<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1997
REGISTRATION NO. 333-37993
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCESS BEYOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 3661 52-1987873
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
MARK FIELDS
ACTING CHIEF FINANCIAL OFFICER
1300 QUINCE ORCHARD BLVD. 1300 QUINCE ORCHARD BLVD.
GAITHERSBURG, MD 20878 GAITHERSBURG, MD 20878
(301) 921-8600 (301) 921-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
------------------------
Copy to:
STEPHEN I. BUDOW, ESQ.
MORRISON COHEN SINGER & WEINSTEIN, LLP
750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 735-8600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(2) REGISTRATION FEE
PROPOSED MAXIMUM
AGGREGATE OFFERING
PRICE PER SHARE
- -----------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value......... 23,106,433 $.01(3) $16,639 $5.04
Common Stock, $.01 par value......... 22,681,729 $7.14(4) $11,683,305 $3,535.35
Series A Preferred Stock, $.01 par
value.............................. 1,217,930 $20.73(5) $1,818,111 $551.01
Total...................... 47,006,092 -- $13,518,055 $4,091.40
===========================================================================================================
</TABLE>
(1) Represents the maximum number of shares of the Registrant's common stock and
Series A Preferred Stock issuable in the merger described herein.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended,
and based on one-third of the par value or stated value of the securities to
be canceled in the transaction.
(3) Represents the par value per share of common stock of Hayes Microcomputer
Products, Inc. to be canceled in the transaction.
(4) Represents the stated value per share of Series A Preferred Stock of Hayes
Microcomputer Products, Inc. to be canceled in the transaction.
(5) Represents the stated value per share of Series B Preferred Stock of Hayes
Microcomputer Products, Inc. to be canceled in the transaction.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
================================================================================
<PAGE> 2
ACCESS BEYOND, INC.
LETTERHEAD
December 12, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Access Beyond, Inc. (the "Company" or "Access Beyond") on December 29, 1997, at
10 a.m., local time, at the offices of Access Beyond, 1300 Quince Orchard
Boulevard, Gaithersburg, Maryland.
At the Annual Meeting, you will be asked to consider and vote upon, among
other things, (i) the proposal (the "Proposal") to approve and adopt the
Agreement and Plan of Reorganization dated as of July 29, 1997 as amended by the
First Amendment to the Merger Agreement dated as of November 7, 1997, and the
Second Amendment to the Merger Agreement dated as of November 21, 1997 (as so
amended, the "Merger Agreement"), among Access Beyond, Hayes Microcomputer
Products, Inc., a Georgia corporation ("Hayes"), and H & A Merger Sub, Inc., a
wholly-owned subsidiary of Access Beyond (the "Subsidiary"), and (ii) the
ratification of the Preferred Stock Investment Agreement dated November 12,
1997.
Pursuant to the Merger Agreement, the Subsidiary will be merged (the
"Merger") with and into Hayes, and Hayes will become a wholly-owned subsidiary
of Access Beyond. As a result of the Merger and the transactions contemplated
thereby, (a) all holders of Hayes (i) common stock will have the right to
receive shares of Access Beyond common stock, (ii) Series A Preferred Stock will
have the right to receive shares of Access Beyond common stock and (iii) Series
B Preferred Stock will have the right to receive shares of Access Beyond Series
A Preferred Stock; (b) Access Beyond will amend its certificate of incorporation
to (i) change its name to Hayes Corporation, (ii) increase the number of
authorized shares of common stock and (iii) create the Series A Preferred Stock;
(c) the Board of Directors of Access Beyond will be increased to seven members,
five of whom will be designated by the Hayes shareholders; and (d) the
obligations of Hayes under the Hayes Option Plan will be assumed by the Company.
After giving effect to the Merger, the Hayes shareholders will own approximately
79% of the issued and outstanding equity securities of the Company, excluding
options and shares of the Company's 6% Cumulative Convertible Preferred Stock
and shares of Access Beyond common stock issued or issuable upon the conversion
thereof. After giving effect to the Merger and assuming that (x) all then vested
and exercisable options and warrants to purchase Hayes common stock are
exercised and (y) none of the then vested and exercisable options to purchase
Access Beyond's common stock are exercised, the Hayes shareholders will own
approximately 80.08% of the issued and outstanding equity securities of the
Company, excluding options and shares of the Company's 6% Cumulative Convertible
Preferred Stock and shares of Access Beyond common stock issued or issuable upon
the conversion thereof.
You should read carefully the accompanying Notice of Annual Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger, the
Preferred Stock Investment Agreement and additional related information.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER WILL PROVIDE SIGNIFICANT
VALUE TO ACCESS BEYOND AND ITS STOCKHOLDERS BY OFFERING OPPORTUNITIES FOR GROWTH
USING THE MANUFACTURING EXPERTISE, DISTRIBUTION CHANNELS AND TECHNOLOGY
AVAILABLE FROM HAYES AND HAS DETERMINED THAT THE MERGER IS, THEREFORE, IN THE
BEST INTERESTS OF ACCESS BEYOND AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE PROPOSAL.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PREFERRED STOCK INVESTMENT
AGREEMENT WILL PROVIDE THE COMPANY WITH REQUIRED LIQUIDITY AND IS, THEREFORE, IN
THE BEST INTERESTS OF ACCESS BEYOND AND ITS STOCKHOLDERS. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE PREFERRED STOCK INVESTMENT AGREEMENT AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ITS RATIFICATION.
It is important that your shares be represented at the Annual Meeting
whether or not you attend. I urge you to sign, date and return the enclosed
proxy at your earliest convenience.
Sincerely,
RONALD HOWARD
President and Chairman of the Board
<PAGE> 3
ACCESS BEYOND, INC.
1300 QUINCE ORCHARD BOULEVARD
GAITHERSBURG, MARYLAND 20878
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 29, 1997
------------------------
To the Stockholders of ACCESS BEYOND, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Access Beyond, Inc. (the "Company" or "Access Beyond") will be held
on December 29, 1997, at 10 a.m., at the offices of Access Beyond at 1300 Quince
Orchard Boulevard, Gaithersburg, Maryland.
The Annual Meeting will be held for the following purposes:
1. To consider and vote upon a proposal (the "Proposal") to (x)
approve and adopt the Agreement and Plan of Reorganization, dated July 29,
1997 as amended by the First Amendment to the Merger Agreement dated as of
November 7, 1997, and the Second Amendment to the Merger Agreement dated as
of November 21, 1997 (as so amended, the "Merger Agreement"), among Access
Beyond, Hayes Microcomputer Products, Inc., a Georgia corporation
("Hayes"), and H & A Merger Sub, Inc., a wholly-owned Georgia subsidiary of
Access Beyond (the "Subsidiary"), and the transactions contemplated
thereby, (y) amend the Company's Certificate of Incorporation as described
below and (z) elect two members of the Board of Directors of the Company.
Pursuant to the Merger Agreement, the Subsidiary will be merged with and
into Hayes (the "Merger"), and Hayes will become a wholly-owned subsidiary
of Access Beyond. In the Merger, (a) all holders of Hayes (i) common stock
will have the right to receive for each such share such number of shares of
Access Beyond common stock as is equal to the Conversion Ratio (as defined
in the Merger Agreement), (ii) Series A Preferred Stock will have the right
to receive for each such share such number of shares of Access Beyond
common stock as is equal to the Conversion Ratio multiplied by the number
of shares of Hayes common stock into which such shares of Hayes Series A
Preferred Stock is then convertible, and (iii) Series B Preferred Stock
will have the right to receive for each such share such number of shares of
Access Beyond Series A Preferred Stock as is equal to the Conversion Ratio
multiplied by the number of shares of Hayes common stock into which such
shares of Hayes Series B Preferred Stock is then convertible; (b) Access
Beyond will amend its certificate of incorporation to (i) change its name
to Hayes Corporation, (ii) increase the number of authorized shares of
common stock and (iii) create the Series A Preferred Stock; (c) the Board
of Directors of Access Beyond will be increased to seven members, five of
whom will be designated by the Hayes shareholders, and (d) the obligations
of Hayes under the Hayes Option Plan will be assumed by the Company. After
giving effect to the Merger, the Hayes shareholders will own approximately
79% of the issued and outstanding equity securities of the Company,
excluding options and shares of the Company's 6% Cumulative Convertible
Preferred Stock (the "6% Convertible Stock") and shares of Access Beyond
common stock issued or issuable upon conversion thereof. After giving
effect to the Merger and assuming that (x) all then vested and exercisable
options and warrants to purchase Hayes common stock are exercised and (y)
none of the then vested and exercisable options to purchase Access Beyond's
common stock are exercised, the Hayes shareholders will own approximately
80.08% of the issued and outstanding equity securities of the Company,
excluding options and shares of the Company's 6% Convertible Stock and
shares of Access Beyond common stock issued or issuable upon conversion
thereof;
2. To ratify the Preferred Stock Investment Agreement dated November
12, 1997 and the transactions contemplated thereby, pursuant to which the
Company has sold 10,000 shares of its 6% Convertible Stock for $10,000,000
and has agreed to sell an additional 35,000 shares of 6% Convertible Stock
for $35,000,000 following the closing of the Merger;
<PAGE> 4
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending July 31, 1998; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is attached to this Proxy
Statement/Prospectus as Exhibit A and is incorporated herein by reference. A
copy of the Preferred Stock Investment Agreement is attached to this Proxy
Statement/Prospectus as Exhibit D and is incorporated herein by reference.
The Proposal to approve the Merger and the transactions contemplated
thereby will be voted upon as a single proposal. Failure of the Proposal to be
approved by the stockholders will result in the termination of the Merger
Agreement, no right of the Hayes shareholders to receive Access Beyond
securities, no amendment of the Access Beyond certificate of incorporation, no
change in the Access Beyond Board of Directors and no assumption of the Hayes
Option Plan.
The Board of Directors of Access Beyond has fixed December 5, 1997 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting. The affirmative vote of the holders of a majority of
the outstanding shares of Access Beyond's common stock entitled to vote at the
Annual Meeting is necessary to approve and adopt the Proposal and to ratify the
Preferred Stock Investment Agreement. Holders of Access Beyond's common stock
are not entitled to appraisal rights under Delaware law in connection with the
Merger.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF THE
PROXY IS MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
RONALD HOWARD,
President and Chairman of the Board
Dated: December 12, 1997
<PAGE> 5
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1997
PRELIMINARY PROXY STATEMENT AND PROSPECTUS
ACCESS BEYOND, INC.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of H & A Merger Sub, Inc., a Georgia corporation ("Subsidiary") and a
wholly-owned subsidiary of Access Beyond, Inc., a Delaware corporation (the
"Company" or "Access Beyond"), with Hayes Microcomputer Products, Inc., a
Georgia corporation (with its subsidiaries, "Hayes"), pursuant to an Agreement
and Plan of Reorganization dated July 29, 1997, as amended by the First
Amendment to the Merger Agreement dated as of November 7, 1997, and the Second
Amendment to the Merger Agreement dated as of November 21, 1997 (as so amended,
the "Merger Agreement") between the Company, Hayes and the Subsidiary. As a
result of the Merger, Hayes will become a wholly-owned subsidiary of the
Company, and the shareholders of Hayes at the time the Merger becomes effective
(the "Effective Time") will own approximately 79% of the outstanding equity
securities of the Company (excluding options and Access Beyond's 6% Cumulative
Convertible Preferred Stock (the "6% Convertible Stock") and shares of Access
Beyond common stock issued or issuable upon the conversion thereof). After
giving effect to the Merger and assuming that (x) all then vested and
exercisable options and warrants to purchase Hayes common stock are exercised
and (y) none of the then vested and exercisable options to purchase Access
Beyond's common stock are exercised, the Hayes shareholders will own
approximately 80.08% of the issued and outstanding equity securities of the
Company excluding options, the 6% Convertible Stock and shares of Access Beyond
common stock issued or issuable upon conversion thereof. At the Effective Time,
(a) each outstanding share of Hayes (i) common stock, $.01 par value per share
("Hayes Common Stock"), will be converted into a right to receive such number of
shares of the Company's common stock, $.01 par value per share ("Common Stock")
as is equal to the Conversion Ratio (as provided below), (ii) Series A Preferred
Stock, no par value ("Hayes Series A Preferred Stock"), will be converted into
the right to receive such number of shares of Common Stock as is equal to the
Conversion Ratio multiplied by the number of shares of Hayes Common Stock into
which such shares of Hayes Series A Preferred Stock is then convertible, and
(iii) Series B Preferred Stock, no par value ("Hayes Series B Preferred Stock"),
will be converted into the right to receive such number of shares of the
Company's Series A Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock") as is equal to the Conversion Ratio multiplied by the number
of shares of Hayes Common Stock into which such shares of Hayes Series B
Preferred Stock is then convertible; (b) the Company will amend its certificate
of incorporation to (i) change its name to Hayes Corporation, (ii) increase the
number of authorized shares of capital stock and (iii) create the Series A
Preferred Stock; (c) the Board of Directors of the Company will be increased to
seven members, five of whom will be designated by the Hayes shareholder; and (d)
the obligations of Hayes under the Hayes Option Plan will be assumed by the
Company.
On December 10, 1997 the Company had 12,559,931 shares of Common Stock and
9,730 shares of 6% Convertible Stock issued and outstanding. On December 10,
1997 Hayes had 4,991,750 shares of Hayes Common Stock, 4,900,000 shares of Hayes
Series A Preferred Stock and 263,113 shares of Hayes Series B Preferred Stock
issued and outstanding. At the Effective Time the Conversion Ratio of 4.628924
(assuming no change in the number of such outstanding securities, other than
changes due to issue of shares of Common Stock upon conversion of 6% Convertible
Stock) will be applied to the outstanding Hayes securities, resulting in issue
of (i) 23,106,433 shares of the Company's Common Stock for the 4,991,750 shares
of Hayes Common Stock, (ii) 22,681,729 shares of the Company's Common Stock for
the 4,900,000 shares of Hayes Series A Preferred Stock, and (iii) 1,217,930
shares of the Company's Series A Preferred Stock for the 263,113 shares of Hayes
Series B Preferred Stock.
This Proxy Statement/Prospectus also relates to the ratification of the
Preferred Stock Investment Agreement dated November 12, 1997 and the
transactions contemplated thereby, pursuant to which the Company has sold 10,000
shares of its 6% Convertible Stock and has agreed to sell an additional 35,000
shares of 6% Convertible Stock following the closing of the Merger.
This Proxy Statement/Prospectus also relates to the ratification of the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
the fiscal year ending July 31, 1998.
This Proxy Statement/Prospectus is being furnished to the Company's
stockholders in connection with the solicitation of proxies by its Board of
Directors (the "Company Board") for use at the Annual Meeting of Stockholders,
to be held on December 29, 1997 at 10:00 a.m. local time at 1300 Quince Orchard
Blvd., Gaithersburg, Maryland (the "Annual Meeting"). This Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders on or about December 15, 1997. This Proxy Statement/Prospectus
also constitutes the prospectus of the Company with respect to up to (a)
45,788,162 shares of Common Stock to be issued in the Merger in exchange for
outstanding shares of Hayes Common Stock and Hayes Series A Preferred Stock and
(b) 1,217,930 shares of Series A Preferred Stock to be issued in the Merger in
exchange for outstanding shares of Hayes Series B Preferred Stock. The exact
number of shares of Common Stock and Series A Preferred Stock to be issued in
the Merger cannot be determined as of the date hereof due to the fact that any
shares of Hayes capital stock issued and outstanding immediately prior to the
Merger, which are held by Hayes shareholders who comply with all of the relevant
provisions of the Georgia Business Corporation Code (the "GBCC") for perfecting
shareholders' rights of appraisal will not be converted into or be exchangeable
for the right to receive the corresponding Securities, unless and until such
shareholders fail to perfect or effectively withdraw or lose their rights to
appraisal under such statute. See "THE MERGER -- Dissenters' Rights."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 14 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1997.
<PAGE> 6
No fractional shares of the Securities will be issued in connection with
the Merger. In lieu of any fractional shares, the record holder of any shares of
Hayes stock who would otherwise be entitled to receive a fraction of a share of
the Company, upon aggregation of all shares and fractional shares of the same
class or series owned by such holder, will receive from the Company promptly
after the Merger, cash equal to the per share market value of the Common Stock,
which market value shall be the closing sale price of the Common Stock on the
last trading day prior to the Closing Date (as defined below), as quoted on the
Nasdaq National Market multiplied by such fraction of a share of the Company to
which such holder would otherwise be entitled. The Closing Date means such
mutually agreeable date, no later than the fifth business day after all of the
conditions to the obligations of the parties to consummate the transactions
contemplated by the Merger have been satisfied or waived (where permissible).
