ACT NETWORKS INC, DEF 14A, 1998-11-02

ACT NETWORKS INC
DEF 14A, 1998-11-02
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the registrant [X]
Filed by a party other than the registrant [ ]

Check the appropriate box:

[ ] Preliminary proxy statement [ ] Confidential, for Use of the
[X] Definitive proxy statement Commission Only as permitted by
[ ] Definitive additional materials Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12

ACT NETWORKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

Board of Directors of Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.

(1) Title of each class of securities to which transaction applies: N/A

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(2) Aggregate number of securities to which transaction applies: N/A

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined: N/A

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(4) Proposed maximum aggregate value of transaction: N/A

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(5) Total fee paid: $125

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount previously paid: N/A

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(2) Form, Schedule or Registration Statement No.: N/A

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(3) Filing Party: N/A

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(4) Date Filed: N/A

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<PAGE> 2

ACTNETWORKS LOGO

TO THE STOCKHOLDERS OF ACT NETWORKS, INC.

You are cordially invited to attend the Annual Meeting of Stockholders of
ACT Networks, Inc. ("ACT" or the "Company") on Monday, November 30, 1998 at 2:00
p.m. local time. The Annual Meeting will be held at the Warner Center Marriott,
21850 Oxnard Street, Woodland Hills, California 91367.

At the meeting, you will be asked to consider and vote upon the following
proposals: (i) the approval of a 150,000 share increase for the Company's
Employee Stock Purchase Plan; (ii) the approval of a 200,000 share increase for
the Company's 1997 Stock Incentive Plan; (iii) the election of two (2)
individuals to serve as directors of the Company until the 2001 Annual Meeting;
and (iv) the ratification of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending June 30, 1999.

You are cordially invited to attend the Annual Meeting in person. Even if
you plan to attend the Annual Meeting, PLEASE PROMPTLY MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD in the accompanying postage-prepaid reply
envelope. By returning the proxy, you can help ACT avoid the expense of
duplicate proxy solicitations and possibly having to reschedule the Annual
Meeting if a quorum of the outstanding shares is not present or represented by
proxy. If you decide to attend the Annual Meeting and wish to change your proxy
vote, you may do so simply by voting in person at the Annual Meeting.

YOUR VOTE IS IMPORTANT.

/s/ ANDRE DE FUSCO
-----------------------------------
ANDRE DE FUSCO
President and Chief Executive Officer

November 6, 1998
<PAGE> 3

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF

ACT NETWORKS, INC.

NOVEMBER 30, 1998

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

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of ACT Networks, Inc., a Delaware corporation ("ACT" or the
"Company"), will be held at the Warner Center Marriott, 21850 Oxnard Street,
Woodland Hills, California 91367, on Monday, November 30, 1998 at 2:00 p.m.
local time for the purpose of considering and voting on the following matters:

1. To approve a 150,000 share increase for the Company's Employee
Stock Purchase Plan;

2. To approve a 200,000 share increase for the Company's 1997 Stock
Incentive Plan;

3. To elect two (2) members to the Company's Board of Directors to
serve as directors until the 2001 Annual Meeting from the following
nominees: Andre de Fusco and Frederick W. Gluck;

4. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 1999; and

5. To transact such other business as may properly come before the
Annual Meeting.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

The Board of Directors has fixed the close of business on October 9, 1998
as the record date for the determination of stockholders entitled to notice of,
and to vote at, this Annual Meeting and at any continuation or adjournment
thereof.

By Order of the Board of Directors

/s/ ANDRE DE FUSCO
----------------------------------
ANDRE DE FUSCO
President and Chief Executive Officer

Camarillo, California
November 6, 1998

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR
THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF
YOU ATTEND THE ANNUAL MEETING.
<PAGE> 4

PROXY STATEMENT

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

ACT NETWORKS, INC.
188 CAMINO RUIZ
CAMARILLO, CALIFORNIA 93012

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

INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL

This Proxy Statement and the enclosed proxy are furnished to stockholders
of ACT Networks, Inc. ("ACT" or the "Company") in connection with the
solicitation of proxies by the Board of Directors for use at the Annual Meeting
of Stockholders (the "Annual Meeting") to be held on Monday November 30, 1998 at
2:00 p.m. local time, and at any and all adjournments or postponements thereof
for the purposes set forth in the Notice of Annual Meeting accompanying this
Proxy Statement.

ACT intends to mail this Proxy Statement and the accompanying proxy card on
or about November 6, 1998 to all stockholders entitled to vote at the Annual
Meeting. ACT's principal executive offices are located at 188 Camino Ruiz,
Camarillo, California 93012. The telephone number at that address is (805)
388-2474.

VOTING

Only stockholders of record at the close of business on October 9, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. As of October 9,
1998, 9,390,960 shares of the Company's Common Stock were outstanding. On each
matter to be considered at the Annual Meeting, each holder of Common Stock will
be entitled to cast one vote for each share of the Company's Common Stock held
of record by such stockholder on October 9, 1998. Pursuant to Delaware law,
directors are elected by plurality vote of the stockholders. All other matters
submitted for stockholder approval at the Annual Meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy at the Annual Meeting and entitled to vote on each matter. With regard to
the election of directors, votes may be cast in favor of or withheld for each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect.

A majority of the Company's Common Stock entitled to vote will constitute a
quorum for the transaction of business at the Annual Meeting. Abstentions may be
specified on all proposals except the election of directors. Abstentions and
broker non-votes are counted as being present for purposes of determining a
quorum. If shares are not voted by the broker who is the record holder of the
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to any matter, these
non-voted shares are not deemed to be present or represented for purposes of
determining whether stockholder approval of that matter has been obtained.

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of ACT, at ACT's principal executive office,
a written notice of revocation or a new duly executed proxy bearing a date later
than the date indicated on the previous proxy, or it may be revoked by the
holder of record attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.

SOLICITATION

ACT will bear the entire cost of proxy solicitation, including the costs of
preparing, assembling, printing and mailing this Proxy Statement, the proxy card
and any additional material furnished to stockholders. Copies of the
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others, to forward to such beneficial owners. ACT
<PAGE> 5

may reimburse persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of ACT. No additional compensation will be paid to directors, officers
or other regular employees for such services.

PROPOSAL NO. 1

APPROVAL OF A 150,000 SHARE INCREASE TO THE EMPLOYEE STOCK PURCHASE PLAN

The stockholders are being asked to vote on a proposal to increase the
number shares eligible for issuance under the Company's Employee Stock Purchase
Plan (the "Purchase Plan") by an additional 150,000 shares. No other changes are
being made to the Purchase Plan. The Purchase Plan was originally funded with
150,000 shares of Common Stock. As of August 31, 1998, only 27,451 shares of
Common Stock remained available for issuance under the Purchase Plan. The
Purchase Plan is intended to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary interest
in the Company through participation in a payroll-deduction based employee stock
purchase plan designed to operate in compliance with Section 423 of the Internal
Revenue Code. The Purchase Plan was adopted by the Board on September 6, 1995,
was approved by the stockholders at the 1995 Annual Meeting and became effective
on February 1, 1996 (the "Effective Date"). If approved by the stockholders at
the Annual Meeting, the 150,000 share increase to the Purchase Plan will become
effective immediately.

The following is a summary of the principal features of the Purchase Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan documents may do so upon written request to the
attention of the General Counsel of the Company at the Company's corporate
offices in Camarillo, California.

ADMINISTRATION

The Purchase Plan is administered by the Compensation Committee of the
Board (the "Committee"). The Committee, as Plan Administrator, has full
authority to adopt such rules and procedures as it may deem necessary for proper
plan administration and to interpret the provisions of the Purchase Plan. All
costs and expenses incurred in plan administration are paid by the Company
without charge to participants.

SHARE RESERVE

A total of 150,000 shares of Common Stock were originally reserved for
issuance over the ten (10)-year term of the Purchase Plan. As of August 31,
1998, 27,451 shares of Common Stock remained available for issuance under the
Purchase Plan. The share increase which is the subject of this Proposal will
increase the remaining share reserve to 177,451 shares. In the event any change
is made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of consideration, appropriate adjustments will be made to (i) the class
and maximum number of securities issuable under the Purchase Plan, including the
class and number of securities purchasable per participant during any one (1)
purchase period, and (ii) the class and maximum number of securities subject to
each outstanding purchase right and the purchase price payable per share
thereunder.

PURCHASE PERIODS

The Purchase Plan is implemented in a series of successive six (6)-month
purchase periods. Purchase periods begin on the first business day in February
and August each year and end on the last business day in July and the following
January each year.

