2, 1995 to the
shareholders of Presticom Inc., on our audit of the financial statements of
Presticom Inc., as of September 30, 1995 and 1994, which was filed with the
Securities and Exchange Commission as an exhibit of the Form 8-K/A filed by ACT
Networks, Inc. for the reportable event dated November 30, 1994.

DEMERS BEAULNE & PARTNERS
General Partnership of Chartered Accountants

Montreal, Quebec, CANADA
May 17, 1996

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 10,327,767
<SECURITIES> 7,076,470
<RECEIVABLES> 8,429,661
<ALLOWANCES> 0
<INVENTORY> 7,268,784
<CURRENT-ASSETS> 34,284,807
<PP&E> 4,253,155
<DEPRECIATION> 1,927,736
<TOTAL-ASSETS> 39,030,509
<CURRENT-LIABILITIES> 3,568,164
<BONDS> 0
0
0
<COMMON> 44,065,976
<OTHER-SE> 8,791,178
<TOTAL-LIABILITY-AND-EQUITY> 39,030,509
<SALES> 19,299,372
<TOTAL-REVENUES> 19,299,372
<CGS> 10,020,685
<TOTAL-COSTS> 26,550,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (911,905)
<INCOME-PRETAX> (6,339,237)
<INCOME-TAX> 132,997
<INCOME-CONTINUING> (6,472,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,472,234)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> 7,233,787

</TABLE>