The Common Stock is quoted on the National Association of Securities
Dealers Automated Quotations/ National Market System ("NASDAQ/NMS") under the
symbol "ACCB." The closing price per share reported on NASDAQ/NMS on December 8,
1997 was $5.125.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representations should not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any, securities, or the solicitation
of a proxy, in any jurisdiction or to any person to whom it would be unlawful to
make such offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of the Company or of Hayes, or in the information set
forth herein since the date of this Prospectus. The information contained herein
with respect to the Company and the Subsidiary has been supplied by the Company,
and the information with respect to Hayes and its subsidiaries has been supplied
by Hayes.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copies may be obtained at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices
of the Commission at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such information may also be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Commission's web
site can be accessed at http://www.sec.gov. Any such reports, proxy statements
and other information filed or to be filed by the Company may also be inspected
at the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington, D.C. 20006. The Common Stock
is traded on NASDAQ/NMS, and the Company's reports (and proxy and information
statements when filed) may be inspected at the offices of The Nasdaq Stock
Market, Inc., located at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-4 and amendments thereto (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), of which this Proxy
Statement/Prospectus is a part. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Statements made in this Proxy Statement/Prospectus as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. In each instance, for a more complete description of
the matter involved, reference is made to such contract, agreement or other
document filed as an exhibit to the Registration Statement or annexed to this
Proxy Statement/Prospectus, and the Registration Statement shall be deemed
qualified in its entirety by such reference.
i
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................................. i
SUMMARY................................................................................ 1
The Company.......................................................................... 2
Hayes................................................................................ 3
The Annual Meeting................................................................... 4
The Merger and the Merger Agreement.................................................. 5
Interests of Certain Persons in the Merger........................................... 9
Risk Factors......................................................................... 10
Selected Historical Financial Data of the Company.................................... 11
Selected Historical Financial Data of Hayes.......................................... 12
Selected Pro Forma Financial Data.................................................... 13
RISK FACTORS........................................................................... 14
Absence of Profitable Operations; Liquidity.......................................... 14
Limited Trading History of the Common Stock; No Public Market for Series A Preferred
Stock............................................................................. 15
Limited Operating History............................................................ 15
Dependence on Key Management......................................................... 15
Risks Relating to Integration of the Businesses...................................... 15
Technological Changes................................................................ 15
Possible Loss of Technology.......................................................... 16
Competition.......................................................................... 16
Important Considerations Related to Forward-looking Statements....................... 17
Option Plans -- Shares Eligible for Future Sale and Dilution......................... 17
Other Issuances -- Shares Eligible for Future Sale and Dilution...................... 18
Registration Listing Obligations..................................................... 18
Product Protection and Intellectual Property......................................... 18
Certain Antitakeover Effects......................................................... 19
Dividends............................................................................ 19
Relationship with Penril............................................................. 19
Tax Treatment........................................................................ 20
International Sales.................................................................. 20
Product Returns, Price Protection and Warranty Claims................................ 21
Dependence on Suppliers.............................................................. 21
Sales Channel Risks.................................................................. 21
Conditions to the Merger............................................................. 22
Implementation of New Information System............................................. 22
Election of Directors and Other Stockholder Matters.................................. 22
THE ANNUAL MEETING..................................................................... 23
Date and Place; Record Date.......................................................... 23
Purpose of the Annual Meeting........................................................ 23
Stockholders Entitled to Vote; Requisite Approval.................................... 24
Proxies.............................................................................. 24
ITEM 1................................................................................. 25
THE MERGER............................................................................. 25
Background of the Merger............................................................. 25
The Company's Reasons for the Merger................................................. 26
Opinion of DLJ....................................................................... 26
Analysis of Access Beyond............................................................ 27
Analysis of Hayes.................................................................... 29
</TABLE>
ii
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Analysis of Combined Entity.......................................................... 30
Hayes' Reasons for the Merger........................................................ 32
Interests of Certain Persons in the Merger........................................... 32
Management and Operations of the Company............................................. 34
Accounting Treatment................................................................. 34
Regulatory Approvals................................................................. 35
Material Tax Consequences of the Merger.............................................. 35
Resale of Common Stock; Affiliates................................................... 37
NASDAQ/NMS Listing................................................................... 37
Dissenters' Rights................................................................... 38
THE MERGER AGREEMENT................................................................... 40
The Merger........................................................................... 40
Effective Time....................................................................... 40
Terms of the Merger.................................................................. 40
Surrender and Payment................................................................ 41
Representations and Warranties....................................................... 42
Conduct of Business by the Company and Hayes Pending the Merger...................... 42
Certain Covenants.................................................................... 43
Market Standoff Agreements........................................................... 44
Conditions........................................................................... 44
Termination; Effect of Termination................................................... 45
Amendment............................................................................ 47
MARKET PRICE INFORMATION, DIVIDENDS AND RELATED STOCKHOLDER MATTERS.................... 48
The Company.......................................................................... 48
Hayes................................................................................ 48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................ 50
Unaudited Pro Forma Condensed Combined Balance Sheet................................. 51
Unaudited Pro Forma Condensed Combined Statement of Operations....................... 52
Unaudited Pro Forma Condensed Combined Statement of Operations....................... 53
BUSINESS OF THE COMPANY................................................................ 54
General Development.................................................................. 54
Principal Products................................................................... 54
Discontinued Operations.............................................................. 55
Suppliers............................................................................ 56
Patents, Copyrights and Licenses..................................................... 56
Backlog.............................................................................. 56
Competition.......................................................................... 56
Research and Development............................................................. 57
Environmental Matters................................................................ 57
Sales and Marketing.................................................................. 57
Customer Support, Service and Warranty............................................... 57
International Operations............................................................. 58
Properties........................................................................... 58
Employees............................................................................ 58
Legal Proceedings.................................................................... 58
MANAGEMENT OF THE COMPANY.............................................................. 59
Executive Officers................................................................... 59
Management Post Merger............................................................... 60
</TABLE>
iii
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Committees of the Company's Board.................................................... 63
Compensation of Directors............................................................ 63
Executive Compensation............................................................... 64
Employment and Consulting Agreements................................................. 64
Retirement and Savings Plan.......................................................... 65
Option Grants in Last Fiscal Year.................................................... 65
Option Exercises and Holdings........................................................ 66
The Amended and Restated 1996 Incentive Option Plan.................................. 66
The Amended and Restated 1996 Non-employee Directors' Stock Option Plan.............. 69
Compensation Committee Interlocks and Insider Participation.......................... 70
Compensation Committee Report on Executive Compensation.............................. 71
SECURITY OWNERSHIP OF THE COMPANY...................................................... 72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 74
STOCK PERFORMANCE GRAPH................................................................ 74
ACCESS BEYOND'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 75
Liquidity and Capital Resources...................................................... 75
Results of Operations................................................................ 76
Fiscal 1997 Compared to Fiscal 1996.................................................. 77
Fiscal 1996 Compared to Fiscal 1995.................................................. 79
BUSINESS OF HAYES...................................................................... 80
General.............................................................................. 80
Principal Products................................................................... 81
Suppliers............................................................................ 83
Patents, Copyrights and Licenses..................................................... 83
Backlog.............................................................................. 84
Competition.......................................................................... 84
Sales................................................................................ 85
Marketing............................................................................ 85
Customer Support, Service and Warranty............................................... 86
Research and Development............................................................. 86
Environmental Matters................................................................ 87
Properties........................................................................... 87
Employees............................................................................ 87
Legal Proceedings.................................................................... 87
MANAGEMENT OF HAYES.................................................................... 88
Directors and Executive Officers..................................................... 88
Executive Compensation............................................................... 88
Option/SAR Grants in Last Fiscal Year................................................ 89
Aggregated Option Exercised in Last Fiscal Year and Fiscal Year End Option Values.... 89
Employment Agreements................................................................ 89
SECURITY OWNERSHIP OF HAYES............................................................ 91
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 92
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
HAYES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 93
Recent Developments.................................................................. 93
General Business Developments........................................................ 93
Liquidity and Capital Resources...................................................... 93
Results of Operations................................................................ 94
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................................ 99
Authorized Capital Stock............................................................. 99
Common Stock......................................................................... 99
Preferred Stock...................................................................... 99
Series A Preferred Stock............................................................. 99
6% Cumulative Convertible Preferred Stock............................................ 100
Antitakeover Provisions.............................................................. 101
DESCRIPTION OF THE CAPITAL STOCK OF HAYES.............................................. 104
Authorized Capital Stock............................................................. 104
Hayes Common Stock................................................................... 104
Preferred Stock...................................................................... 104
Hayes Series A Preferred Stock....................................................... 104
Hayes Series B Preferred Stock....................................................... 105
COMPARISON OF RIGHTS OF STOCKHOLDERS OF THE COMPANY AND HAYES.......................... 105
Business Combinations................................................................ 105
Amendments to Charters............................................................... 106
Amendments to By-laws................................................................ 106
Redemption of Capital Stock.......................................................... 107
Stockholder Action................................................................... 107
Special Stockholder Meetings......................................................... 107
Number and Election of Directors..................................................... 108
Antitakeover Provisions.............................................................. 108
Indemnification of Directors and Officers............................................ 109
LEGAL MATTERS.......................................................................... 110
EXPERTS................................................................................ 110
ITEM 2................................................................................. 110
RATIFICATION OF PREFERRED STOCK INVESTMENT AGREEMENT................................... 110
ITEM 3................................................................................. 112
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING JULY 31, 1998................................................... 112
OTHER MATTERS.......................................................................... 112
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
ACCESS BEYOND FINANCIAL STATEMENTS..................................................... F-2
HAYES FINANCIAL STATEMENTS............................................................. F-20
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE............................................... S-1
FINANCIAL STATEMENT SCHEDULE........................................................... S-2
EXHIBITS
A. Agreement and Plan of Reorganization
B. Opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
the Company's Financial Advisors
C. Amended and Restated Certificate of Incorporation
D. Preferred Stock Investment Agreement
</TABLE>
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<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus and is qualified by the more detailed
information set forth elsewhere in this Proxy Statement/ Prospectus which should
be read in its entirety. Unless otherwise indicated, (i) all references to the
operations of the Company in this Proxy Statement/Prospectus shall include the
operations of the Remote Access Business (as hereinafter defined) of Penril
DataComm Networks, Inc. ("Penril") prior to November 18, 1996; (ii) all
references to Hayes capital stock, options and warrants assumes the application
of the Conversion Ratio and (iii) all references to beneficial ownership of the
Company are before taking into account shares of Common Stock issued or issuable
upon conversion of the Company's 6% Cumulative Convertible Preferred Stock (see
"Ratification of Preferred Stock Investment Agreement"). Capitalized terms used
but not defined in this Summary have the respective meanings ascribed to them
elsewhere in this Proxy Statement/Prospectus. Portions of this Proxy
Statement/Prospectus contain certain "forward looking" statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward looking statements. Factors that might
cause such a difference include, but are not limited to, market acceptance of
the Company's products and services, other factors discussed in this Proxy
Statement/Prospectus, including factors discussed in "RISK FACTORS," as well as
factors discussed in other filings made with the Securities and Exchange
Commission. Although the Company believes that the assumptions underlying the
forward looking statements contained herein are reasonable, any of the
assumptions could prove inaccurate, and therefore, there can be no assurance
that the forward looking statements included herein will prove to be accurate.
The following technical terms used in this Proxy Statement/Prospectus are
defined as follows:
IP......................... Internet Protocol -- A protocol designed for
routers to deliver information across the Internet
from router to router until the final destination
is reached. IP is used to track the Internet
addresses of nodes, route outgoing and incoming
messages.
IPX........................ Internet Packet eXchange -- A Novell protocol that
performs addressing and internetwork routing
functions to ensure data reaches the appropriate
destination. IPX moves data between programs
running on different nodes.
APPLETALK(TM).............. A proprietary networking protocol developed by
Apple Computer, Inc. to enable Apple computers to
talk to other computers.
PPP........................ Point-to-Point Protocol -- Supports transmissions
of IP, IPX, and AppleTalk(TM) packets over a serial
line that directly connects two points.
SLIP....................... Serial Line Internet Protocol -- allows users to
exchange data with devices that cannot be connected
directly to the Ethernet or that reside on an
Ethernet other than the one in which the source
user resides.
CSLIP...................... Compressed Serial Line Internet Protocol -- TCP/IP
packet headers are compressed using a technique
known as the Van Jacobson header compression
algorithm. The same algorithm used to compress the
packet headers is also used to expand them upon
arrival at the destination host.
LAT........................ Local Area Transport -- A protocol which allows
large numbers of asynchronous devices to be
connected through a terminal server to an Ethernet
connection.
TELNET..................... The process by which a person using one computer
can sign on to a computer in another location.
Using TELNET, you can work from your PC as if it
were a terminal attached to another machine by a
hard-wired line.
<PAGE> 12
SNMP....................... Simple Network Management Protocol -- The most
common management protocol used in networks. This
TCP/IP domain management function gives an
administrator an overview of network status and
direct control over network devices.
PRI-ISDN................... DSI configured for 23 bearer and 1 control channel.
Usually associated with ISDN. Bearer DSQs are
suitable for audio (voice), V.xx series modulation,
and clear channel synchronous data.
VCX........................ Switching Statistical Multiplexer -- It connects
local and remote asynchronous devices, such as host
computers, terminals and printers. It also provides
remote connectivity to VCX networks.
CSX........................ CSXs are terminal servers that connect local and
remote asynchronous devices, such as host
computers, terminals and printers to a Local Area
Network (LAN).
NACS/NASI.................. NetWare Asynchronous Services Interface. A Novell
networking communication protocol.
T1 CSU/DSU................. Channel Service Unit and Data Service Unit. It
converts digital signals from the LAN to analog
signals suitable for transmission across the line.
T1-PRI(ISDN-PRI)........... DSI configured for 23 bearer and 1 control channel.
Usually associated with ISDN. Bearer DSOs are
suitable for audio (voice), V.xx series modulation,
and clear channel synchronous data.
ISDN-BRI................... ISDN connection which uses two B channels (DSO) for
data and one D channel used mainly for call control
information. Each DSO provides a bandwidth of 64
kbps and the D channel 16 kbps.
THE COMPANY
The Company is in the business of developing and marketing products which
enable local, remote or mobile users to access network resources (the "Remote
Access Business"). The Company was incorporated on July 23, 1996 and was
spun-off from Penril on November 18, 1996 pursuant to the distribution (the
"Distribution") to the Penril stockholders on such date of shares of Common
Stock in connection with the merger of Penril with a wholly-owned subsidiary of
Bay Networks, Inc. (the "Penril/Bay Merger"). The Company retains the historical
financial information of Penril through November 18, 1996.
The Company's product line consists of the product family called Access
Beyond, serving the remote access market and products which serve the LAN and
Host Access product markets.
The Company's Access Beyond product family is targeted at the remote access
market, providing a scalable modular platform combining advanced modem, ISDN
BRI/PRI, remote access, internet working and terminal connectivity capabilities
within a single family of products. The Access Beyond products currently use
three chassis configurations supporting from one to eight interface modules for
end users to choose from, based on current needs and anticipated future growth.
Interface modules are then selected based upon WAN and LAN technology and port
density requirements. The result is a fully integrated solution that effectively
solves the end user's specific remote access needs.
The Access Beyond advanced remote access software delivers complete IP, IPX
and Appletalk routing, remote node and remote control capabilities including
NACS/NASI, all combined with full support for PPP, SLIP, CSLIP, LAT, Telnet, and
a wealth of security and management capabilities. In addition to full support
for SNMP, it provides an advanced, easy to use Windows based management and
configuration utility.
The Company recently introduced a new class of remote access solutions that
integrates both T1 and PRI-ISDN directly within Microsoft Windows NT servers.
This new technology, dubbed "Hawk", supports
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<PAGE> 13
either digital or analog (modem or ISDN) remote access transmission and can be
easily plugged into any Microsoft Windows NT or Novell Netware Connect and
Border Manager configured server. Servers can be configured to simultaneously
support existing network applications as well as remote access, with the Dynamic
Access Switching available in the Hawk solution. This substantially reduces
network traffic by connecting users directly into the server hosting the network
applications.
The LAN and Host Access Products currently sold by the Company include
statistical multiplexers and host access servers (VCX) and Ethernet terminal
servers (CSX), and a line of CSU/DSU wide area products. Each of the LAN and
Host Access Products provides the Company with an existing revenue stream as
well as an installed base.
The VCX product line of multiplexers ranges from 4-port remote site
multiplexers to enterprise solutions providing up to 304 ports or 36 trunk lines
and multipurpose communication servers that combine both WAN and LAN
capabilities. These products can function as a data PBX, X.25 PAD, statistical
multiplexer, terminal server or any combination of these. Although the market
for these products is in decline, the Company continues to serve the installed
base and fulfill customer applications.
The CSX Ethernet communications server family provides local and dialup
access to Ethernet LANs. Available as either 8-port or 16-port stand alone units
or as a modular chassis based solution, the CSX server provides terminal and
dialup access for TCP/IP networks.
On November 12, 1997 the Company and several investors entered into a
Preferred Stock Investment Agreement pursuant to which the Company agreed to
sell to the investors up to 45,000 shares of the Company's 6% Convertible Stock,
with a liquidation preference of $1,000 per share, at a purchase price of $1,000
per share. On November 12, 1997 10,000 shares of 6% Convertible Stock were sold
for $10,000,000. The Preferred Stock Investment Agreement provides that the
remaining up to 35,000 shares of 6% Convertible Stock will be purchased for
$1,000 per share (up to $35,000,000) immediately following closing of the
Merger, provided that no material adverse change occurs in the interim. See
"Ratification of Preferred Stock Investment Agreement."