2
<PAGE> 6

ELIGIBILITY

Any individual who is expected to work for more than twenty (20) hours per
week for more than five (5) months per calendar year in the employ of the
Company or any participating affiliate ("Eligible Employee") is eligible to
participate in the Plan. Each individual who is an Eligible Employee on the
start date of any purchase period may participate in such purchase period.

Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with the
approval of the Plan Administrator, to extend the benefits of the Purchase Plan
to their eligible employees.

As of August 31, 1998, approximately 238 employees, including 5 executive
officers, were eligible to participate in the Purchase Plan.

PURCHASE PROVISIONS

Each participant is granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the start date of that purchase period and will be automatically exercised on
the last business day of that purchase period.

Each participant may authorize payroll deductions in any multiple of one
percent (1%) of his or her base salary, up to a maximum of ten percent (10%).

On the last business day of each purchase period, the accumulated payroll
deductions of each participant is automatically applied to the purchase of whole
shares of Common Stock at the purchase price in effect for the participant for
that purchase period. No participant may, during any one purchase period,
purchase more than 1,250 shares of Common Stock.

PURCHASE PRICE

The purchase price per share at which Common Stock will be purchased on the
participant's behalf on each purchase date will not be less than eighty-five
percent (85%) of the lower of (i) the fair market value per share of Common
Stock on the start date of that purchase period or (ii) the fair market value
per share of Common Stock on the purchase date. The Compensation Committee will
establish the percentage for each purchase period prior to the start date.

VALUATION

The fair market value per share of Common Stock on any relevant date will
be the closing selling price per share on such date on the Nasdaq National
Market. On August 31, 1998, the fair market value per share of Common Stock was
$5.00 per share.

SPECIAL LIMITATIONS

The Purchase Plan imposes certain limitations upon a participant's rights
to acquire Common Stock, including the following limitations:

(i) No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company of any of its affiliates.

(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth of
such Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.

TERMINATION OF PURCHASE RIGHTS

Purchase rights immediately terminate upon the participant's loss of
eligible employee status; any payroll deductions collected for the purchase
period in which such termination occurs are refunded. Purchase rights
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<PAGE> 7

also terminate upon a participant's affirmative withdrawal from the purchase
period; any payroll deductions collected for the purchase period in which the
withdrawal occurs are, at the election of the participant, immediately refunded
or applied to purchase shares on the next purchase date.

STOCKHOLDER RIGHTS

No participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.

ASSIGNABILITY

No purchase rights are assignable or transferable other than in connection
with the participant's death and are exercisable only by the participant during
his or her lifetime.

ACQUISITION

Should the Company be acquired by merger or asset sale during any purchase
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will be eighty-five percent (85%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that purchase period or (ii) the fair
market value per share of Common Stock immediately prior to such acquisition.

AMENDMENT AND TERMINATION

The Purchase Plan will terminate upon the earliest to occur of (i) the last
business day in January, 2006, (ii) the date on which all available shares are
issued or (iii) the date on which all outstanding purchase rights are exercised
in connection with an acquisition of the Company.

The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan or the number of shares
purchasable per participant during any one purchase period, except in connection
with certain changes in the Company's capital structure, (ii) alter the purchase
price formula so as to reduce the purchase price, (iii) materially increase the
benefits accruing to participants or (iv) materially modify the requirements for
eligibility to participate in the Purchase Plan.

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<PAGE> 8

STOCK ISSUANCES

The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table which appears later in this Proxy Statement
and the various indicated groups, the number of shares of Common Stock purchased
under the Purchase Plan between the February 1, 1996 effective date and the July
31, 1998 most recent purchase date, together with the weighted purchase price
paid per share:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME PURCHASED SHARES PURCHASE PRICE
---- ---------------- ----------------
<S> <C> <C>
EXECUTIVE OFFICERS
Andre de Fusco....................................... 3,135 $8.82
President and Chief Executive Officer
Melvin L. Flowers.................................... 3,477 9.38
Chief Financial Officer and Vice President,
Finance and Administration
Alain Gravel......................................... 383 16.16
Vice President, Engineering
Christopher F. Perna................................. 0 n/a
Vice President, Sales
Mike T. Zeile........................................ 0 n/a
Vice President, Marketing
H. Peter Staab....................................... 3,446 9.26
Chief Technology Officer
All current executive officers as a group (6
persons)........................................... 10,441 9.42
Martin Shum(1)....................................... 2,632 11.86
John W. Tucker(1).................................... 935 10.98
Linda Carlson(1)..................................... 735 11.04
All employees, including current officers who are not
executive officers as a group (approximately 197
persons)........................................... 107,806 8.98
</TABLE>

- ---------------
(1) No longer employed by the Company.

NEW PLAN BENEFITS

As of August 31, 1998, no purchase rights have been granted, and no shares
of Common Stock have been issued, under the Purchase Plan on the basis of the
150,000-share increase for which stockholder approval is sought under this
Proposal.

FEDERAL TAX CONSEQUENCES

The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.

If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, then the participant will recognize ordinary income in the
year of sale or disposition equal to the amount by which the fair market value
of the shares on the purchase date exceeded the purchase price paid for those
shares, and the Company will be entitled to an income tax deduction, for the
taxable year in which such sale or disposition occurs, equal in amount to such
excess. Any additional gain recognized by the participant upon the disposition
will be capital gain.

5
<PAGE> 9

If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the purchase period in which such shares were
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) fifteen percent (15%) of the fair market
value of the shares on the start date of the purchase period, and any additional
gain upon the disposition will be taxed as a long-term capital gain. The Company
will not be entitled to any income tax deduction with respect to such sale or
disposition.

If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the purchase period in
which those shares were acquired will constitute ordinary income in the year of
death.

ACCOUNTING TREATMENT

Under current accounting rules, the issuance of shares of Common Stock
under the Purchase Plan will not result in a compensation expense chargeable
against the Company's reported earnings. However, footnote disclosure is
required as to the impact that outstanding purchase rights under the Purchase
Plan will have upon the Company's reported earnings with those rights
appropriately valued as compensation expense.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding shares of the Company
present or represented and entitled to vote at the Annual Meeting is required
for approval of the 150,000 share increase to the Purchase Plan. Should such
stockholder approval not be obtained, then the 150,000 share increase will not
be implemented. In such event, it is likely that the Purchase Plan will be
terminated in fiscal 1999 because the shares of Common Stock available for
issuance under the Purchase Plan will be depleted during such period.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board believes that it is in the best interests of the Company to
maintain the availability of a program of stock ownership for the Company's
employees which provides them with an opportunity to acquire a substantial
proprietary interest in the Company and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the stockholders.

For this reason, the Board of Directors recommends that the stockholders
vote FOR the proposal to approve the 150,000 share increase to the Purchase
Plan.

6
<PAGE> 10

PROPOSAL NO. 2

APPROVAL OF A 200,000 SHARE INCREASE TO THE 1997 STOCK INCENTIVE PLAN

The Company's stockholders are also being asked to approve a 200,000 share
increase to the Company's 1997 Stock Incentive Plan (the "1997 Plan"). The
continued availability of options under the 1997 Plan is necessary for the
Company to attract and retain the services of key individuals essential to the
Company's long-term growth and success. No other changes to the 1997 Plan are
being made.

The share reserve under the 1997 Plan supplements the 2,280,844 shares
authorized for issuance under the Company's 1995 Stock Option/Stock Issuance
Plan (the "1995 Plan"), and the 700,000(1) shares authorized for issuance under
the Company's 1997 Non-Executive Officer Stock Option/Stock Issuance Plan (the
"Non-Executive Officer Plan").

The 1997 Plan was adopted by the Board of Directors on September 23, 1997
and was approved by the stockholders at the 1997 Annual Meeting. If approved by
the stockholders at the Annual Meeting, the 200,000 share increase to the 1997
Plan will become effectively immediately.

The following is a summary of the principal features of the 1997 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1997 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the General
Counsel at the Company's principal executive offices in Camarillo, California.

EQUITY INCENTIVE PROGRAMS

The 1997 Plan is comprised of three separate equity incentive programs: (i)
a Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, (ii) a Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued stock directly through the purchase of such shares or as a
bonus tied to the performance of services or the attainment of financial
milestones and (iii) an Automatic Option Grant Program under which eligible
non-employee Board members will automatically receive option grants to purchase
shares of Common Stock at designated intervals over their period of Board
service.