The mailing address of the Company's principal executive offices is
currently 1300 Quince Orchard Boulevard, Gaithersburg, Maryland 20878, and the
phone number at that address is (301) 921-8600
HAYES
Hayes is in the business of designing, manufacturing, marketing and
supporting computer communications products for business, government, small
office, professional, and individual consumers worldwide through the sales of
modem, network and broadband products ("access systems"). Hayes was incorporated
on January 3, 1978 to develop and market modems designed for the microcomputer
marketplace.
While a substantial portion of the Hayes business is focused on its core
modem business, Hayes has broadened its products to include integrated network
communication products. In addition, Hayes has launched a substantial effort in
the broadband market offering products for the asymmetric digital subscriber
line ("ADSL") and the cable market.
For nearly two decades, Hayes has been a leader in providing value-based
modems. The Hayes standard AT command set has become the de facto industry
standard for personal computer modems and, along with the patented escape
sequence, created the market requirement for "Hayes compatibility."
Hayes' first product was released in April 1977 which was a modem for the
early S-100 type computers. Hayes developed the Micromodem II for the Apple II
before Apple had a disk drive. Hayes introduced the Smartmodem in June 1981. In
August 1981, IBM introduced the first IBM PC that legitimized the personal
computer industry. Personal computer ("PC") sales began to skyrocket and Hayes
was the leading manufacturer of modems to serve this market.
In the 1987 to 1988 time period, the "low price" modem competition began to
consolidate into recognizable brands from the multitude of market players. By
1989, Hayes realized the significance of the
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<PAGE> 14
emergence of what was internally referred to as clone modems (claiming Hayes
compatibility) as had been observed with clone PCs (IBM compatible) slightly
earlier. In August 1989, Hayes purchased Practical Peripherals, Inc. to
establish a presence in the clone modem market.
In the early 1990s, the consumer, small office/home office ("SOHO") market
experienced rapid expansion. In response, Hayes introduced the ACCURA product
line in 1993. This product line provided a different feature set and lower price
point than Hayes Ultra and Optima product lines. Competitors in this market
segment pursued an extremely aggressive price strategy to gain market share by
initiating rapid price erosion for this market.
Due to market price pressures Hayes reduced its ACCURA pricing in March
1994 to competitive levels. As a result, the ACCURA volumes increased
dramatically. In responding to the ACCURA volume increase, Hayes experienced a
number of operational and manufacturing problems. Due to excess inventory of old
designs, Hayes could not benefit from new lower cost product designs.
Additionally, there was an inadequate internal infrastructure and process in
place to support subcontractor start-up necessary to support increased demand
and significant air freight expense was required due to resultant delays in
subcontractor production. Inventory increased and severe margin compression
occurred.
The resulting strain on Hayes' cash position and operating losses combined
with insufficient capitalization precipitated Hayes' filing a petition for
relief under Chapter 11 of the United States Bankruptcy Code on November 15,
1994.
On April 16, 1996, Hayes consummated a court approved reorganization plan
(the "Plan"), under which all prepetition creditors were paid in full plus
interest, except where other agreements were made. Funding of the Plan was
provided through three major sources. First, pursuant to the Agreement and Plan
of Merger dated April 12, 1996 (the "Agreement") entered into by and between
Rinzai Limited ("ACMA"), Kaifa Technology (H.K.) Limited, Rolling Profit
Holdings, Ltd., Lao Hotel (H.K.), Limited, Saliendra Pte. Ltd., and S.P. Quek
Investments Pte. Ltd. (the "Investors"), certain subsidiaries were created by
the Investors which collectively contributed $35.0 million to fund the Plan and
merge with Hayes. The Investors received Hayes Series A Preferred Stock
representing a 49% voting interest in Hayes. Second, Hayes entered into an
agreement with the CIT Group/Credit Finance, Inc. to borrow up to an aggregate
of $64.5 million through three separate debt instruments collateralized by
Hayes' intellectual property, certain equipment, and accounts receivable and
inventory balances. Third, pursuant to the Plan, Hayes sold certain parcels of
real property.
During 1996, Dennis Hayes assembled a new management team comprised of
individuals from the communications industry to proceed with the turn around
begun during the Chapter 11 proceeding and to execute Hayes' business plan. On
October 9, 1997 Hayes received the final decree bringing its Chapter 11 case to
a close.
On April 24, 1997, Hayes acquired Cardinal Technologies, Inc. ("Cardinal"),
which Hayes believes added a highly visible brand to Hayes' brand portfolio and
strengthened Hayes' position in the North American retail market. In connection
therewith, Hayes received a $5.5 million investment from Vulcan Ventures, Inc.
("Vulcan Ventures"), one of the Paul Allen Group of Companies. The investment
involved the issuance of 263,113 shares of Hayes Series B Preferred Stock which
will be converted into 1,217,930 shares of Series A Preferred Stock upon the
Effective Time.
The mailing address of Hayes' principal executive offices is currently 5854
Peachtree Corners East, Norcross, Georgia 30092, and the telephone number at
that address is (770) 840-9200.
THE ANNUAL MEETING
Date and Place. The Annual Meeting will be held on December 29, 1997 at
10:00 a.m. local time at 1300 Quince Orchard Blvd., Gaithersburg, Maryland. See
"THE ANNUAL MEETING -- Date and Place; Record Date."
Purpose. The purpose of the Annual Meeting is to consider and vote upon
(i) the proposal (the "Proposal") to approve the Merger Agreement and the
transactions contemplated thereby and, (ii) the ratification of the Preferred
Stock Investment Agreement and the transactions contemplated thereby,
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<PAGE> 15
including the sale of up to 45,000 shares of 6% Convertible Stock and (iii) the
ratification of the appointment of Deloitte & Touche LLP as independent auditors
of Access Beyond for the fiscal year ending July 31, 1998. The transactions
contemplated by the Merger Agreement include, without limitation, (a) the
conversion of each outstanding share of (i) Hayes Common Stock, $.01 par value
per share, into a right to receive such number of shares of Common Stock as is
equal to the Conversion Ratio, (ii) Hayes Series A Preferred Stock into the
right to receive such number of shares of Common Stock as is equal to the
Conversion Ratio multiplied by the number of shares of Hayes Common Stock into
which such shares of Hayes Series A Preferred Stock is then convertible, and
(iii) Hayes Series B Preferred Stock into the right to receive such number of
shares of Series A Preferred Stock as is equal to the Conversion Ratio
multiplied by the number of shares of Hayes Common Stock into which such shares
of Hayes Series B Preferred Stock is then convertible; (b) the amendment of the
Company's Certificate of Incorporation to (i) change its name to Hayes
Corporation, (ii) increase the number of authorized shares of capital stock of
the Company and (iii) create the Series A Preferred Stock; (c) expand the Board
of Directors of the Company to seven members, five of whom will be designated by
the Hayes shareholders; and (d) assumption by the Company of the obligations of
Hayes under the Hayes Option Plan.
Stockholders Entitled to Vote; Requisite Approval. Holders of record of
shares of Common Stock at the close of business on December 5, 1997 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 12,559,931 shares of Common Stock outstanding, each of
which will be entitled to one vote on each matter to be acted upon at the Annual
Meeting. The affirmative vote of holders of a majority of the outstanding shares
of Common Stock is required for approval of the Proposal, for ratification of
the Preferred Stock Investment Agreement and for ratification of the appointment
of Deloitte & Touche LLP as independent auditors of the Company for the fiscal
year ending July 31, 1998.
Approval by the Company Board. The Company Board unanimously (i) approved
the Merger Agreement and the transactions contemplated thereby and recommends
that stockholders vote "FOR" approval and adoption of the Merger Agreement and
the transactions contemplated thereby, (ii) approved the Preferred Stock
Investment Agreement and the transactions contemplated thereby and recommends
that the stockholders vote "FOR" ratification of the Preferred Stock Investment
Agreement and the transactions contemplated thereby and (iii) approved the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
the fiscal year ending July 31, 1998. See "THE ANNUAL MEETING -- Purpose of the
Annual Meeting."
THE MERGER AND THE MERGER AGREEMENT
General. At the Effective Time, (a) the separate existence of the
Subsidiary will cease and the Subsidiary will be merged with and into Hayes, and
Hayes will be the surviving corporation, (b) Hayes will become a wholly-owned
subsidiary of the Company, (c) the certificate of incorporation and by-laws of
Hayes will remain the certificate of incorporation and by-laws of Hayes as the
surviving corporation, (d) each share of the Subsidiary's common stock
outstanding prior to the Effective Time will be converted into one outstanding
share of Hayes Common Stock, (e) the directors of Hayes serving subsequent to
the Effective Time will be the directors of Hayes as the surviving corporation,
and (f) each share of Hayes capital stock and each Hayes option and warrant
outstanding immediately prior to the Effective Time will be converted into
shares, options and warrants, respectively, of the Company. Assuming that none
of the Hayes Shareholders perfect dissenters' rights, (i) the 4,991,750 shares
of Hayes Common Stock outstanding on the date hereof will be converted into the
right to receive 23,106,433 shares of Common Stock, (ii) the 4,900,000 shares of
Hayes Series A Preferred Stock outstanding on the date hereof will be converted
into the right to receive 22,681,729 shares of Common Stock and (iii) the
263,113 shares of Hayes Series B Preferred Stock outstanding on the date hereof
will be converted into the right to receive 1,217,930 shares of Series A
Preferred Stock. As a result of the Merger, the shareholders of Hayes at the
Effective Time will own approximately 79% of the outstanding equity securities
of the Company immediately after the Effective Time other than options and the
Company's 6% Convertible Stock and shares of Access Beyond Common Stock issued
or issuable upon conversion thereof (such 6% Convertible Stock and such shares
of Common Stock, collectively, the "6% Securities"). After giving effect to the
Merger and assuming that (x) all then vested and
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<PAGE> 16
exercisable options and warrants to purchase Hayes Common Stock are exercised
and (y) none of the then vested and exercisable options to purchase the
Company's Common Stock are exercised, the Hayes shareholders will own
approximately 80.08% of the issued and outstanding equity securities of the
Company, excluding options and the 6% Securities. A copy of the Merger Agreement
is attached hereto as Exhibit A. See "THE MERGER AGREEMENT." At the Effective
Time the symbol for the Company's Common Stock on NASDAQ/NMS will be changed to
"HAYZ".
The Company's Reasons for the Merger. The Company Board determined that
the Merger is fair to and in the best interests of the Company and its
stockholders, and unanimously approved the Merger Agreement and the transactions
contemplated thereby. During fiscal 1997 the emergence of new competitors and
several consolidations in the Company's industry contributed to concern over
whether the Company had sufficient resources to compete effectively. The
Company's management believes that Hayes' world wide brand name, global
distribution system and low cost manufacturing capabilities will enable the
Company's remote access products to be brought to market sooner, on a broader
basis and with lowered product costs. The Company's management also believes
that the Merger will produce significant consolidation and cost-cutting
opportunities. The Company Board believes that the Merger will provide
significant value to its stockholders and offers opportunities for growth using
the manufacturing expertise, distribution channels and technology available from
Hayes. The Company Board considered a number of potential benefits in reaching
its decision, including (a) the ability to have its products manufactured cost
effectively, (b) the ability to have its products quickly distributed through
distribution channels significantly greater than those of the Company, (c)
obtaining the experience and expertise of engineers and design specialists to
help advance the Company's business and technology, (d) the financial condition,
results of operations and prospects of the Company in the absence of a business
combination or similar transaction and (e) the terms and conditions of the
Merger Agreement, which the Company Board concluded to be advisable and fair to
the Company and its stockholders in light of the nature of the transaction with
Hayes and which led the Company Board to conclude that, in its opinion, there is
a high likelihood of the Merger being consummated. See "THE MERGER -- Background
of the Merger" and "THE MERGER -- The Company's Reasons for the Merger."
Opinion of Financial Advisor to the Company Board. Donaldson, Lufkin &
Jenrette Securities Corporation, ("DLJ") which was engaged by the Company Board
to serve as its financial advisor, delivered its opinion to the Company Board on
August 26, 1997, stating that, as of such date, the Conversion Ratio was fair to
the Company and its stockholders from a financial point of view. DLJ has
delivered to the Company Board a subsequent opinion dated as of December 9, 1997
confirming its August 26, 1997 opinion. The full text of the written opinion of
DLJ dated as of December 9, 1997, is attached hereto as Exhibit B. Holders of
the Company's securities are urged to read the opinion in its entirety. See "THE
MERGER -- Opinion of DLJ."
Hayes Shareholders Meeting. Pursuant to a shareholders' agreement by and
among Hayes and Common, Series A Preferred and Series B Preferred shareholders
of Hayes (the "Hayes Shareholders") dated April 16, 1996, as amended on April
23, 1997, Hayes and the Hayes Shareholders have agreed that a 70% affirmative
vote shall be required for a transaction such as the Merger. In connection with
the Merger Agreement, holders of 69.5% of Hayes capital stock have already
agreed to vote in favor of the Merger. Hayes will hold an annual shareholders'
meeting (the "Hayes Annual Meeting") to consider and vote upon a proposal to
approve the Merger and adopt the Merger Agreement and the transactions
contemplated thereby. The proposal will include the conversion of all
outstanding shares of (a) Hayes Common Stock into a right to receive such number
of shares of Company Common Stock as is equal to the Conversion Ratio, (b) Hayes
Series A Preferred Stock into the right to receive such number of shares of
Company Common Stock as is equal to the Conversion Ratio multiplied by the
number of shares of Hayes Common Stock into which such shares of Hayes Series A
Preferred Stock is then convertible and (c) Hayes Series B Preferred Stock into
the right to receive such number of shares of Series A Preferred Stock as is
equal to the Conversion Ratio multiplied by the number of shares of Hayes Common
Stock into which such shares of Hayes Series B Preferred Stock is then
convertible.
Holders of record of Hayes Common Stock and Hayes Series A Preferred Stock
as of December 3, 1997 (the "Hayes Record Date"), are entitled to notice of and
to vote at the Hayes Annual Meeting. The
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<PAGE> 17
Hayes Board of Directors (the "Hayes Board") has unanimously approved the Merger
and the Merger Agreement and the transactions contemplated thereby and has
recommended that the Hayes Shareholders who have not already approved the Merger
and the Merger Agreement, vote for approval and adoption of the Merger Agreement
and the transactions contemplated thereby.
Holders of Hayes capital stock who dissent from the Merger are entitled to
the rights and remedies of dissenting shareholders set forth in Article 13 of
the GBCC subject to compliance with the procedures set forth therein. See "THE
MERGER -- Dissenters' Rights."
Hayes' Reasons for the Merger. The Hayes Board determined that the Merger
is fair to and in the best interests of Hayes and its shareholders, and
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The Hayes Board believes that the Merger will provide significant value
to its shareholders and offer opportunities for growth using the expertise and
technology available from the Company. In reaching its decision to approve the
Merger Agreement and the transactions contemplated thereby, the Hayes Board
considered several factors including (a) the consideration to be received by the
Hayes Shareholders, (b) the potential for the Hayes Shareholders to hold shares
of a public company, and, therefore, obtain the possibility of a more active
trading market than a private company, (c) the terms and conditions of the
Merger Agreement, which the Hayes Board concluded to be advisable and fair to
Hayes, and the likelihood of the Merger being consummated, (d) the information
relating to the financial condition, results of operations and prospects of
Hayes in the absence of a business combination or similar transaction, and (e)
the tax-free nature of the exchange of Hayes capital stock for the Company's
capital stock. Hayes management also believes that the combination of the two
companies will reduce costs by eliminating redundant expenses, and realizing
certain economies of scale. The Merger will eliminate the existing vendor-buyer
relationship between the two companies, which Hayes management expects to
immediately improve margins for remote access products. The integration and
elimination of overlapping activities is expected to improve overall operating
results in the remote access product line. Hayes management also expects the
consolidation of R&D resources to reduce product development cycles and improve
time-to-market for new remote access products. Hayes management also believes
that the market for remote access products is beginning to experience
significant acceptance which Hayes management believes indicates potential rapid
growth opportunity in the general business application of the technology. Hayes
management expects the combined companies to take advantage of Hayes'
distribution channels, thereby avoiding direct competition with established
remote access equipment vendors who principally serve large users such as
internet service providers, enabling the combined companies to realize
significant revenue growth opportunities in the global marketplace for remote
access products.
Conditions to the Merger. The respective remaining obligations of the
Company and Hayes to consummate the Merger are subject to the satisfaction or
waiver (where permissible) of certain conditions, including, but not limited to,
approval of the Merger Agreement and the transactions contemplated thereby by
the holders of the requisite number of shares of Common Stock and Hayes capital
stock; the absence of any stop order suspending the effectiveness of the
Registration Statement of which this Proxy Statement/ Prospectus is a part; the
approval for listing of the shares of Common Stock issued in the Merger on
NASDAQ/NMS; obtaining consents or waivers from other parties to material
contracts and leases; and the absence of any order, ruling or decree that would
prohibit or render illegal the transactions contemplated by the Merger
Agreement. See "THE MERGER AGREEMENT -- Conditions."
Amendment or Waiver. Any term of the Merger Agreement may be amended or
waived in writing by the parties thereto at any time before or after approval of
the Hayes Shareholders or the Company's stockholders.