ADMINISTRATION

The Committee administers the Discretionary Option Grant and Stock Issuance
Programs. However, one or more additional Board committees may be appointed to
administer those programs with respect to certain designated classes of
individuals in the Company's service. The Board of Directors of the Company has
appointed Andre de Fusco as the Secondary Compensation Committee with the
authority to grant options under the 1997 Plan to non-executive officer
employees and consultants, subject to certain limitations. The term "Plan
Administrator" as used in this summary will mean the Committee, the Secondary
Compensation Committee and any other appointed committee acting within the scope
of its administrative authority under the 1997 Plan. Administration of the
Automatic Option Grant Program is self-executing in accordance with the express
provisions of that program, and no Plan Administrator exercises any discretion
with respect to such program.

SHARE RESERVE

A total of 460,000 shares of Common Stock were originally reserved for
issuance over the term of the 1997 Plan. Such share reserve was in addition to
the shares of Common Stock reserved for issuance under the 1995 Plan and the
Non-Executive Officer Plan, and share issuances under the 1995 Plan or the Non-
Executive Officer Plan have no effect upon the number of shares of Common Stock
which remain available

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

1Amount of shares reflects a 200,000 share increase to the Non-Executive
Officer Plan which was approved and adopted by the Board of Directors in July
1998.
7
<PAGE> 11

for issuance under the 1997 Plan. In no event, however, may any one participant
in the 1997 Plan be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances for more than 200,000 shares in
the aggregate per calendar year. As of August 31, 1998, a total of 301,508
shares remained available for issuance under the 1997 Plan, assuming stockholder
approval of the 200,000-share increase which is the subject of this Proposal,
80,588 shares remained available for issuance under the 1995 Plan and 205,026
shares remained available for issuance under the Non-Executive Officer Plan.

Should an outstanding option under the 1997 Plan expire or terminate prior
to exercise in full, the shares subject to the portion of the option not so
exercised will be available for subsequent issuance under the 1997 Plan.
Unvested shares issued under the 1997 Plan and subsequently repurchased by the
Company at the original option or issue price paid per share will be added back
to the share reserve and will accordingly be available for subsequent issuance
under the Plan. However, shares subject to any options surrendered in connection
with outstanding stock appreciation rights under the 1997 Plan will not be
available for subsequent issuance.

ELIGIBILITY

Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board or the board of directors of any parent or subsidiary corporation and
consultants and independent advisors in the service of the Company or any parent
and subsidiary corporation are eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs. Non-employee members of the Board are
also eligible to participate in the Automatic Option Grant Program.

As of August 31, 1998, approximately 5 executive officers and 283 other
employees were eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs, together with 4 non-employee Board members who were
also eligible to participate in the Automatic Option Grant Program.

VALUATION

The fair market value per share of Common Stock on any relevant date under
the 1997 Plan is deemed equal to the closing selling price per share on that
date, as reported on the Nasdaq National Market. On August 31, 1998, the closing
selling price per share was $5.00.

DISCRETIONARY OPTION GRANT PROGRAM

Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty-five percent (85%) of the fair
market value per share of Common Stock on the grant date. No granted option will
have a term in excess of ten years.

Upon cessation of service, the optionee will have a limited period of time
in which to exercise any of his or her outstanding options to the extent those
options are exercisable for vested shares. The Plan Administrator will have
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.

The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:

Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.

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<PAGE> 12

Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile take-over of the Company. In return for
the surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the take-over price paid per share over (b) the exercise
price payable for such share.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant. Pursuant to that authority, the Plan
Administrator implemented an option cancellation/regrant program on August 3,
1998 for certain non-employee Board members, executive officers and other
employees holding stock options with an exercise price per share in excess of
the $6.75 per share market price of the Company's Common Stock on that date.
Accordingly, a number of outstanding options with an exercise price in excess of
$6.75 per share were canceled on August 3, 1998, and new options for the same
aggregate number of shares were granted with an exercise price of $6.75 per
share. Each of the new lower-priced options was structured so no vesting would
occur under that option unless the optionee remains in the Company's employ or
service through February 2, 1999. Upon satisfaction of such six (6)-month
employment requirement, the new option will immediately vest as to the same
number of option shares for which the cancelled higher-priced option would have
been vested at that time had it remained outstanding, and the new option will
vest as to the remaining shares at the same time those shares would have vested
under the cancelled higher-priced option. Under the program, the following
directors and executive officers had their outstanding options cancelled in
exchange for new options for the same number of shares but with an exercise
price of $6.75 per share: Mr. de Fusco: 374,000 shares with a weighted average
exercise price of $9.03 per share; Mr. Perna: 90,000 shares with a weighted
average exercise price of $8.75 per share: Mr. Zeile: 90,000 shares with a
weighted average exercise price of $8.75 per share; Mr. Gravel: 42,000 shares
with a weighted average exercise price of $9.42 per share; and Mr. Gluck: 21,000
shares with a weighted average exercise price of $19.69 per share.

AUTOMATIC OPTION GRANT PROGRAM

The Automatic Option Grant Program under the 1997 Plan replaced the
automatic option grant program for non-employee Board members which was
previously in effect under the 1995 Plan. Stockholder approval of this Proposal
will also constitute approval of each option granted under the Automatic Option
Grant Program on or after the date of the Annual Meeting and the subsequent
exercise of that option in accordance with the terms of such Program.

Under the Automatic Option Grant Program in effect under the 1997 Plan,
each individual who first becomes a non-employee Board member, whether through
appointment by the Board or election by the stockholders, will automatically be
granted at the time of such initial appointment or election an option grant for
21,000 shares of Common Stock, provided such individual has not previously been
in the Company's employ. In addition, on the date of each Annual Stockholders
Meeting, each individual who is to continue to serve as a non-employee Board
member is automatically granted an option to purchase 7,000 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six (6) months. There is no limit on the number of such 7,000 share
options which any one non-employee Board member may receive over the period of
Board service, and non-employee Board members who have previously been in the
Company's employ are eligible for one or more 7,000 share option grants. In no
event, however, will any non-employee Board member receive any option grants
under the Automatic Option Grant Program if such individual owns (directly or
indirectly) securities possessing more than five percent (5%) of the total
combined voting power of all classes of stock of the Company (or any parent or
subsidiary) or such person is otherwise affiliated with, or a representative of,
a person or entity that is such a five percent (5%) stockholder.

9
<PAGE> 13

Each option granted pursuant to the Automatic Option Grant Program will
have an exercise price per share equal to 100% of the fair market value per
share of Common Stock on the option grant date and a maximum term of ten years
measured from such date, subject to earlier termination upon the optionee's
cessation of Board service. Each option granted pursuant to the Automatic Option
Grant Program is immediately exercisable for all the option shares, but any
purchased shares are subject to repurchase by the Company at the exercise price
paid per share upon the optionee's cessation of Board service prior to vesting
in those shares. The shares subject to each initial option grant vest (and the
Company's repurchase rights will lapse) in thirty-six (36) successive equal
monthly installments over the optionee's period of Board service, with the first
such installment to vest upon the completion of one month of Board service
measured from the grant date. Each annual option grant vests (and the Company's
repurchase rights lapses) on the day immediately preceding the date of the
Annual Stockholders Meeting held in the year immediately following the year of
the option grant, provided the optionee continues in Board service through such
date.

The shares subject to each automatic option grant immediately vest should
the optionee die or become permanently disabled while a Board member or should
any of the following events occur while the optionee continues in Board service:
an acquisition of the Company by merger or asset sale or a change in control of
the Company effected through a successful tender or exchange offer for more than
50% of the outstanding voting stock or through a change in a majority of the
Board members by reason of one or more contested elections for Board membership.
In addition, upon the successful completion of a hostile tender offer for more
than 50% of the Company's outstanding voting stock, each automatic option grant
may be surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the take-over price paid per share
over (b) the exercise price payable for such share. No approval of the Board or
the Plan Administrator will be required at the time of the actual option
surrender and cash distribution.

STOCK ISSUANCE PROGRAM

Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty-five percent (85%) of fair market value, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.

The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator, however, has the discretionary
authority at any time to accelerate the vesting of any outstanding shares under
the Stock Issuance Program.

GENERAL PROVISIONS

ACCELERATION

In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate and vest
in full, and all unvested shares under the Stock Issuance Program will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. Any
options assumed in connection with such acquisition will immediately accelerate,
and any unvested shares which do not vest at the time of such acquisition will
vest in full, in the event the individual's service is subsequently terminated
within 18 months following the acquisition. The Plan Administrator has the
discretionary authority to provide for automatic acceleration of outstanding
options under the Discretionary Grant Program and the automatic vesting of
outstanding shares under the Stock Issuance Program upon the subsequent
termination of an individual's service within 18 months following a change in
control or ownership of the Company effected through a successful tender or
exchange offer for more than 50% of the outstanding voting stock or through a
change in the majority of the Board by reason of one or more contested elections
for Board membership.

10
<PAGE> 14

The acceleration of vesting in the event of a change in ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other effort
to gain control of the Company.

FINANCIAL ASSISTANCE

The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of issued shares
under the 1997 Plan by delivering a full-recourse, interest-bearing promissory
note payable in installments. The maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares. Any such promissory note may be subject to forgiveness in whole or in
part, at the discretion of the Plan Administrator, over the participant's period
of service.

SPECIAL TAX ELECTION

The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred in connection with the exercise of those options or the
vesting of those shares. Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of Common Stock in payment of
such tax liability.

CHANGES IN CAPITALIZATION

In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1997 Plan, (ii) the number and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances under the 1997 Plan per calendar year, (iii) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members and (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder.

AMENDMENT AND TERMINATION

The Board may amend or modify the 1997 Plan at any time, subject to any
required stockholder approval. The 1997 Plan will terminate on the earliest of
(i) September 22, 2007, (ii) the date on which all shares available for issuance
under the 1997 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.

11
<PAGE> 15

STOCK AWARDS

The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted between
January 1, 1991 and August 31, 1998 under the 1995 Plan, the Non-Executive
Officer Plan and the 1997 Plan, together with the weighted average exercise
price payable per share.

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME OPTION SHARES EXERCISE PRICE
---- ------------- ----------------
<S> <C> <C>
EXECUTIVE OFFICERS
Andre de Fusco........................................... 410,000 $6.59
President and Chief Executive Officer
Alain Gravel............................................. 42,000 6.75
Vice President, Engineering
Christopher F. Perna..................................... 90,000 6.75
Vice President, Sales
Mike T. Zeile............................................ 90,000 6.75
Vice President, Marketing
H. Peter Staab........................................... 94,000 6.75
Chief Technology Officer
All current executive officers as a group (5 persons).... 726,000 6.66
Martin Shum(1)........................................... 540,072 7.99
Melvin L. Flowers(1)..................................... 127,857 8.56
John W. Tucker(1)........................................ 139,000 8.56
Linda Carlson(1)......................................... 79,143 8.54
DIRECTORS
Frederick W. Gluck....................................... 52,000 12.37
Director
Archibald J. McGill...................................... 66,857 6.57
Director
Brig. Gen. Harold R. Johnson............................. 71,144 9.04
Director
William Ambrose.......................................... 24,000 15.19
Director
All non-employee directors as a group (4 persons)........ 214,001 9.77
All employees, including current officers who are not
executive officers as a group (197 persons)............ 2,575,142 7.04
</TABLE>

- ---------------
(1) No longer employed by the Company.

NEW PLAN BENEFITS

As of August 31, 1998, no options have been granted, and no direct stock
issuances have been made, on the basis of the 200,000-share increase for which
stockholder approval is sought under this Proposal. At the 1998 Annual Meeting,
each of the following non-employee Board members will, in connection with his
continuation on the Board, receive an option grant for 7,000 shares of Common
Stock: Messrs. Gluck, Ambrose and McGill and Brig. Gen. (ret.) Harold R.
Johnson.

12
<PAGE> 16

FEDERAL INCOME TAX CONSEQUENCES

OPTION GRANTS

Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:

Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.

Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) of the fair market value of those shares on the
exercise date over (ii) the exercise price paid for those shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be treated as a capital gain or loss by the optionee.

If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.

Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will, in general, recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee will be required to satisfy
the tax withholding requirements applicable to such income.

If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
shares vest over (ii) the exercise price paid for those shares. The optionee
may, however, elect under Section 83(b) of the Internal Revenue Code to include
as ordinary income in the year of exercise of the option an amount equal to the
excess of (i) the fair market value of the purchased shares on the exercise date
over (ii) the exercise price paid for such shares. If the Section 83(b) election
is made, the optionee will not recognize any additional income as and when the
repurchase right lapses.

The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.

STOCK APPRECIATION RIGHTS

An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.

13
<PAGE> 17

DIRECT STOCK ISSUANCE

The tax principles applicable to direct stock issuances under the 1997 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Code Section 162(m).

ACCOUNTING TREATMENT

Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date generally result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the shares are to vest. Option grants or stock issuances with an
exercise price or issue price equal to 100% of the fair market value of the
shares on the grant or issue date generally do not result in any charge to the
Company's earnings, but the Company must disclose, in pro-forma statements to
the Company's financial statements, the impact those options would have upon the
Company's reported earnings were the value of those options (measured as of the
time of grant) treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options is a factor used in determining the
Company's earnings per share.

Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the 200,000 share increase to the 1997 Plan. Should
such stockholder approval not be obtained, then the 200,000 share increase will
not become effective.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote FOR the
approval of the 200,000 share increase to the 1997 Plan. The Board believes that
it is in the best interests of the Company to maintain an additional equity
incentive program for the Company which will provide a meaningful opportunity
for officers, employees and non-employee Board members to acquire a substantial
proprietary interest in the enterprise and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the stockholders.

PROPOSAL NO. 3

ELECTION OF DIRECTORS -- NOMINEES

The Certificate of Incorporation of the Company provides for the division
of the Board of Directors into three classes, each class serving for a period of
three years. The foregoing notwithstanding, directors serve until their
successors have been duly elected and qualified or until they resign, become
disqualified or disabled, or
14
<PAGE> 18

are otherwise removed. The class of directors whose term expires as of the
Annual Meeting includes incumbent directors Andre de Fusco and Frederick W.
Gluck.

Proxyholders will vote all proxies received by them FOR the nominees listed
below unless otherwise instructed in writing on such proxy. The two (2)
candidates receiving the highest number of affirmative votes of shares entitled
to vote at the Annual Meeting will be elected directors of ACT. Stockholders of
ACT are not entitled to cumulative voting rights. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for an additional nominee who shall be designated by the
current Board of Directors to fill the vacancy. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as director.

DIRECTORS AND NOMINEES

INFORMATION WITH RESPECT TO NOMINEES

The following table sets forth certain information concerning the nominees
for director of ACT as of August 31, 1998.

NOMINEES FOR ELECTION

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Andre de Fusco....................... 40 Director, Chief Executive Officer and
President
Frederick W. Gluck................... 63 Director
</TABLE>

Andre de Fusco was appointed as a member of the Board of Directors,
President and Chief Executive Officer in July 1998. Previously Mr. de Fusco held
several positions with the Company, including the position of Vice President and
General Manager of the Company's Broadband Network Services subsidiary from
August 1997 to June 1998, Vice President, Strategic Planning and Business
Development from December 1995 to June 1998 and Vice President of Marketing from
December 1994 to 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.

Frederick W. Gluck has served as a member of the Board of Directors since
March 1997. Mr. Gluck is currently of counsel to McKinsey and Company. Mr. Gluck
was Vice-Chairman and a director of the Bechtel Group from 1995 through July
1998. Previously, Mr. Gluck was at McKinsey and Company for 27 years and led the
firm from 1988 until his retirement in 1994. Mr. Gluck is presently a member of
the Board of Directors of Amgen, Columbia HCA, Thinking Tools, Inc. and several
other private companies.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends a vote FOR each of the two nominees named
above.

CONTINUING DIRECTORS

DIRECTORS CONTINUING TO SERVE UNTIL 1999

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brig. Gen. Harold R. Johnson(1)........... 75 Director
</TABLE>

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

15
<PAGE> 19

various capacities since 1988. From 1980 to 1988, Brig. Gen. Johnson was
founder, President and Chief Executive Officer of Telebit Corporation, a
manufacturer of telecommunications equipment.

DIRECTORS CONTINUING TO SERVE UNTIL 2000

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Ambrose(1)........................ 40 Director
Archibald J. McGill(1).................... 67 Director
</TABLE>

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

William Ambrose has served as a member of the Board of Directors since
1993. Mr. Ambrose is currently an independent consultant for several private
companies. Prior to 1998, Mr. Ambrose was the President of Pyramid Research,
Inc. a telecommunications market research organization which he founded in 1986.
Mr. Ambrose was initially elected as a director of the Company pursuant to a
voting agreement entered into in connection with investment in the Company by a
subsidiary of a former stockholder.