Termination; Effect of Termination. The Merger Agreement may be
terminated, and the Merger abandoned prior to the Effective Time, whether before
or after approval of the Merger by the stockholders of the Company and/or the
shareholders of Hayes (a) by mutual written consent of the Company and Hayes;
(b) by either the Company or Hayes if the Merger is not consummated by 5:00 p.m.
(Eastern Time) on March 1, 1998; (c) by either the Company or Hayes if any of
the Hayes Shareholders repudiate the voting
7
<PAGE> 18
agreements entered into by them pursuant to which the holders of 69.5% of Hayes
capital stock agreed, among other things, to vote in favor of the Merger (the
"Voting Agreements"); (d) by either the Company or Hayes if the Merger is not
approved by their respective stockholders and shareholders; and (e) under
certain other circumstances, including performance by the Company Board or the
Hayes Board of their fiduciary obligations. Upon termination of the Merger
Agreement under certain circumstances, the non-terminating party will be
required to pay the terminating party certain costs, expenses and a break-up fee
which will be considered non-refundable liquidated damages. See "THE MERGER
AGREEMENT -- Termination; Effect of Termination."
Regulatory Approvals.
Antitrust. The Merger is subject to the requirements of the HSR Act and
the rules and regulations thereunder, which provide that certain transactions
may not be consummated until required information and material have been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and certain waiting
periods have expired or been terminated. The Company and Hayes filed the
required information and material with the Antitrust Division and the FTC on
November 12, 1997 and the statutory waiting period under the HSR Act has been
terminated. See "THE MERGER -- Regulatory Approvals."
State Securities Laws. Prior to the Effective Time, the Company shall use
reasonable, diligent efforts to obtain all regulatory approvals needed to ensure
that the securities issued in the Merger will be registered or qualified under
the securities laws, or exempt therefrom, in every jurisdiction of the United
States in which any holder of the Hayes capital stock has an address of record
on the Record Date. Hayes shall use reasonable, diligent efforts to assist the
Company to comply with the securities and Blue Sky laws of all applicable
jurisdictions in connection with the Merger.
Management and Operations of the Company after the Merger. After the
Effective Time, the Company Board will consist of seven persons, five of whom
will be designated by Hayes Shareholders. In addition, Dennis Hayes, the founder
and Chairman of Hayes, will become Chairman of the Company; Ronald Howard,
Chairman and Chief Executive Officer of the Company will become Vice-Chairman
and Chief Executive Officer of the Company; and P.K. Chan, President and Chief
Operating Officer of Hayes will become President and Chief Operating Officer of
the Company.
Comparison of Rights Under Applicable Law. The rights of shareholders of
Hayes are currently governed by Georgia law, the Hayes certificate of
incorporation and the Hayes by-laws. Holders of Hayes capital stock immediately
prior to the Effective Time will become stockholders of the Company, a Delaware
corporation, and their rights as stockholders of the Company will be governed by
applicable Delaware law, the Company's amended and restated certificate of
incorporation (the "Certificate of Incorporation") and the Company's by-laws
(the "By-laws") from and after the Effective Time. See "COMPARISON OF RIGHTS OF
STOCKHOLDERS OF THE COMPANY AND HAYES."
Appraisal Rights. Holders of Common Stock will not be entitled to
appraisal rights under Delaware law in connection with the Merger. See "THE
MERGER -- Dissenters Rights."
Holders of Hayes capital stock who have complied with all requirements for
perfecting shareholders' dissenters' rights, as set forth in Section 14-2-310 et
seq. of the GBCC, shall be entitled to their rights under the GBCC with respect
to such shares (the "Dissenting Shares") and not to any portion of the Common
Stock or Series A Preferred Stock receivable by the Hayes Shareholders by reason
of the Merger. See "THE MERGER -- Appraisal Rights" and "COMPARISON OF
STOCKHOLDERS' RIGHTS -- Appraisal Rights."
Accounting Treatment. The Merger will be treated as a reverse acquisition
of the Company by Hayes. In a reverse acquisition, the accounting acquiror
receives less than 100 percent of the post combination shares since it is not
the legal issuer. The Hayes Shareholders will receive approximately 79% of the
post combination shares of the Company, excluding the 6% Securities, and will be
the accounting acquiror. The cost of the acquisition of the Company will be
based on the fair value of the Company's outstanding shares and certain
acquisition costs and allocated to the issuer's net assets following the
guidance of APB 16 Accounting For
8
<PAGE> 19
Business Combinations. As a result of the reverse acquisition of the Company by
Hayes, the historical financial statements of the surviving corporation for
periods prior to the Merger will be those of Hayes rather than the Company. See
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
Material Tax Consequences of the Merger. The Merger is intended to qualify
as a "tax-free reorganization" within the meaning of Sections 368(a)(1) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code").
However, cash received by Hayes Shareholders in lieu of fractional shares, and
cash received by any Hayes stockholder who may exercise any dissenters rights,
may give rise to taxable income. See "THE MERGER -- Material Tax Consequences of
the Merger." Each stockholder of the Company and each shareholder of Hayes is
urged to consult his or her tax advisor to determine the specific tax
consequences of the Merger to such holder.
Effective Time of the Merger. Subject to the terms and conditions of the
Merger Agreement, the Certificate of Merger of the Subsidiary with and into
Hayes will be filed with the Secretary of State of the State of Georgia on the
Closing Date. The date and time that the Certificate of Merger is filed with the
Georgia Secretary of State and the Merger becomes effective is the Effective
Time.
Exchange of Stock Certificates. As of the Effective Time, all shares of
Hayes capital stock outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist, and all such shares will be
converted into the right to receive from the Company a certain number of shares
of Common Stock and/or Series A Preferred Stock. Unless surrendered to the
Company for exchange at the Closing, as soon as practicable after the Effective
Time, each holder of shares of Hayes capital stock will surrender (a) the
certificates for such shares (the "Hayes Certificates") to the Company for
cancellation or (b) an affidavit of lost (or nonissued) certificate and
indemnity with respect to the same. Promptly following the Effective Time and
receipt of the Hayes Certificates, the Company will cause its transfer agent to
issue to each such surrendering holder, certificate(s) for the number of such
shares of Common Stock and/or Series A Preferred Stock to which such holder is
entitled, and the Company will distribute cash payable for any fractional
shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the Company Board with
respect to the Merger Agreement, stockholders of the Company should be aware
that certain members of the Company Board and management have interests in the
Merger that are in addition to or different from the interests of stockholders
generally. Certain directors and executive officers of Hayes will also receive
benefits that differ from or are in addition to the benefits received by all
other shareholders. In addition, in connection with the Merger, the Company has
agreed to treat Hayes options and warrants and Company options in the manner
described below.
Affiliate Agreements. All affiliates, as such term is defined in Rule 145
promulgated under the Securities Act, of Hayes have executed an Affiliate
Agreement whereby each such affiliate has covenanted and agreed not to offer,
sell or otherwise dispose of any of the shares of Common Stock and/or Series A
Preferred Stock issued to such affiliate in the Merger in violation of the
Securities Act and Rule 145 promulgated thereunder, and will make no disposition
of such shares of the Company's securities for 90 days after the Effective Time,
except for Mr. Hayes who has agreed to sell no more than $3.0 million of the
Company's securities for an additional 180-day period thereafter.
Bonus Compensation. Upon closing of the Merger, Mr. Hayes and Chiang Lam,
each of whom is a director of Hayes, will be entitled to receive cash bonuses of
$450,000 and $275,000, respectively. Upon closing of the Merger, pursuant to the
terms of an existing employment agreement between Mr. Howard and the Company,
which will terminate at the Effective Time of the Merger, Mr. Howard will be
entitled to receive a cash payment equal to $437,500. Mr. Howard has advised the
Company that in lieu of receiving such cash payment, he will accept shares of
Common Stock having a value equal to such amount. See "MANAGEMENT -- Employment
and Consulting Agreements."
9
<PAGE> 20
Shareholders Agreement. Each of the Hayes Shareholders and Mr. Howard have
entered into a shareholders' agreement (the "Shareholders' Agreement"),
effective as of the Effective Time, in respect of the voting of their respective
shares of the Company's securities for the election of directors. Such
Shareholders' Agreement provides that the shares owned by such persons will be
voted to elect Messrs. Hayes and Howard and five persons designated by certain
of the Hayes Shareholders.
Employment Agreements. At the Effective Time, Messrs. Hayes and Howard
will enter into employment agreements with the Company (the "Hayes Employment
Agreement," and the "Howard Employment Agreement," respectively), the terms of
which shall be for three (3) years from January 1, 1998, unless earlier
terminated. Pursuant to the Hayes Employment Agreement, Mr. Hayes will be
entitled to receive a base salary of $400,000 per year, bonuses of up to
$800,000 per year as determined by the Company Board or Compensation Committee
and options each year to purchase 200,000 shares of Common Stock. Pursuant to
the Howard Employment Agreement, Mr. Howard will be entitled to receive a base
salary of $280,000 per year, bonuses of up to approximately $191,000 per year as
determined by the Company Board or Compensation Committee and stock options each
year to purchase 150,000 shares of Common Stock. See "THE MERGER -- Interests of
Certain Persons in the Merger."
Hayes Options and Warrants. All outstanding options and warrants to
purchase shares of Hayes will be assumed by the Company, with appropriate
adjustment to the number of shares covered and the exercise price to give effect
to the Conversion Ratio. Based upon the number of options and warrants to
purchase shares of Hayes issued on the date hereof, as of the Effective Time the
Company will assume warrants for 1,851,569 shares of Common Stock and options
for 5,426,256 shares of Common Stock. Options and warrants to purchase 5,971,312
shares of Hayes Common Stock are held by current officers and directors of
Hayes.
Company Options. Insofar as the Merger constitutes a "change in control"
under the Company's Amended and Restated 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") options to purchase shares of Common Stock
granted under the Directors' Plan will become fully vested and will terminate,
on the later of 90 days after the Effective Time or seven months following the
date of grant of each option. Insofar as the Merger will constitute a "change in
control," an option holder will generally have the right, commencing at least
five days prior to the "change in control" and subject to any other limitation
on the exercise of the option in effect on the date of exercise, to immediately
exercise any options in full to the extent not previously exercised, without
regard to any vesting limitations. Options to purchase shares of Common Stock
granted under the Company's Amended and Restated 1996 Long-Term Incentive Plan
(the "Incentive Plan") will not become fully vested as a result of the Merger
unless, as to each such option holder, his employment is terminated without good
cause within nine months following the Effective Time.
RISK FACTORS
For a discussion of certain risk factors that should be considered
carefully by the Company's stockholders in determining whether to vote in favor
of the Merger and by the Hayes Shareholders in determining whether to exchange
their Hayes capital stock for the Company's capital stock or to perfect their
statutory appraisal rights, see "RISK FACTORS" beginning on page 14.
10
<PAGE> 21
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The table below sets forth selected consolidated historical financial data
of the Company. The selected financial data for the Company for the year ended
July 31, 1997 has been obtained from audited financial statements of the
Company. The selected financial data for the Company for the fiscal years ended
July 31, 1996, 1995, 1994, and 1993 have been derived from the audited
consolidated financial statements of Penril, the former parent company of Access
Beyond. All of the data derived from the audited financial statements should be
read in conjunction with Access Beyond's "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein and
the consolidated financial statements and the notes thereto included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1).......................... $44,108 $61,838 $52,611 $39,435 $18,000
Net income (loss)
Continuing operations(2)............... 1,027 2,345 (4,614) (20,668) (13,890)
Discontinued operations................ (896) (828) (1,661) 404 --
Loss on disposal of discontinued
operations............................. -- -- (1,400) (640) (3,735)
Earnings (loss) per share
Continuing operations.................. 0.15 0.30 (0.61) (2.14) (1.16)
Discontinued operations................ (0.13) (0.11) (0.22) 0.04 --
Loss on disposal....................... -- -- (0.19) (0.07) (0.31)
Cash dividends per share................. -- 0.02 -- -- --
BALANCE SHEET DATA:
Total assets(3).......................... $49,178 $51,061 $44,388 $33,780 $13,906
Working capital.......................... 11,727 13,502 12,158 16,798 3,631
Long-term debt........................... 10,217 8,890 5,681 905 743
Stockholders' equity..................... 27,501 28,580 21,723 18,215 7,311
Book value per common share.............. 3.96 3.66 2.87 1.89 .61
</TABLE>
- ---------------
(1) Included in net revenues are the following net revenues relating to Penril's
modem business which was acquired by Bay Networks, Inc. ("Bay") immediately
prior to the Penril/Bay Merger, including $4.5 million paid in the fourth
quarter of fiscal 1996 to Penril for a license agreement with Bay:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net revenues...................... $21,768 $22,828 $18,974 $19,519 $4,228
</TABLE>
(2) Net income from continuing operations for fiscal 1996 included a charge of
$9.7 million for restructuring costs and $500,000 for costs incurred through
July 31, 1996 related to the Penril/Bay Merger.
(3) Included in total assets are the following net assets related to two
discontinued operations (Technipower, Inc., a subsidiary the assets of which
were sold by Penril on October 11, 1996, and Electro-Metrics, Inc. ("EMI"),
a subsidiary the assets of which were sold on June 30, 1997):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net assets........................ $7,299 $6,830 $5,145 $7,337 $0
</TABLE>
11
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA OF HAYES
The following selected consolidated historical financial data of Hayes has
been derived from its audited consolidated historical financial statements
except for the nine months ended September 30, 1996 and 1997 and should be read
in conjunction therewith and the notes thereto included herein. All of the data
derived from the audited and unaudited financial statements should be read in
conjunction with Hayes' "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein and the
consolidated financial statements and the notes thereto included herein. The
unaudited amounts have been derived from the financial records, include only
normal recurring adjustments and are not indicative of a full year.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED SEPTEMBER 30,
---------------------------------------------- DECEMBER 31, DECEMBER 31, --------------------
1992 1993 1994 1995(1)(3) 1995(1)(2)(3) 1996(1)(3) 1996(1)(3) 1997(1)
-------- -------- -------- ---------- ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............. $171,453 $206,191 $246,277 $269,155 $ 70,111 $257,452 $201,434 $146,701
Net income (loss)........ 3,883 887 (28,066) (14,383) (4,637) (13,154) (9,664) (14,522)
Earnings (loss) per
share.................. $ .68 $ .16 $ (4.98) $ (2.56) $ (.82) $ (2.52) $ (1.82) $ (2.91)
BALANCE SHEET DATA:
Total assets............. $ 93,409 $103,939 $124,964 $100,964 $ 91,696 $ 69,215 $ 77,342 $101,948
Working capital.......... 29,687 30,314 15,840 25,994 25,270 3,654 8,353 (14,444)
Total debt............... 9,108 10,307 28,685 -- 11,134 20,854 25,657 36,231
Redeemable preferred
stock, series B........ -- -- -- -- -- -- -- 5,455
Stockholders' equity
(deficit).............. 43,039 44,125 15,897 1,683 (3,012) 5,741 9,489 (9,603)
</TABLE>
- ---------------
(1) On November 15, 1994, Hayes filed a petition for relief under Chapter 11 of
the United States Bankruptcy Code. On March 8, 1996, Hayes' Chapter 11 Plan
was confirmed by the U.S. Bankruptcy Court and became effective on April 16,
1996. Hayes received the final decree bringing its Chapter 11 case to a
close on October 9, 1997.
(2) Effective October 1, 1995, Hayes changed its year end from September 30 to
December 31.
(3) Included in net income (loss) are the following reorganization costs related
to the Chapter 11 filing:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1996
------------------ ----------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
$5,026 $ 4,301 $ 5,378 $5,378
</TABLE>
The net loss for the year ended December 31, 1996 and nine months ended
September 30, 1996 also includes a gain on the sale of land of $8.2 million and
includes a plant closure and inventory writedown costs associated with such
plant closure of $6.0 million.
12
<PAGE> 23
SELECTED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed combined statement of operations data
gives effect to the Merger as if it had occurred at the beginning of the
earliest period presented. The unaudited pro forma condensed combined balance
sheet data gives effect to the Merger as if it had occurred on September 30,
1997.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................... 278,682 157,786
Net loss................................... (42,463) (28,909)
Loss per share............................. (.73) (0.50)
BALANCE SHEET DATA:
Total assets............................... 127,840
Working capital............................ (14,064)
Total debt................................. 36,974
Redeemable preferred stock, Series B....... 5,455
Stockholders' equity....................... 5,694
</TABLE>
See "Unaudited Pro Forma Condensed Combined Financial Statements".
13
<PAGE> 24
RISK FACTORS
Hayes' Shareholders should be aware that ownership of the Common Stock and
Series A Preferred Stock of the Company involves certain risks, including those
described below, which could adversely affect the value of their holdings of
Common Stock or Series A Preferred Stock. The Company does not make, nor has it
authorized any other person to make, any representation about the future market
value of the Common Stock or Series A Preferred Stock. In addition to the other
information contained in this Proxy Statement/Prospectus, the following factors
should be considered carefully in evaluating an investment in the Securities
offered hereby. The following factors should also be considered carefully by the
stockholders of the Company in determining whether to vote in favor of the
Merger.
ABSENCE OF PROFITABLE OPERATIONS; LIQUIDITY
The Company, and the Remote Access Business as conducted by Penril, have
not been profitable for the past three fiscal years. Penril posted a net loss
from continuing operations of $4.6 million for fiscal 1995, and $20.7 million
for fiscal 1996 and the Company posted a net loss of $13.9 million for fiscal
1997. Such losses have been due, in part, to decreased revenues caused by a
declining market for certain Penril products that began in fiscal 1995,
non-recurring restructuring costs in connection with operations that were
discontinued due to decline in market demand, costs related to the Penril/Bay
Merger, which occurred during fiscal 1996, costs associated with development of
the Remote Access Business and the spinning off of the Company from Penril
during the year ended July 31, 1997. In addition, during fiscal 1997, the
Company's revenues including, in particular, its revenues from the "Access
Beyond" product family, have been insufficient for the Company to be profitable.
There can be no assurance that the Company will achieve profitability, or that
the Company will be able to increase sales of its products to an amount which
will generate adequate cash for operational and capital needs.
Hayes has not been profitable for the past three fiscal years. On November
15, 1994, Hayes filed a petition for relief under Chapter 11 of the United
States Bankruptcy Code due to its inability to pay its debts on a current basis.
Although Hayes consummated a court approved Reorganization Plan on April 16,
1996 and closed the bankruptcy on October 9, 1997, it has accumulated losses of
approximately $32.7 million since April 16, 1996.
The Company and Hayes have financed their loss from operations in the past
three years (or shorter period with respect to the Company) primarily through
private sales of equity securities, borrowings under credit facilities and sale
of assets, including assets from discontinued operations. On a pro forma
combined basis the Company and Hayes had a working capital deficit of
approximately $14.1 million at September 30, 1997.
At the Effective Time, only a limited amount of cash will be available for
working capital from credit facilities of the combined companies. The Preferred
Stock Investment Agreement provided the Company with $10.0 million of cash on
November 12, 1997. Both the Company and Hayes are relying on $35.0 million of
anticipated cash from the closing of the second installment of the Preferred
Stock Investment Agreement immediately following the Effective Time to provide
working capital following the Merger. In the event that the closing of such
second installment is not consummated, cash provided by future operations and
available borrowings under the Company's and Hayes' credit facilities or lines
of credit could be insufficient to meet the Company's working capital
requirements. There can be no assurance that the closing of such second
installment will be consummated. Hayes is also pursuing the possibility of new
credit facilities, but there can be no assurance that these will be obtained.
Due to Hayes' having not met certain covenants under its credit facility
with CIT requiring minimum levels of net worth and net income at December 31,
1996, CIT revised the interest rate under the facility from prime plus 1.625% to
prime plus 2.125%.
14
<PAGE> 25
LIMITED TRADING HISTORY OF THE COMMON STOCK; NO PUBLIC MARKET FOR SERIES A
PREFERRED STOCK
The Common Stock has a limited history as a publicly traded security. The
price for the Common Stock is determined in the market place and may be
influenced by many factors, including the operating performance of the Company,
the depth and liquidity of the market for the Common Stock, investor perception
of the Company and general economic and market conditions. There is no trading
market for the Series A Preferred Stock, and the Company does not intend to list
it on any national exchange or NASDAQ/NMS. There can be no assurance that an
orderly market for the Common Stock will be sustained, and the prices at which
the Common Stock is traded may fluctuate significantly.
LIMITED OPERATING HISTORY
The Company began operations on November 18, 1996 for the purpose of
receiving certain lines of business which were to be spun off from Penril. The
Company, as a separate entity, has a limited operating history. The Remote
Access Business, as conducted by Penril prior to the distribution of the Common
Stock to Penril shareholders in November 1996, had an operating history
consisting of the development and sale of local area network ("LAN") and host
access products (the "LAN and Host Access Products") and the development of a
new product family called "Access Beyond." See "-- Relationship with Penril" and
"BUSINESS OF THE COMPANY -- Principal Products."
DEPENDENCE ON KEY MANAGEMENT
If the Company is to be successful, its success will be due in large part
to the performance of Messrs. Hayes, Howard and Chan, and, to a lesser extent,
other key management personnel. Although the Company will have employment
agreements with Messrs. Hayes, Howard and Chan which provides for their
continued employment, no assurance can be given that the Company will be able to
retain their services or the services of any other key management personnel. The
loss of the services of one or more of the Company's senior management following
the Merger could have a material adverse effect upon the Company's business,
operating results and financial condition. See "MANAGEMENT OF HAYES -- Executive
Compensation" and "MANAGEMENT OF HAYES -- Employment Agreements."
RISKS RELATING TO INTEGRATION OF THE BUSINESSES
There can be no assurance that the economies which the Company and Hayes
expect to realize as a result of the combination of the businesses will be
achieved, or that the personnel from the two companies will be successfully
integrated.
In order for such integration to be successful, the general and
administrative operations, research and development operations and sales and
marketing operations of Hayes and the Company must be combined. There can be no
assurance that Hayes and the Company will be successful in integrating such
operations. There is no assurance that the Company will not encounter unforeseen
expenses, as well as difficulties and complications in integrating expanded
operations without disruption to overall operations. In addition, the
combination may adversely affect the Company's operating results because of many
factors, including diversion of management time and resources and required
operating adjustments. There can be no assurance that the Company will
successfully integrate or achieve the anticipated benefits of its expanded
operations.
TECHNOLOGICAL CHANGES
The market for networking and modem products is subject to rapid
technological change, evolving industry standards and frequent new product
introductions and, therefore, requires a high level of expenditures for research
and development. The Company may be required to incur significant expenditures
to develop new integrated product offerings. There can be no assurance that
customer demand for products integrating network connectivity and remote access
technologies will grow at the rate expected by the Company, that the Company
will be successful in developing, manufacturing and marketing new products or
product enhancements that respond to these customer demands or to evolving
industry standards and technological change, that the Company will not
experience difficulties that could delay or prevent the successful development,
15
<PAGE> 26
introduction, manufacture and marketing of these products (especially in light
of the increasing design and manufacturing complexities associated with the
integration of technologies), or that its new products and product enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. The Company's business, operating results and financial condition
may be materially and adversely affected if the Company encounters delays in
developing or introducing new products or product enhancements or if such
product enhancements do not gain market acceptance. In order to maintain a
competitive position, the Company must also continue to enhance its existing
products and there is no assurance that it will be able to do so. The Company
will be required to continue to make significant investment in research and
development to refine Hayes' products and its products and to continue to
develop additional products. A major portion of future revenues is expected to
come from new products and services. The Company cannot determine the ultimate
effect that new products will have on its revenues or earnings. The rapid
technological change and short life span of networking and modem products
subject the Company to the risk of inventory obsolescence, customer product
returns and unfavorable manufacturing costs as a result of disruption to
manufacturing schedules.
In 1997, the modem industry introduced modems that provide a throughput
capacity of 56kbs compared to the industry standard of 33.6kbs. The industry has
not established a standard for 56kbs modems and there are two competing 56kbs
technologies. Hayes introduced 56kbs products in early 1997 and sells products
using either K56 Flex or X2 technologies. Demand for 56kbs products has been
slow to develop and a substantial portion of Hayes revenues continue to be for
33.6kbs products. Hayes' modem buyers could be adversely impacted by
obsolescence changes, channel inventory returns and unfavorable manufacturing
variances if there was a sudden change in demand for 56kbs vs 33.6kbs products.
POSSIBLE LOSS OF TECHNOLOGY
The Company acquired technology and intellectual property rights relating
to certain open remote dial access cards used in its Hawk products principally
in consideration of the issuance of 503,704 shares of Common Stock. Although the
Company has registered the resale of such shares under the Securities Act, if it
fails to use its best efforts to maintain the effectiveness of the Registration
Statement then such technology and rights could be lost which loss could have a
material adverse effect on the Company.
COMPETITION
The networking industry is highly competitive and competition is expected
to intensify. There are numerous companies competing in various segments of the
network management and remote access markets. Competitors include Ascend
Communications, Shiva Corporation, Cisco Systems, Inc., 3Com Corporation
("3Com"), Microcom, Inc. ("Microcom") and Bay Networks, Inc., among others. Many
of the Company's competitors have greater name recognition, more extensive
engineering, manufacturing and marketing capabilities and greater financial,
technological and personnel resources than those available to the Company. In
addition, certain companies in the networking industry have expanded their
product lines or technologies in recent years as a result of acquisitions. There
can be no assurance that the Company will be able to compete successfully in the
future with existing or new competitors.
Hayes' business products compete with the business products of 3Com, AT&T
Corp, Multi Tech Corp., Motorola, Inc. and others. 3Com is one of Hayes' most
significant competitors in the retail modem market. Other competitors of Hayes
in the retail modem market include Golden Video Corporation ("GVC"), Boca
Research, Inc. ("Boca"), Zoom Telephonics, Inc. ("Zoom"), Diamond Multimedia
Systems, Inc. ("Diamond") and others.
There are many other companies engaged in the research, development and
commercialization of products similar to the Hayes modem, network and broadband
products. Some of the Company's competitors and potential competitors possess
significantly greater capital, marketing, technical and other competitive
resources than Hayes or the Company following the Merger. As a result, they may
be able to adapt more quickly to new or emerging technologies and changes in
customer requirements, to devote greater resources to
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the promotion and sale of their products, or to devote greater resources to the
development of new products than can the Company.
Hayes' products are subject to significant price competition, and
management expects that it will face increasing pricing pressures from
competitors. Accordingly, there can be no assurance that following the Merger
the Company will be able to provide products that compare favorably with the
products of the Company's competitors or that competitive pressures will not
require the Company to reduce its prices. Any material reduction in the price of
the Company's products would negatively affect net margins as a percentage of
net revenues and would require the Company to increase sales to maintain or
increase net income.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to implement its strategy and identify
new market and product opportunities, product development costs, future return
rates of the Company's products, the dependence of the Company on certain
customers and manufacturers, as well as general market conditions, competition
and pricing. Although the Company believes that the assumptions underlying the
forward looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the forward
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
OPTION PLANS -- SHARES ELIGIBLE FOR FUTURE SALE AND DILUTION
In March 1997, the stockholders of the Company, at a special meeting,
approved and ratified two stock option plans of the Company -- the Incentive
Plan and the Amended and Restated 1996 Non-employee Directors' Stock Option Plan
(the "Directors' Plan"). The Company is authorized to issue options to purchase
up to an aggregate of 2,000,000 shares of Common Stock under the Incentive Plan
and options to purchase an aggregate of 250,000 shares of Common Stock under the
Directors' Plan. As of November 20, 1997, the Company had outstanding options to
purchase an aggregate of 965,900 shares under the Incentive Plan and options to
purchase an aggregate of 120,000 shares under the Directors' Plan. As a result
of the Merger, all outstanding options granted under the Directors' Plan will
become fully vested and will terminate on the later of 90 days after the
Effective Time or seven months following the date of grant of each option.
Options granted under the Incentive Plan will not become fully vested as a
result of the Merger unless, as to each such option holder, his employment is
terminated without good cause within nine months following the Effective Time.
Holders of Common Stock could experience dilution in possible future earnings
per share in the event that a large number of options are exercised.
Furthermore, in October 1997, the Company registered the resale of the shares of
Common Stock issuable upon the exercise of options granted under the Incentive
Plan and the Directors' Plan, which registration allows such shares to be freely
tradeable in the public market immediately following exercise of such options,
subject to certain volume limitations for options exercised by directors and
executive officers of the Company.
In addition, at the Effective Time, each outstanding option to purchase
Hayes Common Stock (the "Hayes Options") granted under the Hayes Stock Option
Plan, adopted on June 4, 1996, as amended effective October 22, 1996 (the "Hayes
Option Plan"), and each warrant to purchase Hayes capital stock (collectively
the "Hayes Warrants") will be assumed by the Company in accordance with the
terms of such option or warrant, and converted into rights to purchase shares of
the Company's Securities. Hayes Options and Hayes Warrants for 5,971,312 shares
and 1,851,569 shares of Common Stock, respectively, will be assumed by the
Company. At the Effective Time, Hayes Options to purchase 1,363,912 shares of
Company Common Stock and Hayes Warrants to purchase 1,851,569 shares of Company
Common Stock will be exercisable. Holders of Common Stock could experience
dilution in possible future earnings per share in the event that a large
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number of Hayes Options or Hayes Warrants are exercised. The Company expects to
register the resale of the shares of Common Stock issuable upon the exercise of
the Hayes Options and the Hayes Warrants, which registration would allow such
shares to be freely tradeable in the public market immediately following
exercise of such Hayes Options and Hayes Warrants, subject to certain volume and
other limitations for Hayes Options and Hayes Warrants, by directors and
executive officers of the Company following the Merger. See "THE
MERGER -- Interests of Certain Persons in the Merger."
OTHER ISSUANCES -- SHARES ELIGIBLE FOR FUTURE SALE AND DILUTION
The Company may use shares of its Common Stock to acquire assets,
technology, license rights and/or other companies to develop and expand its
product lines. Future issuances of Common Stock in connection with such
acquisitions could, individually or in the aggregate, adversely affect the
market price of the Common Stock.
Pursuant to the Preferred Stock Investment Agreement, the Company's 6%
Convertible Stock is convertible into shares of Common Stock at a conversion
price equal to the lesser of $8 per share or 85% of the average closing bid
price of Common Stock on the NASDAQ/NMS (or other market) for the five
consecutive trading days prior the date of the notice of conversion.
Accordingly, conversion of the 6% Convertible Stock will be below the market
price of the Common Stock, subject to adjustment in certain circumstances, will
be dilutive and could individually or in the aggregate, adversely affect the
market price of the Common Stock. See "Ratification of Preferred Stock
Investment Agreement."
REGISTRATION AND LISTING OBLIGATIONS
The Registration Rights Agreement entered into in connection with the
Preferred Stock Investment Agreement requires the Company to promptly register
and cause to be listed the common shares underlying the 6% Convertible Stock and
underlying any warrants which are issued and to maintain such registration
statement and listing. If (i) the Company fails to effect such registration and
listing within the applicable time
periods or (ii) an investor's ability to sell registered shares is suspended for
various reasons, including failure of the Company to maintain the effectiveness
of such registration statement or listing for more than a specified number of
days or (iii) the Company fails to comply with a conversion notice and such
failure continues for more than a specified number of days, then the Company is
required to make payments to the investors in an amount equal to 2% per month of
the liquidation preference for each month (or portion thereof) during which such
event continues and, under certain circumstances, the Company may be required to
(i) purchase the 6% Convertible Stock for an amount equal to the liquidation
preference divided by 85%, and issue warrants and (ii) purchase shares of Common
Stock issued upon conversion of the 6% Convertible Stock and upon exercise of
warrants for a purchase price equal to the closing bid price as of the time of
issuance of such underlying shares. See "Ratification of Preferred Stock
Investment Agreement."
PRODUCT PROTECTION AND INTELLECTUAL PROPERTY
The Company, like many other companies in the network access industry,
anticipates that it will rely upon rights granted through licenses from third
parties for a substantial amount of proprietary information used to develop its
products; however, some companies may decide not to grant such licenses and may
seek to protect their proprietary rights in such technological information.
Accordingly, there can be no assurance that the Company will be able to continue
obtaining additional rights to utilize proprietary technological information
necessary to develop its products. Because of the existence of a large number of
patents in the networking field and the rapid rate of issuance of new patents,
it is not economically practical to determine in advance whether a product or
any of its components infringe patent rights of others. In the event of any
infringement, the Company believes that, based upon industry practice, necessary
licenses or rights under such patents may be obtained on terms that should not
have a material adverse effect on the Company's consolidated financial position
or results of operations. However, there can be no assurance in this regard.
Hayes relies on a combination of patent, trade secret, copyright and
trademark laws, nondisclosure and other contractual provisions and technical
measures to protect its proprietary and intellectual property rights in its
products. Hayes receives from time to time, and may receive in the future,
communications from third parties asserting intellectual property rights
relating to its products and technologies. There can be no
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assurance that these protections will be adequate to protect Hayes' proprietary
rights or that following the Merger, the Company's competitors will not
independently develop products that are substantially equivalent or superior to
the Company's products. There can be no assurance that third parties will not
assert infringement claims against the Company following the Merger. The loss of
proprietary technology or a successful claim against the Company could have a
material adverse effect on the Company's financial condition or results of
operations.
To the extent Hayes and the Company increase sales in international
markets, their exposure in countries with less protection of intellectual
property laws is increased.
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Certificate of Incorporation includes certain provisions that
are intended to prevent or delay the acquisition of the Company by means of a
tender offer, proxy contest or otherwise. Specifically, the Certificate of
Incorporation provides for a classified board of directors, classified into
three classes with terms of three years each. In addition, the Certificate of
Incorporation authorizes the Company Board to issue preferred stock without
further stockholder approval, which could have dividend, redemption,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of Common Stock. Finally, the
Company is subject to Section 203 of the Delaware General Corporation Law (the
"DGCL") which limits transactions between a publicly held company and
"interested stockholders" (generally those stockholders who, together with their
affiliates and associates, own 15% or more of a company's outstanding capital
stock). Any one of, or a combination of, the above anti-takeover provisions
could discourage a third party from attempting to acquire control of the
Company. See "DESCRIPTION OF CAPITAL STOCK OF THE COMPANY." The Incentive Plan
and the Directors' Plan provide for acceleration of stock options upon a change
in control of the Company, which may have the effect of making an acquisition of
control of the Company more expensive. See "MANAGEMENT OF THE COMPANY -- The
Amended and Restated 1996 Incentive Option Plan" and "The Amended and Restated
1996 Non-employee Directors Stock Option Plan." These plans may also inhibit a
change in control of the Company. In addition, certain Company officers have
severance compensation agreements with the Company that provide for substantial
cash payments and acceleration of other benefits in the event of specified
corporate changes related to the Company, including a change in control of the
Company. See "MANAGEMENT OF THE COMPANY -- Employment and Consulting
Agreements."