Archibald 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. Mr. McGill is presently a member of the Board
of Directors of Disc, Inc., Ciber, Inc., Apertus Technologies, Inc. and Employee
Benefit Plans, Inc.

BOARD MEETINGS

The Board of Directors met 9 times during the fiscal year ending June 30,
1998. Each director attended at least 85% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board on which such director served.

The Board of Directors has an Audit Committee which supervises and makes
recommendations and decisions with respect to the periodic audits of the
Company's financial results. Messrs. William Ambrose, Archibald J. McGill and
Brig. Gen. (ret.) Harold R. Johnson are the members of the Audit Committee. The
Audit Committee held one meeting during the fiscal year ended June 30, 1998.

The Board of Directors has a Compensation Committee, which administers the
Company's stock option plans. The members of the Compensation Committee are
Messrs. William Ambrose, Archibald J. McGill and Brig. Gen. (ret.) Harold R.
Johnson. The Compensation Committee held no meetings during the fiscal year
ending June 30, 1998.

The Company's stock option plans also provide that the Board may delegate
the administration of such stock option plans, with respect to the Company's
non-executive officers and employees, to a Secondary Compensation Committee.
Andre de Fusco is currently the only member of the Secondary Compensation
Committee. For the fiscal year ended June 30, 1998, Martin Shum was the sole
member of the Secondary Compensation Committee. The Secondary Compensation
Committee held 56 meetings during the fiscal year ended June 30, 1998.

DIRECTOR COMPENSATION

Each non-employee director (other than a director who serves as
representative of a stockholder owning more than 5% of the Company's voting
securities) receives $6,000 annually for services as a member of the Board of
Directors. Non-employee directors are reimbursed for their out-of-pocket
expenses in serving on the Board of Directors. There are no family relationships
among any of the executive officers or directors of the Company.

16
<PAGE> 20

During the 1998 fiscal year, certain non-employee directors were eligible
to receive option grants under the Automatic Option Grant Program in effect
under the Company's 1997 Plan. Accordingly, at the 1997 Annual Shareholders
Meeting held on November 13, 1997, each of the following non-employee directors
received an option grant under the Automatic Option Grant Program for 7,000
shares of Common Stock with an exercise price of $9.28 per share: Messrs.
Ambrose, McGill and Gluck and Brig. Gen. (ret.) Johnson. In addition, on
December 3, 1997, each of the above named directors also received an option
grant under the Discretionary Option Grant Program under the Company's 1997 Plan
for 3,000 shares with an exercise price of $7.69 per share. The exercise price
in effect for each option is equal to the fair market value per share of Common
Stock on the grant date. Each option has a maximum term of ten (10) years
measured from the grant date, subject to earlier termination following the
optionee's cessation of Board service. Each option is immediately exercisable
for all of the option shares; however, any shares purchased under the option
will be subject to repurchase by the Company, at the option exercise price paid
per share, upon the optionee's cessation of Board service prior to vesting in
those shares. The shares subject to each 7,000 and 3,000 share grant will vest
on the day immediately preceding the date of the 1998 Annual Meeting, provided
the optionee continues in Board service through that date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of the Company's Board of
Directors are Messrs. William Ambrose, Archibald J. McGill and Brig. Gen. (ret.)
Harold R. Johnson. No member of the Committee was at any time during the 1998
fiscal year or at any other time an officer or employee of the Company.

No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's Bylaws provide that the Company will
indemnify its directors and officers to the fullest extent permitted by law and
require the Company to advance litigation expenses upon receipt by the Company
of an undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws do not exclude any other right such persons may have or acquire under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

The Company's 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 or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or 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 director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.

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, 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 other company or enterprise to
which the person provides services at the request of the Company.

17
<PAGE> 21

PROPOSAL NO. 4

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The accounting firm of Ernst & Young LLP served as independent auditors for
ACT for the fiscal year ended June 30, 1998. The Board of Directors, on the
recommendation of ACT's management, has selected that firm to continue in this
capacity for the current fiscal year. ACT is asking the stockholders to ratify
the selection by the Board of Directors of Ernst & Young LLP as independent
auditors to audit the consolidated financial statements of ACT for the fiscal
year ending June 30, 1999 and to perform other appropriate services. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting to respond to stockholders' questions, and that representative will be
given an opportunity to make a brief presentation to the stockholders if he or
she so desires and will be available to respond to appropriate questions. ACT
has been advised by Ernst & Young LLP that neither that firm nor any of its
associates has any material relationship with ACT nor any affiliate of ACT.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding shares of the Company
present or represented and entitled to vote at the Annual Meeting is required
for ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ended June 30, 1999. Should such
stockholder approval not be obtained, then the Board of Directors will
reconsider such selection. Under all circumstances, the Board retains the
corporate authority to change the auditors at a later date.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote FOR the
proposal to ratify the selection of Ernst & Young LLP as independent auditors
for the year ending June 30, 1999.

18
<PAGE> 22

GENERAL

STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1998 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 Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
DIRECTORS, FIVE PERCENT STOCKHOLDERS, NAMED EXECUTIVE --------------------
OFFICERS AND DIRECTORS AND OFFICERS AS A GROUP NUMBER PERCENT
----------------------------------------------------- -------- --------
<S> <C> <C>
Heartland Advisors(2)....................................... 810,000 8.6%
Kingdom Capital Management Corporation(2)................... 582,200 6.2
Andre de Fusco(3)........................................... 405,135 4.1
H. Peter Staab(4)........................................... 97,446 1.0
Christopher F. Perna(5)..................................... 90,000 *
Mike T. Zeile(6)............................................ 90,000 *
Alain Gravel(7)............................................. 57,621 *
Melvin L. Flowers(8)........................................ 31,929 *
Brig. Gen. H. R. Johnson(9)................................. 29,714 *
William W. Ambrose(10)...................................... 49,155 *
Archibald J. McGill(11)..................................... 56,857 *
Frederick W. Gluck(12)...................................... 52,000 *
All directors and executive officers as a group (10
persons)(13).............................................. 959,857 9.4
Martin Shum(14)(15)......................................... 536,212 5.5
John Tucker(14)(16)......................................... 63,904 *
Linda Carlson(14)(17)....................................... 25,941 *
</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) Based upon information contained in unofficial databases as of June 30,
1998.

(3) Includes 401,000 shares issuable upon exercise of immediately exercisable
options, of which 73,440 shares will be vested within 60 days from August
31, 1998.

(4) Includes 94,000 shares issuable upon exercise of immediately exercisable
options, of which 53,800 shares will be vested within 60 days from August
31, 1998.

(5) Includes 90,000 shares issuable upon exercise of immediately exercisable
options, of which no shares will be vested within 60 days from August 31,
1998.

(6) Includes 90,000 shares issuable upon exercise of immediately exercisable
options, of which no shares will be vested within 60 days from August 31,
1998.

(7) Includes 42,000 shares issuable upon exercise of immediately exercisable
options, of which 17,400 shares will be vested within 60 days from August
31, 1998.

(8) Includes 10,000 shares issuable upon exercise of immediately exercisable
options, all of which are vested.

(9) Includes 24,000 shares issuable upon exercise of immediately exercisable
options, of which 14,000 shares will be vested within 60 days from August
31, 1998.

(10) Includes 25,155 shares beneficially owned by Stone Silo Investments. Mr.
Ambrose, as sole owner of Stone Silo Investments, may be deemed to have
beneficial ownership of these shares. Also includes

19
<PAGE> 23

24,000 shares issuable upon exercise of immediately exercisable options, of
which 14,000 shares will be vested within 60 days from August 31, 1998.

(11) Includes 56,857 shares issuable upon exercise of immediately exercisable
options, of which 46,857 shares will be vested within 60 days from August
31, 1998.

(12) Includes 52,000 shares issuable upon exercise of immediately exercisable
options of which 15,960 shares will be vested within 60 days from August
31, 1998.

(13) Includes 25,155 shares owned by Stone Silo Investments. Also includes an
aggregate of 862,411 shares issuable to the Company's directors and
executive officers upon the exercise of immediately exercisable options
held by such directors and executive officers of which 245,457 shares will
be vested within 60 days from August 31, 1998.

(14) No longer employed by the Company.

(15) Includes 38,571 shares held by members of Mr. Shum's family and 147,249
shares held by Helen Shum and Martin Shum as Trustees of the Shum Trust
dated April 15, 1994. Also, includes 346,249 shares issuable upon exercise
of immediately exercisable options all of which are vested.