DIVIDENDS
The Company does not anticipate paying dividends on its Common Stock in the
foreseeable future. The holders of 6% Convertible Stock are entitled to receive
cumulative dividends at the rate of six percent per annum on the liquidation
preference, payable annually on December 31 of each year, in cash, Common Stock
or by adding the amount thereof to the liquidation preference. Holders of Series
A Preferred Stock will be entitled to receive, as and when declared by the
Company Board, cumulative compounding dividends at the rate of 10% per annum of
the original issue price per share of the Series A Preferred Stock. No dividends
may be paid on the Common Stock unless all accrued and unpaid dividends on the
Series A Preferred Stock and the 6% Convertible Stock are paid.
Pursuant to a loan and security agreement dated October 2, 1997, the
Company may not declare or pay any dividends, except dividends payable solely in
shares of capital stock, or make any other payments on its capital stock,
without the consent of its lender. Hayes is subject to similar restrictions
under its credit facilities.
RELATIONSHIP WITH PENRIL
The Company has a limited operating history as an independent public
company. The operations of the Company historically have relied on Penril for
certain necessary administrative services. As of November 18, 1996, Penril and
the Company entered into several agreements for purposes of governing certain of
the ongoing relationships between the two companies following the Penril/Bay
Merger, including indemnification obligations. Pursuant to the Indemnification
Agreement entered into between Penril and the Company (the
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"Indemnification Agreement") in connection with Penril's transfer (the
"Transfer") to the Company of substantially all of its assets and liabilities,
other than those assets and liabilities related to Penril's modem business (the
"Modem Business"), the Company agreed to indemnify Penril against all expenses
and liabilities resulting from (i) the operation of the Company from and after
the Penril/Bay Merger, (ii) Penril's operations prior to the Transfer other than
those based upon, arising out of or in connection with (a) the Modem Business,
(b) the Penril/Bay Merger and transactions relating to the Penril/Bay Merger or
(c) the tax consequences of the Distribution, (iii) the termination of
employment of employees (other than those employees identified as remaining with
Penril after the Transfer) by Penril or (iv) information furnished by Penril or
the Company relating to the Company contained in the registration statement
filed by Bay in connection with the Penril/Bay Merger proxy
statement/prospectus. Included within the potential liabilities against which
the Company will indemnify Penril are those referred to in "BUSINESS OF THE
COMPANY -- Legal Proceedings." Although the Company is not aware of any pending
or threatened material liability for which the Company may become obligated to
make payments in connection with its obligation to indemnify Penril, there can
be no assurance that such indemnification obligations could not arise or that
such indemnification obligations would not be material to the Company. These
agreements were negotiated while the Company was owned by Penril and,
consequently, are not the result of arm's-length negotiations between
independent parties. Nevertheless, the Company believes that the agreements are
fair to the parties and contain terms which are generally comparable to those
which would result from arm's-length negotiations, although there can be no
assurance thereof.
TAX TREATMENT
The Merger is intended to qualify as a "reorganization" within the meaning
of Sections 368(a)(1) and 368(a)(2)(E) of the Code and so, in general, be
tax-free to the exchanging Hayes Shareholders (except to the extent that such
shareholders receive cash in lieu of fractional shares or in satisfaction of
dissenters' rights). However, no ruling has been or will be requested from the
Internal Revenue Service as to such issue. Qualification of the Merger as a
"reorganization" is subject to the satisfaction of a number of conditions and
the accuracy of a number of assumptions. See, "THE MERGER -- Material Tax
Consequences of the Merger." Accordingly, there is a risk that the Merger may
not qualify as a "reorganization", with the result that Hayes Shareholders could
become subject to income tax liability by reason of their exchange of Hayes
capital stock for the Company capital stock pursuant to the Merger.
INTERNATIONAL SALES
In fiscal 1996, international sales of Hayes' products accounted for
approximately 25% of net sales. These sales were primarily to customers in
Europe and the Asia Pacific region. The Company anticipates that, following the
Merger, international sales will continue to account for a significant portion
of the Company's net sales in the foreseeable future. As a result, the Company's
operating results will be subject to risks inherent in international sales,
including tariffs or other barriers, difficulties in staffing and managing
international operations, fluctuations in foreign currency exchange rates,
compliance with international regulations, approval and market requirements, and
volatility of international economic conditions. One or more of these factors
may have a material adverse effect on the Company's future international sales
and, consequently, on the Company's operating results.
Hayes sells its products outside the United States and procures modem
products from offshore vendors primarily in U.S. dollars and to a lesser extent,
British Sterling and Hong Kong dollars. Although Hayes has not experienced
material gains or losses from foreign currency fluctuations, if its
international business increases it could be subject to increased risk due to
such fluctuations. Hayes anticipates it will adopt hedging strategies if the
risks associated with foreign currency fluctuations materially increase.
A significant amount of Hayes' revenue is derived from its Asia region
business, particularly from China. Therefore, Hayes is subject to the risk of
political and economic instability experienced in this region. Hayes has begun
to expand its business in Latin America. Should Hayes' Latin America business
become material, Hayes would be subject to the political and economic
difficulties recently experienced in this region.
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PRODUCT RETURNS, PRICE PROTECTION AND WARRANTY CLAIMS
Like other manufacturers of computer products, Hayes and the Company are
exposed to the risk of product returns from wholesale distributors, resellers
and retailers, either through contractual stock rotation privileges or as a
result of Hayes' and the Company's interest in assisting customers in balancing
inventories. Although Hayes and the Company attempt to monitor and manage the
volume of sales to wholesale distributors and retailers, large shipments in
anticipation of sales by wholesale distributors and retailers could lead to
substantial overstocking by their wholesale distributors and lead to higher than
normal returns. Moreover, the risk of product returns may increase if demand for
Hayes' or the Company's products declines. When Hayes and the Company reduce
their prices, Hayes and the Company credit their respective wholesale
distributors and retailers for the difference between the purchase price of
products remaining in their inventory and the reduced price for such products on
terms negotiated with Hayes and the Company, respectively, which could have a
material adverse effect on the operating results of Hayes and the Company,
respectively.
Hayes' standard two-year warranty permits customers to return any product
for repair or replacement if the product does not perform as warranted. In the
U.S. and Canada only, Hayes also offers its customers the option of an
additional three-year warranty upon completion of a registration card within 90
days of purchase. Some of the Practical Peripheral modems previously sold have a
lifetime warranty. Hayes to date has not encountered material warranty claims or
liabilities. Hayes has established and the Company following the Merger will
establish reserves for product returns, price protection and warranty claims
which management believes are adequate. There can be no assurance that product
returns, price protection and warranty claims will not have a material adverse
effect on future operating results of the Company.
DEPENDENCE ON SUPPLIERS
Material and components for the Company's products are purchased from
outside suppliers. While most components are available from several suppliers, a
few are provided from sole-source vendors. The Company believes that in most
cases alternative sources of supply could be obtained within a reasonable time
period; however, an interruption in the supply of such components could have a
temporary adverse effect on the Company's operations. The major components of
Hayes' products include silicon chips, printed circuit boards, microprocessors,
chipsets and other integrated circuits. Most of the components used in Hayes'
modem products are available from multiple sources. However, certain components
used in Hayes' products are custom manufactured and currently obtained from
single sources. In addition, although readily interchangeable items are
available from several suppliers, many of the components that are incorporated
in Hayes' products, such as integrated circuits and discrete components, are in
limited supply and are allocated throughout the industry. Like others in the
computer industry, Hayes has, from time to time, experienced difficulty in
obtaining certain components. While Hayes has entered into supply arrangements
with certain suppliers, including Lucent Technologies, Inc. and Rockwell
International Corporation ("Rockwell") regarding a supply of chips and chipsets,
there can be no assurance following the Merger that these suppliers will
continue to meet the Company's requirements. There can be no assurance that
severe shortages of components will not occur in the future which could increase
the cost or delay the shipment of products and have a material adverse effect on
the Company's operating results.
SALES CHANNEL RISKS
The Company's distribution channel is composed of value-added resellers,
original equipment manufacturers and distributors in more than 40 countries.
Sales to end-user customers account for less than 10% of the Company's revenues.
Many of the Company's value-added resellers and other distributors carry
products which are complimentary to those of the Company, and may choose to give
higher priority to products of other suppliers or competitors of the Company.
Hayes sells its products primarily through national, regional and
international wholesale distributors, national corporate resellers, computer
superstores and mail order. Sales to wholesale distributors accounted for a
significant share of Hayes net sales in fiscal 1996. The personal computer
distribution industry has been characterized by rapid change, including
consolidations and financial difficulties of wholesale distributors and
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the emergence of alternative distribution channels. Hayes is dependent upon the
continued viability and financial stability of its wholesale distributors. The
loss or ineffectiveness of any of Hayes' largest wholesale distributors or a
number of its smaller wholesale distributors could have a material adverse
effect on the Company's operating results following the Merger. In addition, an
increasing number of vendors are competing for access to wholesale distributors
which could adversely affect the Company's ability to maintain Hayes' existing
relationships with its wholesale distributors or could negatively impact sales
to such distributors.
Hayes is dependent on the continued viability and financial stability of
its national resellers. The loss or ineffectiveness of any of Hayes' largest
national resellers or a number of its smaller national resellers could have a
material adverse effect on the Company's operating results following the Merger.
Due to increased competition for limited shelf space, retailers are
increasingly in a better position to negotiate favorable terms of sale,
including price discounts and product return policies. There can be no assurance
that Hayes will be able to sustain or increase its sales to retailers, which
could have a material adverse effect on the Company's operating results
following the Merger.
The OEM modem market has grown to approximately 50% of the overall modem
market. Hayes has not participated substantially in the OEM modem market for the
last two years and Hayes can give no assurance that it will be able to
successfully penetrate this market.
CONDITIONS TO THE MERGER
The obligations of the Company and Hayes to effect the Merger are subject
to a number of conditions including the termination of the Antidilution Warrant
issued to ACMA and the receipt by each party of all consents, assignments,
waivers, authorizations or other certificates of third parties for the
continuation in full force and effect of any and all material contracts and
leases. Hayes has not received a consent from its lender CIT Group/Credit
Finance, Inc. ("CIT") for the continuation in full force and effect of Hayes'
credit facility with CIT following the Merger. If CIT does not consent to the
continuation of its credit facility following the Merger, each of Hayes and the
Company may determine to not effect the Merger. If the Merger is consummated
without CIT's consent to continue its credit facility with the Company, it will
be necessary for the Company to pursue additional equity or debt financing to
meet its cash requirements. The Company and Hayes are in discussions with CIT
concerning its consent, and believe that CIT is predisposed to grant its
consent, although there can be no assurance that its consent will be granted.
See "HAYES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
IMPLEMENTATION OF NEW INFORMATION SYSTEM
Hayes is currently involved in the replacement of its information systems
with software from Oracle Corporation which will be completed after the
Effective Time of the Merger. The implementation of a new information system
could cause disruption to work efficiency. There can be no assurance that the
project will be completed within the budgeted time schedule or costs. To the
extent that the project is not completed timely or within the budgeted costs,
the Company's business and financial condition could be adversely affected.
ELECTION OF DIRECTORS AND OTHER STOCKHOLDER MATTERS
As a result of the Shareholders' Agreement among each of the Hayes
Shareholders and Mr. Howard, certain shareholders, who will own substantially
more than 50% of the Common Stock, without regard to the conversion of the 6%
Convertible Stock, will control the election of a majority of the directors.
These shareholders consist of Mr. Howard, ACMA, Dennis C. Hayes and Chestnut
Capital Limited Partnership, a limited partnership controlled by Dennis C.
Hayes. Such agreement will remain effective for so long as certain stockholders
own at least ten (10%) percent of the outstanding shares of the Company. Such
persons will also be able to control the taking of action which requires
approval by stockholders, since they will own more than a majority of the
outstanding shares of the Company.
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THE ANNUAL MEETING
DATE AND PLACE; RECORD DATE
This Proxy Statement/Prospectus is provided to the stockholders of Common
Stock in connection with the solicitation of proxies by the Company Board for
use at the Annual Meeting to be held on December 29, 1997 at 10:00 a.m. local
time at 1300 Quince Orchard Blvd., Gaithersburg, Maryland, and at any
adjournments or postponements thereof.
Representatives of Deloitte & Touche LLP, the Company's independent
auditors and representatives of Coopers & Lybrand L.L.P., Hayes' independent
auditors, are expected to be present at the Annual Meeting. Such representatives
will have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders on or about December 15, 1997. In addition to
solicitation of the proxies by use of the mails, some of the officers and
regular employees of the Company, without extra remuneration, may solicit
proxies personally or by telephone, telegraph, cable or electronic mail. The
Company has retained MacKenzie Partners, Inc. ("MacKenzie"), a proxy
solicitation firm, for assistance in connection with the Special Meeting. The
anticipated cost of MacKenzie's services is approximately $7,500.
PURPOSE OF THE ANNUAL MEETING
To consider and vote upon (i) the Proposal to (x) approve and adopt the
Merger Agreement, among Access Beyond, Hayes, and the Subsidiary, and the
transactions contemplated thereby, (y) amend the Company's Certificate of
Incorporation as described below and (z) elect two members of the Board of
Directors of the Company (ii) the ratification of the Preferred Stock Investment
Agreement and (iii) the ratification of the appointment of Deloitte & Touche LLP
as independent auditors of the Company for the fiscal year ending July 31, 1998.
Pursuant to the Merger Agreement, the Subsidiary will be merged with and into
Hayes, and Hayes will become a wholly-owned subsidiary of Access Beyond. In the
Merger, (a) all holders of Hayes (i) common stock will have the right to receive
for each such share such number of shares of Common Stock as is equal to the
Conversion Ratio, (ii) Series A Preferred Stock will have the right to receive
for each such share such number shares of Common Stock as is equal to the
Conversion Ratio multiplied by the number of shares of Hayes common stock into
which such shares of Hayes Series A Preferred Stock is then convertible, and
(iii) Series B Preferred Stock will have the right to receive for each such
share such number of shares of Series A Preferred Stock as is equal to the
Conversion Ratio multiplied by the number of shares of Hayes common stock into
which such shares of Hayes Series B Preferred Stock is then convertible; (b) the
Company will amend its certificate of incorporation to (i) change its name to
Hayes Corporation, (ii) increase the number of authorized shares of common
stock, and (iii) create the Series A Preferred Stock; (c) the Board of Directors
of the Company will be increased to seven members, five of whom will be
designated by the Hayes Shareholders; and (d) the Company will assume the
obligations of Hayes under the Hayes Option Plan. After giving effect to the
Merger, the Hayes Shareholders will own approximately 79% of the issued and
outstanding equity securities of the Company, excluding options and the 6%
Convertible Securities. After giving effect to the Merger and assuming that (x)
all then vested and exercisable Hayes Options and Hayes Warrants are exercised
and (y) none of the options to purchase the Company's Common Stock are
exercised, the Hayes Shareholders will own approximately 80.08% of the issued
and outstanding equity securities of the Company, excluding options and the 6%
Convertible Securities. A copy of the Merger Agreement is attached hereto as
Exhibit A. A copy of the Company's Amended and Restated Certificate of
Incorporation is attached hereto as Exhibit C. A copy of the Preferred Stock
Investment Agreement is attached hereto as Exhibit D.
The Conversion Ratio is equal to the percentage ownership immediately
following the closing of the Merger of the issued and outstanding equity
securities of the Company, excluding options and the 6% Convertible Securities
that the holders of all classes of Hayes capital stock, in the aggregate, are
entitled to receive in the Merger (which the Company and Hayes have agreed is
79%), multiplied by a ratio, the numerator of which is the number of shares of
the equity securities issued and outstanding on a fully diluted basis (excluding
stock options and the 6% Convertible Securities) prior to the Effective Date,
and the denominator of which is .21, all divided by the number of shares of
Hayes capital stock issued and outstanding on a fully diluted basis (excluding
all outstanding options and warrants) prior to the Effective Date.
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THE COMPANY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. SEE "THE MERGER -- THE COMPANY'S REASONS FOR THE MERGER."
THE COMPANY BOARD HAS UNANIMOUSLY APPROVED THE PREFERRED STOCK INVESTMENT
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE PREFERRED STOCK INVESTMENT
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. -- SEE "RATIFICATION OF
PREFERRED STOCK INVESTMENT AGREEMENT."
STOCKHOLDERS ENTITLED TO VOTE; REQUISITE APPROVAL
The Company Board has fixed the close of business on December 5, 1997 as
the record date (the "Record Date") for the determination of holders of the
Common Stock entitled to notice of and to vote at the Annual Meeting. A form of
proxy is being provided to the holders of Common Stock with this Proxy
Statement/Prospectus. For information with respect to the execution and the
revocation of proxies, see
"-- Proxies." On the Record Date, there were 12,516,983 shares of Common Stock
(held by approximately 800 holders of record) issued and outstanding. The Common
Stock is the only class of voting stock of the Company currently issued and
outstanding. Each holder of Common Stock on the Record Date is entitled to cast
one vote per share at the Annual Meeting, exercisable in person or by properly
executed proxy. The presence of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting, in person or by
properly executed proxy, is necessary to constitute a quorum.
Approval and adoption of the Merger Agreement and the transactions
contemplated thereby, all of the amendments to the Certificate of Incorporation
and the election of directors will be voted on by the Company's stockholders as
a single proposal. Therefore, failure to obtain the requisite stockholder
approval will result in the abandonment of the Merger, no change to the
Certificate of Incorporation and no vote for the directors. The Company or Hayes
may be entitled to a breakup fee in certain circumstances. See "The Merger
Agreement -- Termination; Effect of Termination."
As of the Record Date, directors and executive officers of the Company and
their affiliates as a group held shares representing 23.0% of the votes entitled
to be cast by holders of the Company's capital stock at the Annual Meeting. At
the Annual Meeting, abstentions will be considered shares present for purposes
of determining whether a quorum is present and, therefore, will have the same
legal effect as a vote against the proposal. Broker non-votes will be considered
as shares not entitled to vote and will, therefore, not be considered in the
tabulation of votes.
Under Delaware law, the affirmative vote of a majority of the votes cast at
the Annual Meeting by the holders of Common Stock entitled to vote thereon is
required to amend the Company's Certificate of Incorporation as provided in the
Merger Agreement. In addition, the ratification of the Preferred Stock
Investment Agreement and the ratification of the appointment of Deloitte &
Touche LLP as independent auditors of the Company for the fiscal year ending
July 31, 1998 requires the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy at the Annual Meeting.
Because of the number of shares of Common Stock to be issued in the Merger, and
the potential number of shares of Common Stock that could be issued upon the
sale of the second installment of 6% Convertible Securities upon conversion of
the 6% Convertible Stock, NASDAQ/NMS requires the Company to obtain stockholder
approval of the Merger and the Preferred Stock Investment Agreement. Under the
rules and regulations of NASDAQ/NMS, the affirmative vote of a majority of the
votes cast at the Annual Meeting by the holders of Common Stock entitled to vote
thereon is required to approve and adopt the Merger Agreement and to approve and
ratify the Preferred Stock Investment Agreement.
PROXIES
All shares represented by properly executed proxies will, unless such
proxies have previously been revoked, be voted at the Annual Meeting in
accordance with the directions on the proxies. A proxy may be revoked at any
time prior to final tabulation of the votes at the Meeting. Stockholders may
revoke proxies by written notice to the Secretary of the Company, by delivery of
a proxy bearing a later date, or by personally appearing at the Annual Meeting
and casting a contrary vote. If no direction is indicated, the shares
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represented by properly executed proxies will be voted in favor of the Merger,
in favor of the ratification of the Preferred Stock Investment Agreement and in
favor of the ratification of the appointment of the independent auditors. The
persons named in the proxies will have discretionary authority to vote all
proxies with respect to additional matters that are properly presented for
action at the Annual Meeting.
The proxy solicitation is made by and on behalf of the Company Board.
Solicitation of proxies for use at the Annual Meeting may be made in person or
by mail, telephone or telegram, by officers and regular employees of the
Company. Such persons will receive no additional compensation for any
solicitation activities. Copies of solicitation materials will be furnished to
banks, brokerage houses, fiduciaries and custodians holding in their names
shares of Common Stock beneficially owned by others to forward to such
beneficial owners. The Company may reimburse persons representing beneficial
owners of Common Stock for their costs of forwarding solicitation materials to
such beneficial owners. The Company and Hayes will share equally all fees and
expenses, other than attorneys' fees, incurred in connection with the printing
and filing of the Registration Statement and this Proxy Statement/Prospectus and
any amendments or supplements thereto, any filings required of Hayes or the
Company pursuant to the HSR Act and any filings required by NASDAQ requirements,
and the Company will bear the entire cost of its financial advisor, DLJ, the
solicitation of proxies, including the mailing of this Proxy
Statement/Prospectus, the proxy card and any additional information furnished to
its stockholders.
ITEM 1
THE MERGER
BACKGROUND OF THE MERGER
Penril and Hayes have had a long working relationship. Since October 1994,
Penril and Hayes have entered into a series of agreements, including a
Manufacturing and Purchase Agreement pursuant to which Penril developed and
manufactured certain products for Hayes known as the CXS/VCP products as well as
a Technology Development Agreement and Technology License Agreement.
In October 1996, Penril entered into agreements with Hayes, which were
assigned by Penril to Access Beyond, for the sale by Penril to Hayes on an OEM
basis of the Company's remote access products and for the manufacture by Hayes
of such products upon achievement by Hayes of certain milestones. The OEM
Agreement further provided that the Company would be permitted to purchase from
Hayes or Hayes' suppliers various parts and components for use in the Company's
products, at the same cost as paid by Hayes, to the extent allowed by the
suppliers.
This business relationship and resulting mutual familiarity with the
product line, manufacturing capability, engineering skills and distribution
channels created the opportunity for the two companies to explore whether
advantages could be realized by merging their businesses in lieu of Hayes
reselling the Company's products lines. In addition, the Company was concerned
about the length of time that it was encountering in increasing its distribution
of products through its channels as well as by various operating expenses being
higher than desired in light of the revenue level.
Mr. Hayes approached Mr. Howard to discuss the possibility of merging the
two companies, together with a third company, during the months of January and
February 1997. These conversations were preliminary and inconclusive. Over the
next several months Hayes considered the possibility of merging alone with the
third company but such discussions with such company concluded in early June
1997.
During July 2 and 3, 1997 Messrs. Hayes and Howard met, together with their
companies' respective legal and financial advisors and reached conceptual
agreement on merger terms. Each party made a commitment to seek approval of
their respective Boards of Directors to the proposed transaction. Over the next
few weeks, after consultation with each company's Board, key management and
their legal, financial and accounting advisors, the final terms of the Merger
Agreement were negotiated, resulting in a definitive agreement being executed on
July 29, 1997. During the following thirty days, each company performed a
comprehensive due diligence review of the other, which each determined to be
satisfactory, and the Company received a fairness opinion from its financial
advisor, DLJ, stating that as of such date the Merger was fair to the Company
and its stockholders from a financial point of view with respect to the
Conversion Ratio.
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THE COMPANY'S REASONS FOR THE MERGER
The Company Board has determined that the Merger is fair to, and in the
best interests of, the Company and its stockholders, and has unanimously
approved the Merger and unanimously recommends that Company stockholders vote
FOR the Proposal to approve the Merger.
During fiscal 1997 the emergence of new competitors and several
consolidations in the Company's industry contributed to concern over whether the
Company had sufficient resources to compete effectively. The Company's
management believes that Hayes' world wide brand name, global distribution
system and low cost manufacturing capabilities will enable the Company's remote
access products to be brought to market sooner, on a broader basis and with
lowered product costs. The Company's management also believes that the Merger
will produce significant consolidation and cost-cutting opportunities. The
Company Board believes that the Merger will provide significant value to its
stockholders and offers opportunities for growth using the manufacturing
expertise, distribution channels and technology available from Hayes. The
Company Board considered a number of potential benefits in reaching its
decision, including (a) the ability to have its products manufactured cost
effectively, (b) the ability to have its products quickly distributed through
distribution channels significantly greater than those of the Company, (c)
obtaining the experience and expertise of engineers and design specialists to
help advance the Company's business and technology, (d) the financial condition,
results of operations and prospects of the Company in the absence of a business
combination or similar transaction and (e) the terms and conditions of the
Merger Agreement, which the Company Board concluded to be advisable and fair to
the Company and its stockholders in light of the nature of the transaction with
Hayes and which led the Company Board to conclude that, in its opinion, there is
a high likelihood of the Merger being consummated.
The Company Board also considered the risks relating to the Merger,
including (i) the risk that the benefits sought in the Merger would not be fully
achieved, (ii) the risk that the Merger would not be consummated, and (iii)
other risks described under "RISK FACTORS" as well as the net losses sustained
by Hayes during the last three fiscal years.
The decision of the Company Board was conditioned upon, among other things,
the Company receiving an opinion from its financial advisor, DLJ, as to the
fairness of the Merger to the Company and its stockholders from a financial
point of view of the Conversion Ratio, which opinion was received on August 26,
1997.
OPINION OF DLJ
In its role as financial adviser to Access Beyond's board of directors, DLJ
was asked to render an opinion to the Access Beyond board of directors as to the
fairness, from a financial point of view, of the Conversion Ratio to the holders
of Access Beyond Common Stock, pursuant to the terms of the Agreement. On August
26, 1997, DLJ delivered to Access Beyond's board of directors its written
opinion to the effect that, as of the date of such opinion and based upon and
subject to the assumptions, limitations and qualifications set forth in such
opinion, the Conversion Ratio was fair to the holders of Access Beyond Common
Stock from a financial point of view. On December 9, 1997, DLJ delivered to
Access Beyond's board of directors a subsequent written opinion (the "DLJ
Opinion") confirming its August 26, 1997 opinion. DLJ has consented to the use
of the DLJ Opinion in this Proxy Statement/Prospectus.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS EXHIBIT B. ACCESS BEYOND'S
STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION CAREFULLY IN ITS ENTIRETY FOR
INFORMATION WITH RESPECT TO THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER
MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ IN CONNECTION WITH SUCH
OPINION. THE SUMMARY OF THE DLJ OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Access Beyond's board of directors selected DLJ as its financial advisor
based on DLJ's qualifications, expertise and reputation. In addition, DLJ, as
part of its investment banking services, is regularly engaged in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and
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distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
The DLJ Opinion was prepared for the Access Beyond board of directors and
is directed only to the fairness of the Conversion Ratio to holders of Access
Beyond Common Stock from a financial point of view. The DLJ Opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Access Beyond Inc. Special Meeting nor does it constitute an opinion
as to the price at which the Access Beyond Common Stock will actually trade at
any time. The Merger was negotiated at arm's length by Access Beyond and Hayes.
Access Beyond's board of directors requested that DLJ not solicit, and DLJ did
not solicit, the interest of any other party.
In arriving at its opinion, DLJ reviewed the Agreement, the terms of the
Access Beyond Series A Preferred Stock and the Preferred Stock Investment
Agreement dated as of November 12, 1997 between the Company and the Investors
listed therein (the "Preferred Stock Investment Agreement). DLJ also reviewed
financial and other information that was publicly available or furnished to it
by or on behalf of Access Beyond and Hayes, including information provided
during discussions with their respective managements. Included in the
information provided during discussions with their respective managements were
certain financial projections for the Company for the period beginning November
1, 1997 and ending December 31, 1998 prepared by the management of the Company
and certain financial projections for Hayes for the period beginning November 1,
1997 and ending December 31, 2001 prepared by the management of Hayes. In
addition, DLJ reviewed certain historical financial information with respect to
Access Beyond and Hayes; compared certain historical financial and securities
data of Access Beyond with selected companies whose securities are traded in
public markets; reviewed the historical stock prices and trading volumes of
Access Beyond's Common Stock; reviewed prices and premiums paid in certain other
business combinations; and conducted such other financial studies, analyses and
investigations as DLJ deemed appropriate for purposes of rendering its opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, that was provided to it by Access Beyond
and Hayes or their respective representatives, or that was otherwise reviewed by
it. With respect to the financial projections (including projections as to
Access Beyond's liquidity) supplied to DLJ, it assumed that they had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of Access Beyond and Hayes as to the future
operating and financial performance of Access Beyond and Hayes, respectively.
DLJ has not assumed any responsibility for making any independent evaluation of
Access Beyond's assets or liabilities or for making an independent verification
of any of the information reviewed by DLJ. DLJ did not participate or advise
Access Beyond in the private placement contemplated by the Preferred Stock
Investment Agreement and has not made any assessment as to the fairness of the
terms of that transaction or Access Beyond's 6% Convertible Stock. DLJ has
relied as to various legal matters on advice of counsel to Access Beyond and the
Access Beyond board of directors and has assumed that the tax consequences of
the transaction are as set forth in this Proxy Statement/Prospectus.
For the purpose of its opinion, DLJ has assumed that either (i) the
contemplated additional $35 million private placement of 6% Convertible
Preferred Stock will be completed on the terms set forth in the Preferred Stock
Investment Agreement or (ii) alternative sources of sufficient liquidity will be
available to Hayes Corporation, on a timely basis, that would not materially
dilute the interests of the holders of Company Common Stock as compared to the
dilution that is anticipated to result from the contemplated additional private
placement pursuant to the Preferred Stock Investment Agreement.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of the DLJ Opinion. It should be understood that, although
subsequent developments may affect its opinions, DLJ has not updated, reviewed
or reaffirmed, and has no obligation to update, review or reaffirm, the DLJ
Opinion.
The following is a summary of the presentation made by DLJ to the Access
Beyond board of directors on December 9, 1997 with respect to the material
analyses underlying the DLJ Opinion.
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ANALYSIS OF ACCESS BEYOND
Liquidity Analysis. For the quarter ended October 31, 1997, Access Beyond
had an operating loss of $2.2 million. While Access Beyond recently raised $10
million, Access Beyond's liquidity assessment indicated that under the then
current circumstances, and as projected by management for calendar year 1998,
Access Beyond's cash balance was projected to decrease to $1.3 million by
December 31, 1998 (assuming that the remaining $35 million portion of the
transaction contemplated by the Preferred Stock Investment Agreement is not
consummated by that time).
Analysis of Certain Other Publicly Traded Companies. DLJ compared selected
historical share prices, earnings, and operating and financial ratios for Access
Beyond to the corresponding data and ratios of certain other companies whose
securities are publicly traded, which companies were selected for comparison
because as a group they possess business, operating and financial
characteristics that are generally representative of companies in the industry
in which Access Beyond operates. The selected companies were divided into the
following two categories: small-capitalization comparable companies, which
consisted of Shiva Corp. (the "Small-Cap Public Comparable"), and
large-capitalization comparable companies, which consisted of Ascend
Communications, Bay Networks, Cisco Systems and 3Com Corp. (the "Large-Cap
Public Comparables"). Such data and ratios included Enterprise Value (defined as
the product of the stock price and total shares outstanding plus Net Debt (debt
and preferred stock (less cash and cash equivalents)) as a multiple of gross
revenue and earnings before interest, taxes, depreciation and amortization
("EBITDA") for the latest reported twelve months ("LTM"). Additional ratios
examined included the ratios of current stock prices to projected calendar year
1998 net income (determined on the basis of estimates provided by selected
investment banking firms). This analysis indicated that the multiples of
Enterprise Value to LTM Revenues and LTM EBITDA for the Small-Cap Public
Comparable were 1.1x and not meaningful, respectively. The multiples of equity
value to projected calendar year 1998 net income for the Small-Cap Public
Comparable were determined to be not meaningful. The analysis indicated that the
multiples of Enterprise Value to LTM Revenues and LTM EBITDA for the Large-Cap
Public Comparables ranged from 2.6x to 8.5x and 14.9x to 23.3x, respectively,
resulting in an average multiple of 4.8x and 18.1x, respectively. The multiples
of equity value to projected calendar year 1998 net income for the Large-Cap
Public Comparables ranged from 13.6x to 28.9x, resulting in an average multiple
of 21.2x. DLJ then derived a valuation range for Access Beyond by concentrating
on Enterprise Value as a multiple of LTM revenues, which DLJ concluded to be the
most relevant basis for valuing publicly traded remote access and network
equipment companies, and by comparing Access Beyond's businesses and performance
to the Small-Cap Public Comparable and Large-Cap Public Comparables. DLJ
determined that the relevant range of Enterprise Value to LTM revenues was 1.1x
to 1.5x, principally reflecting Access Beyond's small market capitalization. DLJ
then calculated the imputed valuation ranges for Access Beyond by applying these
multiples to Access Beyond's reported LTM revenues from continuing operations,
which yielded a range of equity values for Access Beyond of $1.34 to $1.70 per
share. DLJ determined that the relevant range of projected calendar year 1998
net income multiples was 19.0x to 23.0x. Access Beyond projected net losses for
1998, so DLJ was not able to effectively calculate an equity valuation based on
net income multiples.
Gandalf Transaction Analysis. DLJ also analyzed the acquisition of the
remote access business of Gandalf Technologies, Inc. ("Gandalf") by Mitel
Corporation announced August 8, 1997 (the "Gandalf Transaction"). Gandalf was a
small-capitalization developer of remote access products in financial distress
and ultimately sold its remote access product business for $14.9 million. DLJ
believes the Gandalf Transaction to be an analogous situation to that of Access
Beyond, given Access Beyond's liquidity constraints and small
market-capitalization. The multiple of purchase price to LTM revenues for the
Gandalf Transaction was 0.4x. DLJ calculated the imputed valuation for Access
Beyond by applying the multiple of purchase price to LTM revenues for the
Gandalf Transaction to Access Beyond's LTM revenues from continuing operations,
which yielded an equity value of $0.70 per share.