(16) Includes 57,309 shares issuable upon exercise of immediately exercisable
options of which 57,309 shares are currently vested and exercisable until
October 8, 1998.

(17) Includes 25,206 shares issuable upon exercise of immediately exercisable
options of which 25,206 shares are currently vested and exercisable until
October 8, 1998.

DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The following table sets forth certain information concerning the executive
officers and directors of the Company as of August 31, 1998.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Andre de Fusco.......................... 40 Director, President and Chief Executive
Officer
Melvin L. Flowers....................... 45 Chief Financial Officer and Vice President,
Finance and Administration
Alain Gravel............................ 39 Vice President, Engineering
Christopher F. Perna.................... 34 Vice President, Sales
Mike T. Zeile........................... 34 Vice President, Marketing
H. Peter Staab.......................... 51 Chief Technology Officer
Brig. Gen. Harold R. Johnson(1)(2)...... 75 Director
William Ambrose(1)(2)................... 40 Director
Archibald J. McGill(1)(2)............... 67 Director
Frederick W. Gluck...................... 63 Director
</TABLE>

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

(2) Member of the Audit Committee.

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,

20
<PAGE> 24

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. Mr. Flowers resigned from the Company, effective October 31, 1998.

Alain Gravel was appointed Vice President, Engineering in July 1998. From
November 1995 to July 1998, Mr. Gravel served as Vice President of Research &
Development, Data Products, Enterprise Network Systems. Mr. Gravel served as
Vice President of Research & Development of Presticom until the Company acquired
Presticom in November 1995. Mr. Gravel was a co-founder of Presticom and was
responsible for the development of the NetPerformer product line. He also served
on the Board of Directors of Presticom. Mr. Gravel was employed as the Software
Development Manager for Memotec from 1988 to 1989 and for Datagram, a developer
of statistical multiplexers, from 1984 to 1988.

Christopher F. Perna was appointed Vice President, Sales in July 1998.
Previously, Mr. Perna was Vice President of Sales at ComCore Semiconductor based
in Calabasas, California from 1997 to 1998 where he was responsible for
worldwide sales and application support. Prior to ComCore, Mr. Perna was a
manufacturer sales representative at Jones & McGeoy Sales from 1994 to 1997 and
a district sales manager at Integrated Devices Technology from 1991 to 1994.

Mike T. Zeile was appointed Vice President, Marketing in July 1998. Mr.
Zeile held the position of Vice President of Marketing at ComCore Semiconductor
from July 1997 to July 1998 where he managed all aspects of the Company's
marketing business as well as product management. Prior to joining ComCore, Mr.
Zeile worked at Sourcecom Corporation, where he led the definition of the
product platform that became the basis for the Company's new ServiceXchange
product family. Mr. Zeile has also held various senior management and marketing
positions at ADC Telecommunications from 1987 to 1997.

H. Peter Staab was appointed Chief Technology Officer in July 1998. Mr.
Staab previously served as Vice President, Corporate Research and Development
from July 1997 to July 1998 and served as Vice President of Engineering from
June 1995 to July 1998. 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.

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
telecommunications equipment.

William W. Ambrose has served as a member of the Board of Directors since
1993. Mr. Ambrose is currently an independent consultant for several private
companies. Prior to 1998, Mr. Ambrose was the President of Pyramid Research,
Inc. a telecommunications market research organization which he founded in 1986.
Mr. Ambrose was initially elected as a director of the Company pursuant to a
voting agreement entered into in connection with investment in the Company by a
subsidiary of a former stockholder.

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. Fusco and Mr. Gluck) 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 2000 and each initial
director in Class III (Brig. Gen. Johnson) serves for a term ending on the date
of the annual meeting of stockholders held in 1999.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such person.

Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that there has been compliance with all filing requirements applicable to the
Company's executive officers, directors and more than 10% stockholders.

22
<PAGE> 26

STOCK PERFORMANCE GRAPH

The graph depicted below shows ACT's stock price as an index for the period
commencing May 3, 1995 to June 30, 1998, assuming $100 invested on May 3, 1995
(the date of ACT's initial public offering) and reinvestment of dividends, along
with the composite prices of companies listed on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") Telecommunication Index
("NTI") and the Standard and Poor's 500 Stock Index ("S&P 500"). The Company
believes that the NTI and the S&P 500 provide an appropriate measure of the
Company's stock price performance as the NTI and the S&P 500 listed companies
are comparable to the Company in size and/or industry focus.

COMPARISON OF 38 MONTH CUMULATIVE TOTAL RETURN*
AMONG ACT NETWORKS, INC., THE S&P 500 INDEX AND
THE NASDAQ TELECOMMUNICATIONS INDEX

<TABLE>
<CAPTION>
'ACT NET NASDAQ
WORKS, INC.' S & P 500 TELECOMMUNICATIONS
<S> <C> <C> <C>
5/3/95 100.00 100.00 100.00
6/30/95 132.69 104.87 109.13
6/30/96 250.00 132.14 135.50
6/30/97 98.08 177.99 149.02
6/30/98 67.31 231.67 255.49
</TABLE>

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------
5/03/95 6/95 6/96 6/97 6/98
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
ACT NETWORKS, INC............................. 100.00 132.69 250.00 98.08 67.31
S & P 500..................................... 100.00 104.87 132.14 177.99 231.67
NASDAQ TELECOMMUNICATIONS..................... 100.00 109.13 135.50 149.02 255.49
</TABLE>

- ---------------
* $100 invested on 5/03/95 in stock or index -- including reinvestment of
dividends. Fiscal year ending June 30.

23
<PAGE> 27

EXECUTIVE COMPENSATION AND RELATED INFORMATION

COMPENSATION COMMITTEE REPORT2

It is the responsibility of the Compensation Committee (the "Committee") of
the ACT Board of Directors to make recommendations to the Board of Directors
regarding the salary and bonuses to be paid to the Company's executive officers
each fiscal year. The Committee also administers the 1995 Stock Option/ Stock
Issuance Plan (the "1995 Plan") and the 1997 Stock Incentive Plan (the "1997
Incentive Plan"). Equity incentives may be granted under the 1995 Plan or 1997
Incentive Plan to executive officers as part of their long-term compensation
package. The following is a summary of the policies of the Committee which
affect the compensation paid to executive officers, as reflected in the tables
and text set forth elsewhere in this Proxy Statement.

GENERAL COMPENSATION POLICY. Under the supervision of the Committee, ACT
has developed a compensation policy which is designed to attract, retain and
reward qualified key executives critical to the Company's success and to provide
such executives with performance-based incentives tied to the financial
performance of ACT. One of the Committee's primary objectives is to have a
substantial portion of each officer's compensation contingent upon the Company's
performance as well as upon the individual's contribution to the success of ACT
as measured by his or her personal performance. Accordingly, each executive
officer's compensation package is fundamentally comprised of three elements: (i)
base salary which reflects individual experience, expertise and responsibility
and is designed to be competitive with salary levels in the industry; (ii)
annual incentive compensation which reflects individual and Company performance
for the year; and (iii) long-term stock-based incentive awards which strengthen
the mutuality of interests between the executive officers and the ACT
stockholders.

FACTORS. The principal factors which were considered in establishing the
components of each executive officer's compensation package for the year ended
June 30, 1998 are summarized below. However, the Committee may in its discretion
apply entirely different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years.

- BASE SALARY. For the 1998 fiscal year, the Committee set the base salary
of the executive officers within the range of salaries of executive
officers with comparable qualifications, experience and responsibilities
at other companies comparable in size, which provide telecommunication
services or which compete with the Company for executive talent. However,
in setting the base salary for each officer, several additional factors
were taken into account: the experience and personal performance of the
officer, the ability to develop and maintain the skills necessary to work
in the Company's industry the ability to initiate strategies to enhance
the Company's growth, profitability and business opportunities and
internal comparability considerations. The weight given to each of these
factors differs from individual to individual, as the Committee deems
appropriate.

- ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer primarily on the basis of the Company's achievement of
certain corporate financial performance targets established for each
fiscal year. For fiscal year 1998, no bonuses, other than commissions,
were earned by the Company's executive officers because the performance
targets tied to the Company's revenues and earnings per share were not
attained.

- LONG-TERM INCENTIVE COMPENSATION. Each option grant to executive officers
under the 1995 Plan and the 1997 Incentive Plan is designed to align the
interests of the executive officers with those of the stockholders and
provide each such optionee with a significant incentive to manage the
Company from the perspective of an owner with an equity stake in the
business and to remain in the service of the Company. The number of
shares subject to each option grant takes into account an officer's
existing equity holdings (including the number of unvested shares), the
officer's tenure, level of responsibility

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

2 The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission (the "SEC") and is not to be
incorporated by reference in any filing of the Company under the Securities Act
of 1933 as amended (the "1933 Act") or the Securities Exchange Act of 1934, as
amended (the "1934 Act").
24
<PAGE> 28

and relative position in the Company. However, the Committee will vary
the size of the option grant made to each executive officer as it feels
the circumstances warrant. Each grant allows the officer to acquire
shares of the Company's Common Stock at a fixed price per share over a
specified period of time (up to 10 years).

In fiscal 1998, the Committee reviewed the equity incentives in place for
each of the Company's executive officers. The Committee granted additional
options in fiscal 1998 per the table below under the heading "Option Grants." In
reaching this decision, the Committee reviewed numerous relevant factors
including, without limitation, the cash compensation for ACT's executives, the
equity and cash incentives in place for executives at comparable companies and
the number and value of vested options and shares held by ACT's executive
officers.

- CEO COMPENSATION. The base salary established for the Company's former
Chief Executive Officer, Mr. Martin Shum, for the year ended June 30,
1998 reflects the Committee's decision to maintain a level of stability
and certainty with respect to this component of his compensation from
year to year, and there was no intent to have this particular component
of compensation affected to any significant degree by the Company's
performance. The Committee's intent in setting Mr. Shum's compensation
for the 1998 fiscal year was to have a significant portion of Mr. Shum's
cash compensation based on the Company's performance. Mr. Shum was
eligible for a $50,000 performance bonus which was tied to targets based
on the Company's revenues and earnings. As discussed above, the targets
were not met and Mr. Shum did not receive a bonus for fiscal year 1998.

OPTION CANCELLATION/REGRANT PROGRAM. During the current 1999 fiscal year,
the Committee implemented an option cancellation/regrant program for certain
non-employee Board members, executive officers and other employees holding stock
options with an exercise price per share in excess of the market price of the
Company's Common Stock at the time the cancellation/regrant occurred. The
cancellation/regrant was effected on August 3, 1998, and a number of outstanding
options with an exercise price in excess of $6.75 per share were canceled and
new options for the same aggregate number of shares were granted with an
exercise price of $6.75 per share. The Committee felt that such an option
cancellation/regrant program was necessary in order to retain the services of
individuals essential to Company's future growth and financial success.
Accordingly, to assure that the program would serve as such a retention vehicle,
each of the new lower-priced options was structured so no vesting would occur
under that option unless the optionee remains in the Company's employ through
February 2, 1999. Upon satisfaction of such six (6)-month employment
requirement, the new option will immediately vest as to the same number of
option shares for which the cancelled higher-priced option would have been
vested at that time had it remained outstanding, and the new option will vest as
to the remaining shares at the same time those shares would have vested under
the cancelled higher-priced option.

TAX LIMITATION. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as ACT will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will apply to all compensation paid to the covered executive officers which is
not considered to be performance-based. However, compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The compensation paid to the Company's executive
officers for the year ended June 30, 1998 did not, and the compensation to be
paid for the year ending June 30, 1999 is not expected to, exceed the $1 million
limit per officer. In addition, the 1995 and 1997 Plans have been structured so
that any compensation deemed paid to an executive officer in connection with the
exercise of options granted under those plans with an exercise price equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limitation, the Committee has decided not to take any other
action to limit or restructure the elements of cash compensation payable to the
Company's

25
<PAGE> 29

executive officers. The Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.

COMPENSATION COMMITTEE

Brig. Gen. Harold R. Johnson, USAF
(Ret.)
Archibald J. McGill
William Ambrose

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the Chief
Executive Officer and each of the four other most highly compensated executive
officers (the "Named Executive Officers") for the fiscal year ended June 30,
1998 for services rendered in all capacities to the Company and its subsidiaries
for each of the last three fiscal years. Except as indicated below, during
fiscal year 1996, 1997, and 1998, no Named Executive Officer received other
compensation in excess of the lesser of $50,000 or 10% of such officer's
compensation, nor did any such officer receive any restricted stock award, stock
appreciation right or payment under any long term incentive plan. No executive
officer who would have otherwise been includable in such table on the basis of
his or her salary and bonus for the 1998 fiscal year has been excluded by reason
of his or her termination of employment or change in executive status during
that fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
SECURITIES
FISCAL BONUS/ UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY COMMISSION($) OPTIONS(#)
---------------------------- ------ -------- ------------- ------------
<S> <C> <C> <C> <C>
Martin Shum(1)................................... 1998 $270,000 100,000(6)
Chairman of the Board, President & CEO 1997 225,000
1996 190,000 251,500(3)(4)
Linda Carlson(1)................................. 1998 140,000 28,000 20,000(6)
Vice President, Worldwide Sales 1997 100,000 101,092
1996 117,553 87,200 38,429(3)(4)(5)
John W. Tucker(1)................................ 1998 140,000 52,000 20,000(6)
Vice President and General Manager, 1997 100,000 121,576
Wireless Network Systems 1996 102,510 65,714 67,286(3)(4)
Melvin L. Flowers(1)............................. 1998 150,000 20,000(6)
Chief Financial Officer and Vice President, 1997 140,000
Finance and Administration 1996 120,000 68,429(3)(4)
Andre de Fusco(2)................................ 1998 140,000 20,000(6)
Vice President, Strategic Planning and 1997 140,000
and Business Development 1996 123,335 7,677 54,286(3)(4)
</TABLE>

- ---------------
(1) No longer employed by the Company.

(2) Mr. de Fusco is the current Chief Executive Officer and President of the
Company.

(3) Each of the Named Executive Officers were granted the following stock
options on August 1, 1995 pursuant to the Company's 1995 Option Bonus
Program at an exercise price of $16.50: Mr. Shum, 24,000; Ms. Carlson,
1,429; Mr. Tucker, 2,286; Mr. Flowers, 3,429; and Mr. de Fusco, 2,286. The
options are immediately exercisable for all the shares, with any unvested
shares acquired under such option subject to repurchase by the Company, at
the exercise price paid per share, upon the optionee's termination of
service with the Company. The option shares will vest according to the
following schedule ("Standard Vesting"): twenty-four percent (24%) of the
shares vest upon completion of one year following the vesting commencement
and the balance will vest at a rate of two percent (2%) per full month of
employment thereafter.

26
<PAGE> 30

(4) Each of the Named Executive Officers were granted the following Stock
Options on September 19, 1996 at an exercise price of $13.00: Mr. Shum,
227,500; Ms. Carlson, 7,000; Mr. Tucker, 65,000; Mr. Flowers, 65,000, and
Mr. de Fusco, 52,000. The options were immediately exercisable for all the
option shares, with any unvested shares acquired under such option subject
to repurchase by the Company, at the exercise price paid per share, upon the
optionee's termination of the service with the Company. The option shares
vest in accordance with the Standard Vesting.

(5) Ms. Carlson was elected to serve as the Company's Vice President, Worldwide
Sales on December 11, 1995 and granted a stock option to purchase 30,000
shares of the Company's Common Stock. The option is immediately exercisable
for all the option shares, with any unvested shares acquired under such
option subject to repurchase by the Company, at the exercise price paid per
share, upon the optionee's termination of service with the Company. The
option shares vest in accordance with the Company's Standard Vesting.

(6) Each of the Named Executive Officers were granted the Stock Options on
December 3, 1997 at an exercise price of $7.69. Mr. Shum and Mr. Flowers
were granted options pursuant to the Company's 1997 Stock Incentive Plan and
Ms. Carlson, Mr. Tucker and Mr. de Fusco were granted options pursuant to
the Company's 1995 Option Bonus Program. The options were immediately
exercisable for all the option shares, with any unvested shares acquired
under such option subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's termination of service with the
Company. The option shares will vest in accordance with the Standard
Vesting.

OPTION GRANTS

The following table sets forth, for the fiscal year ended June 30, 1998,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1995 Plan or 1997 Incentive Plan to the Named Executive
Officers. No stock appreciation rights were granted to any of the Named
Executive Officers during fiscal year 1998.

OPTION GRANTS IN YEAR ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZATION
--------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OF TERM(4)
OPTIONS EMPLOYEES IN BASE EXPIRATION ------------------------
NAME GRANTED(1)(2) FISCAL 1998 PRICE(3) DATE 5% 10%
---- -------------- ------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin Shum(5)............ 100,000 7.96% $7.69 12/2/07 $483,463 $1,225,190
Linda Carlson(5).......... 20,000 1.59% $7.69 12/2/07 96,693 245,038
John W. Tucker(5)......... 20,000 1.59% $7.69 12/2/07 96,693 245,038
Melvin Flowers(5)......... 20,000 1.59% $7.69 12/2/07 96,693 245,038
Andre de Fusco............ 20,000 1.59% $7.69 12/2/07 96,693 245,038
</TABLE>

- ---------------
(1) The options granted to the Named Executive Officers were granted on December
3, 1997 and have a maximum term of 10 years, subject to earlier termination
in the event of the optionee's cessation of service with the Company.

(2) The options are immediately exercisable for all the option shares, with any
unvested shares acquired under such option subject to repurchase by the
Company, at the exercise price paid per share, upon the optionee's
termination of service with the Company. The option shares will vest
according to the following schedule: twenty-four percent (24%) of the shares
vest upon completion of one year following the vesting commencement date or
grant date, as applicable, and the balance will vest at a rate of two
percent (2%) per full month of employment thereafter. However, the option
shares will immediately vest in the event the Company is acquired by a
merger or asset sale, unless the options are assumed by the acquiring
entity.

27
<PAGE> 31

(3) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or pursuant to a cashless exercise
procedure. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares.

(4) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants.

(5) The above named officer is no longer employed by the Company.

OPTION REPRICING

On August 3, 1998, an option cancellation/regrant program was implemented
for certain non-employee Board members, executive officers and other employees
holding stock options with an exercise price per share in excess of the $6.75
per share market price of the Company's Common Stock on that date. Accordingly,
a number of outstanding options with an exercise price in excess of $6.75 per
share were canceled on August 3, 1998, and new options for the same aggregate
number of shares were granted with an exercise price of $6.75 per share. Each of
the new lower-priced options was structured so no vesting would occur under that
option unless the optionee remains in the Company's employ or service through
February 2, 1999. Upon satisfaction of such six (6)-month employment
requirement, the new option will immediately vest as to the same number of
option shares for which the cancelled higher-priced option would have been
vested at that time had it remained outstanding, and the new option will vest as
to the remaining shares at the same time those shares would have vested under
the cancelled higher-priced option. Under the program, the following executive
officers had their outstanding options cancelled in exchange for new options for
the same number of shares but with an exercise price of $6.75 per share: Andre
de Fusco, Frederick Gluck, Alain Gravel, Chris Perna and Mike Zeile with respect
to 374,000, 21,000, 42,000, 90,000 and 90,000 shares, respectively.

OPTION EXERCISES AND HOLDINGS

The following table sets forth information concerning the number and value
of shares acquired on exercise of options held by each of the Named Executive
Officers during the fiscal year ended June 30, 1998 and the number and value of
unexercised options held by each of the Named Executive Officers as of June 30,
1998. No stock appreciation rights were exercised during fiscal year 1998, and
no such appreciation rights were outstanding as of June 30, 1998.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND OPTION VALUES FOR FISCAL YEAR ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE MONEY OPTIONS
NUMBER OF SHARES AT JUNE 30, 1998(1) AT JUNE 30, 1998($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Shum.......... 12,500 $116,000 470,263 $1,065,887
Linda Carlson........ 59,643 30,603
John W. Tucker....... 99,500 127,369
Melvin L. Flowers.... 5,686 60,769 81,029 21,250
Andre de Fusco....... 101,000 124,099
</TABLE>

- ---------------
(1) All of the options of the Named Executive Officers are immediately
exercisable for all the option shares, with any unvested shares acquired
under such option subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's termination of service with the
Company. The option shares will vest according to the following schedule:
twenty-four percent (24%) of the shares vest upon completion of one year
following the vesting commencement date or grant date, as applicable and the
balance will vest at a rate of two percent (2%) per full month of employment
thereafter. At June 30,

28
<PAGE> 32

1998, each of the Named Executive Officers owned the following number of
options for which vested shares were issuable upon exercise: Mr. Shum,
361,897; Ms. Carlson, 25,177; Mr. Tucker, 57,263; Mr. Flowers, 38,723, and
Mr. de Fusco, 57,239.

(2) Calculated based on the closing sale price at June 30, 1998 of $8.75 per
share, less the applicable exercise price. All of the options of these Named
Executive Officers are immediately exercisable, with any unvested shares
acquired under such option being subject to repurchase by the Company, at
the exercise price, upon termination of the optionee's service with the
Company. The value of vested shares issuable upon exercise of "in-the-money"
options at June 30, 1998 for each of the Named Executive Officers was as
follows: Mr. Shum, $959,637; Ms. Carlson, $9,353; Mr. Tucker, $106,119; Mr.
Flowers, $0; and Mr. de Fusco, $80,846.

(3) Calculated based on the excess of the fair market value of the purchased
shares on the exercise date over the exercise price paid for those shares.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Under the present rules of the SEC, the deadline for stockholders to submit
proposals to be considered for inclusion in ACT's Proxy Statement for next
year's Annual Meeting of Stockholders is July 20, 1999. Such proposals may be
included in next year's Proxy Statement if they comply with certain rules and
regulations promulgated by the SEC.

In addition, the proxy solicited by the Board of Directors for next year's
Annual Meeting of Stockholders will confer discretionary authority to vote on
any shareholder proposal presented at that meeting, unless the Company is
provided with notice of such proposal no later than August 30, 1999.

OTHER BUSINESS

The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, it is intended that the proxy holders will vote
on such matters in accordance with their best judgment.

The Company's Annual Report for the fiscal year ended June 30, 1998,
including audited financial statements, is being sent with this Proxy Statement
to all stockholders of record as of October 9, 1998. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy soliciting
material.

Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 as filed with the SEC will be provided to stockholders
without charge upon written request to the General Counsel, ACT Networks, Inc.,
188 Camino Ruiz, Camarillo, California 93012.

29
<PAGE> 33

ACT NETWORKS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 30, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held on November 30, 1998 and the
proxy statement and appoints Andre de Fusco and Frederic A. Randall, Jr., or
either of them, the proxy of the undersigned, with full power of substitution,
to vote all shares of Common Stock of ACT Networks, Inc. ("ACT") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf of
an entity or entities, at the Annual Meeting of Stockholders (the "Annual
Meeting") of ACT to be held on Monday, November 30, 1998 at 2:00 p.m. local
time, and at any adjournment or postponement thereof, and to vote in their
discretion on such other business as may properly come before the Annual Meeting
and any postponement or adjournment thereof.

The following matters are proposed by ACT. Your vote on each matter is
neither conditioned on, or related to, your vote on any of the other matters.

1. Approve the 150,000 share increase to the ACT Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

2. Approve the 200,000 share increase to the ACT 1997 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. Election of Directors.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE
[ ] EXCEPTIONS

INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"EXCEPTIONS" box, and strike a line through the nominee's name in the list
below:
Andre de Fusco Frederick W. Gluck

4. Ratify Ernst & Young, LLP as independent auditors for the year ending June
30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 34

The Board of Directors recommends a vote FOR the proposals set forth above.
This Proxy, when properly executed will be voted as specified above. This Proxy
will be voted FOR Proposals No. 1, 2 3 and 4 if no specification is made. THIS
PROXY WILL ALSO BE VOTED AT THE DISCRETION OF THE PROXY HOLDERS ON SUCH MATTERS
OTHER THAN THE THREE SPECIFIC MATTERS AS MAY COME BEFORE THE MEETING.

Please print the name(s) appearing on each share certificate(s) over which
you have voting authority:
Dated:____________________

__________________________

__________________________
(Print name(s) as it
(they) appear on
certificate)

Please sign exactly as
your name(s) is (are)
shown on the share
certificate to which the
Proxy applies. When shares
are held by joint tenants,
both should sign. When
signing as an attorney,
executor, administrator,
trustee or guardian,
please give full title, as
such. If a corporation,
please sign in full
corporate name by the
President or another
authorized officer. If a
partnership, please sign
in the partnership name by
an authorized person.

__________________________
(Authorized Signature(s))

PLEASE RETURN YOUR EXECUTED PROXY TO ACT'S TRANSFER AGENT IN THE ENCLOSED
ENVELOPE, OR, IF NECESSARY, DELIVER IT TO ACT'S ATTENTION: CHIEF FINANCIAL
OFFICER.