Comparative Transaction Analysis. DLJ reviewed publicly available
information for selected transactions completed involving the combination of
remote access device manufacturers. The comparative transactions reviewed (the
"Comparative Transactions") included 6 transactions that were proposed or
completed. The Comparative Transactions included the following acquisitions:
Gandalf Technologies product business by Mitel Corp., Microcom, Inc. by Compaq
Computer Corporation, Crosscom Corp. by OlicomAS,
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Telebit Corp. by Cisco Systems, Network Express, Inc. by Cabletron Systems, Inc.
and Xylogics, Inc. by Bay Networks, Inc. The Comparative Transactions selected
are not intended to represent a complete list of remote-access manufacturer
transactions that have occurred; rather, they include only transactions
involving combinations of companies with operating size or financial performance
characteristics believed to be comparable to Access Beyond's characteristics.
DLJ reviewed the consideration paid in such transactions in terms of the offer
price per share multiplied by total common shares outstanding ("Equity Purchase
Price") and Equity Purchase Price plus total debt less cash and cash equivalents
("Target Enterprise Price"), in each case, as a multiple of LTM gross revenue
and LTM EBITDA. For the Comparative Transactions, the ratios of Target
Enterprise Price to LTM revenues and LTM EBITDA ranged from 0.9x to 5.1x and
9.8x to 31.0x, respectively, resulting in an average multiple of 2.6x and 18.8x,
respectively. DLJ concluded that multiples of LTM revenues provided the most
relevant measure for evaluating the Comparative Transactions and that the
appropriate range of LTM revenue multiples was 2.2 to 3.1x. DLJ then calculated
the imputed valuation ranges for Access Beyond by applying its LTM revenues from
continuing operations to the relevant multiple ranges. This analysis yielded a
range of Enterprise Values for Access Beyond of $28.5 million to $40.2 million,
which results in an equity value range of $2.32 to $3.13 per share.
ANALYSIS OF HAYES
Analysis of Certain Publicly Traded Companies. DLJ compared selected
historical share prices, earnings, and operating and financial ratios for Hayes
to the corresponding data and ratios of certain companies whose securities are
publicly traded, which companies were selected for comparison because as a group
they possess business, operating and financial characteristics that are
generally representative of companies in the industry in which Hayes operates.
The selected companies were divided into the following three categories: modem
manufacturers, which included Boca Research, Global Village Communications and
Zoom Telephonics (the "Modem Public Comparables"); remote access/network
equipment manufacturers, which included Ascend Communications, Bay Networks,
Cisco Systems, 3Com Corp. and Shiva Corp. (the "Remote Access Public
Comparables"); and xDSL modem manufacturers, which included Amati
Communications, Aware, Pairgain Technologies and Westell Technologies (the "xDSL
Public Comparables"). Such data and ratios included Enterprise Value as a
multiple of LTM gross revenue and LTM EBITDA. Additional ratios examined
included the ratios of current stock prices to projected calendar year 1998 net
income (determined on the basis of estimates provided by selected investment
banking firms). This analysis indicated that the multiple of Enterprise Value to
LTM Revenues for Modem Public Comparables ranged from 0.5x to 0.6x, resulting in
an average multiple of 0.5x. The multiple of Enterprise Value to LTM EBITDA for
Modem Public Comparables was not meaningful due to losses throughout the
industry over the LTM. The multiple of equity value to projected calendar year
1998 net income for Modem Public Comparables ranged from 15.3x to 19.3x,
resulting in a average multiple of 17.3x. The analysis indicated that the
multiples of Enterprise Value to LTM Revenues and LTM EBITDA for Remote Access
Public Comparables ranged from 1.1x to 8.5x and 14.9x to 23.3x, respectively,
resulting in an average multiple of 4.1x and 18.1x, respectively. The multiple
of equity value to projected calendar year 1998 net income for Remote Access
Public Comparables ranged from 13.6x to 28.9x, resulting in an average multiple
of 21.2x. The analysis indicated that the multiple of Enterprise Value to LTM
Revenues for xDSL Public Comparables ranged from 4.9x to 29.7x, resulting in an
average of 17.5x. The multiple of LTM EBITDA for xDSL Public Comparables was
16.0x, since only one company had positive EBITDA. The multiple of equity value
to projected calendar year 1998 net income for xDSL Public Comparables was 25.4x
since only one company had positive projected 1998 net income. DLJ derived a
valuation range for Hayes by concentrating on Enterprise Value as a multiple of
revenues and net income multiples, and by comparing Hayes' businesses and
performance to the Modem Public Comparables, Remote Access Public Comparables
and the xDSL Public Comparables. DLJ concluded that the appropriate range of
ratios of Enterprise Value to LTM revenues was 0.9x to 1.3x, a premium to the
Modem Public Comparables due to Hayes' xDSL and cable modem technology and shift
in business focus to the remote access business. DLJ then calculated the imputed
valuation ranges for Hayes by applying these multiples to Hayes' reported LTM
revenues, which yielded a range of equity values for Hayes of $156.0 million to
$226.4 million. DLJ concluded that the appropriate range of projected calendar
year 1998 net income multiples was 17.3x to 19.7x. DLJ then calculated the
imputed valuation ranges for Hayes by applying these multiples to the projected
calendar year 1998 net income provided by Hayes management, which yielded a
range of equity values for
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Hayes of $186.3 million to $217.6 million. Since Hayes' projections are based on
an assumed $35 million investment, the range of equity values was calculated
less the assumed new investment.
Transaction Analysis. DLJ reviewed publicly available information for
selected transactions completed involving the combination of modem
manufacturers. The comparative transactions reviewed (the "Hayes Comparative
Transactions") included 3 transactions that were proposed or completed. The
Hayes Comparative Transactions included the following acquisitions: U.S.
Robotics by 3Com Corp., Penril DataComm Networks by Bay Networks and Megahertz
Holding Corp. by U.S. Robotics. The Hayes Comparative Transactions selected are
not intended to represent a complete list of modem manufacturer transactions
that have occurred; rather, they include only transactions involving
combinations of companies with operating size or financial performance
characteristics believed to be comparable to Hayes' characteristics. DLJ
reviewed the consideration paid in such transactions in terms of Target
Enterprise Price as a multiple of LTM gross revenue and LTM EBITDA. For the
Hayes Comparative Transactions, the ratios of Target Enterprise Price to LTM
revenues and LTM EBITDA ranged from 2.5x to 2.6x and 14.0x to 19.8x,
respectively, resulting in an average multiple of 2.6x and 16.9x, respectively.
DLJ concluded that the multiples of LTM revenues provided the most relevant
measure for evaluating the Hayes Comparative Transactions and that the
appropriate range of LTM revenue multiples was 2.0 to 2.6x. DLJ then calculated
the imputed valuation ranges for Hayes by applying its LTM revenues to the
relevant multiple ranges. This analysis yielded a range of Enterprise Values for
Hayes of $396.7 million to $515.7 million, which results in an equity value
range of $367.0 million to $486.0 million after subtracting $29.7 million of net
debt.
Discounted Cash Flow Analysis. DLJ also performed a discounted cash flow
analysis of Hayes using a discount rate approach. Using the information set
forth in the Combined Entity's forecast, DLJ calculated the estimated "Free Cash
Flow" based on projected unleveraged operating income adjusted for: (i) taxes;
(ii) certain projected non-cash items (e.g., depreciation and amortization);
(iii) projected changes in non-cash working capital; and (iv) projected capital
expenditures.
Using the discount rate approach, DLJ analyzed Hayes' forecast and
discounted the stream of Free Cash Flows from 1998 to fiscal year 2001 provided
in such projections back to December 31, 1997 using discount rates ranging from
20% to 40%. To estimate the residual value of Hayes at the end of the forecast
period, DLJ applied terminal multiples of 8.0x to 16.0x to the projected year
2001 EBITDA and discounted such value back to December 31, 1997 using discount
rates ranging from 20% to 40%. DLJ then summed the present value of the free
cash flows and the present value of the residual value to derive a range of
implied enterprise values for Hayes of $111.7 million to $402.7 million. The
range of implied enterprise values of Hayes was then adjusted for debt (net of
cash and cash equivalents of $6.5 million) by adding $29.4 million to implied
Enterprise Value and adjusted for the $35 million investment assumed in the
projections to yield an implied equity value of Hayes of $47.0 million to $338.0
million. In connection with its analysis, DLJ recognized the broad range of
values implied by its discounted cash flow analysis
ANALYSIS OF COMBINED ENTITY
Contribution Analysis. DLJ reviewed the relative contribution of Access
Beyond and Hayes to certain operating and financial statistics for both the LTM
and projected for 1998. Over the LTM, Access Beyond contributed the following to
the pro forma combined entity: 6.2% of revenues, 10.9% of gross profit, 823.9%
of shareholders' equity not including the new Investment, and 3.1% of the debt
outstanding. For calendar year 1998, based on projections provided by management
of each company, Access Beyond's contribution to the pro forma combined entity
is expected to be the following: 9.0% of revenues, 11.6% of gross profit, (5.8)%
of operating income and (11.1)% of net income. Assuming (i) the purchase of an
additional $35 million of 6% Convertible Stock; (ii) an Access Beyond Common
Stock price of $5.00 per share; and (iii) conversion of the 6% Convertible Stock
into Access Beyond Common Stock, the current holders of Access Beyond Common
Stock would own 17.9% of the common stock of the combined entity (without regard
to stock options).
Accretion Analysis. DLJ reviewed the projected pro forma combined income
statement of Access Beyond and Hayes, including synergies as projected by the
managements of Access Beyond and Hayes. Access Beyond's projected stand-alone
earnings per share ("EPS") for calendar year 1998 was $(0.09). The projected pro
forma EPS of the combined entity, which was calculated assuming the conversion
of the 6%
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Convertible Preferred Stock, for calendar year 1998 was $0.43, which represents
a premium to Access Beyond's projected stand-alone EPS.
Analysis of Certain Publicly Traded Companies. DLJ compared LTM revenues
and projected 1998 net income, both with and without certain possible synergies
identified by Access Beyond and Hayes managements, for the pro forma combined
entity to the corresponding data and ratios of the Hayes Public Comparables
because as a group they possess business, operating and financial
characteristics that are generally representative of companies in the industry
in which the pro forma combined entity will operate. DLJ concluded that the
appropriate multiple range of Enterprise Value to LTM revenues was 1.0x to 1.3x,
given Hayes' xDSL technology and shift in business focus to the remote access
business solidified by the combination with Access Beyond. DLJ then calculated
the imputed valuation ranges for Access Beyond by applying these multiples to
the combined reported LTM revenues, which yielded a range of equity values for
the combined company of $221.8 million to $300.0 million. The implied value of
the equity to be received by
Access Beyond shareholders in the Merger was $3.24 to $4.38 per share. DLJ
concluded that the relevant range of projected calendar year 1998 net income
multiples was 17.1x to 19.3x. DLJ then calculated the imputed valuation ranges
for the combined company by applying these multiples to the projected pro forma
combined calendar year 1998 net income without synergies but including the
Investment, which yielded a range of equity values for the combined company of
$196.6 million to $222.7 million. The implied value of the equity to be received
by Access Beyond shareholders in the Merger was $2.87 to $3.25 per share. DLJ
then calculated the imputed valuation ranges for the combined company by
applying these multiples to the projected pro forma combined calendar year 1998
net income with synergies and including the Investment, which yielded a range of
equity values for the combined company of $304.1 million to $344.5 million. The
implied value of the equity to be received by Access Beyond shareholders in the
Merger was $4.44 to $5.03 per share.
Discounted Cash Flow Analysis. DLJ also performed a discounted cash flow
analysis of the Combined Entity using a discount rate approach. Using the
information set forth in the Combined Entity's forecast, DLJ calculated the
estimated "Free Cash Flow" based on projected unleveraged operating income
adjusted for: (i) taxes; (ii) certain projected non-cash items (e.g.,
depreciation and amortization); (iii) projected changes in non-cash working
capital; and (iv) projected capital expenditures.
Using the discount rate approach, DLJ analyzed the Combined Entity's
forecast and discounted the stream of Free Cash Flows from 1998 to fiscal year
2001 provided in such projections back to December 31, 1997 using discount rates
ranging from 20% to 40%. To estimate the residual value of the Combined Entity
at the end of the forecast period, DLJ applied terminal multiples of 8.0x to
16.0x to the projected year 2001 EBITDA and discounted such value back to
December 31, 1997 using discount rates ranging from 20% to 40%. DLJ then summed
the present value of the free cash flows and the present value of the residual
value to derive a range of implied enterprise values for the Combined Entity of
$153.0 million to $507.3 million. The range of implied enterprise values of the
Combined Entity was then adjusted for debt (net of cash and cash equivalents of
$47.8 million) by adding $10.4 million to implied Enterprise Value and divided
by the fully diluted pro forma shares outstanding (including the assumed
conversion of the 6% Convertible Stock issued pursuant to the Preferred Stock
Investment Agreement) to yield an implied equity value per share of $2.23 to
$7.41. In connection with its analysis, DLJ recognized the broad range of values
implied by its discounted cash flow analysis.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ, but describes, in summary form, the principal
elements of the presentation made by DLJ to the Access Beyond board of directors
on December 9, 1997. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Each of the analyses conducted by DLJ was carried out in the order
to provide a different perspective on the transaction and to add to the total
mix of information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Accordingly,
notwithstanding the separate factors summarized above, DLJ believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an
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inadequate view of the evaluation process underlying its opinion. In performing
the analyses, DLJ made numerous assumptions with respect to industry
performance, business and economic conditions and other markets. The analyses
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
Pursuant to the terms of an engagement letter dated June 9, 1997, Access
Beyond has paid DLJ fees totaling $450,000 with an additional fee to be paid
upon consummation of the Merger equal to $1.0 million less the amounts paid with
respect to the retainer and fairness opinion fees. DLJ is to be paid $50,000 for
delivering its updated Opinion. Access Beyond has also agreed to reimburse DLJ
promptly for all out-of-pocket expenses (including the reasonable fees and
out-of-pocket expenses of counsel) incurred by DLJ in connection with its
engagement, and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities law.
In the ordinary course of business, DLJ actively trades public securities,
which may include Access Beyond securities, for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
HAYES' REASONS FOR THE MERGER
The Hayes Board has determined that the Merger is fair to and in the best
interests of Hayes and its shareholders, and unanimously approved the Merger
Agreement and the transactions contemplated thereby. The Hayes Board believes
that the Merger will provide value to its shareholders and offer opportunities
for growth using the expertise and technology available from the Company. In
reaching its decision to approve the Merger Agreement and the transactions
contemplated thereby, the Hayes Board considered several factors including (a)
the consideration to be received by the Hayes Shareholders, (b) the potential
for the Hayes Shareholders to hold shares of a public company, and, therefore,
obtain the possibility of a more active trading market of its investment than
that of a private company, (c) the terms and conditions of the Merger Agreement,
which the Hayes Board concluded to be advisable and fair to Hayes, and the
likelihood of the Merger being consummated, (d) the information relating to the
financial condition, results of operations and prospects of Hayes in the absence
of a business combination or similar transaction, and (e) the tax-free nature of
the exchange of Hayes' capital stock for the Company's capital stock. The Hayes
Board also considered the risks relating to the Merger including the risk that
the anticipated synergies would not be achieved and the risks associated
generally with the products of Hayes and the Company. The Hayes Board further
considered Hayes' and the Company's lack of profitable operations in the past
three years and the liquidity and capital resources of the combined companies
following the Merger. Hayes management also believes that the combination of the
two companies will reduce costs by eliminating redundant expenses, and realizing
certain economies of scale. The Merger will eliminate the existing vendor-buyer
relationship between the two companies, which Hayes management expects to
immediately improve margins for remote access products. The integration and
elimination of overlapping activities is expected to improve overall operating
results in the remote access product line. Hayes management also expects the
consolidation of R&D resources to reduce product development cycles and improve
time-to-market for new remote access products. Hayes management also believes
that the market for remote access products is beginning to experience
significant acceptance which Hayes management believes indicates potential rapid
growth opportunities in the general business application of the technology.
Hayes management expects the combined companies to take advantage of Hayes
distribution channels, thereby avoiding direct competition with established
remote access equipment vendors who principally serve large users such as
internet service providers, enabling the combined companies to realize
significant revenue growth opportunities in the global marketplace for remote
access products.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the Company Board with
respect to the Merger Agreement, stockholders of the Company should be aware
that certain members of the Company Board and management have interests in the
Merger that are in addition to or different from the interests of stockholders
generally. Certain directors and executive officers of Hayes will also receive
benefits that differ from or are in addition to the benefits received by all
other Hayes Shareholders. In addition, in connection with the Merger, the
Company has agreed to treat Hayes stock options and warrants and Access Beyond
stock options in the manner described below.
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Affiliate Agreements. All affiliates, as such term is defined in Rule 145
promulgated under the Securities Act, of Hayes have executed an Affiliate's
Agreement whereby each such affiliate has covenanted and agreed not to offer,
sell or otherwise dispose of any of the shares of Common Stock and/or Series A
Preferred Stock issued to such affiliate in the Merger in violation of the
Securities Act and Rule 145 promulgated thereunder, and will make no disposition
of such shares of the Company's Securities for 90 days after the Effective Date,
except for Dennis Hayes who has agreed to sell no more than $3.0 million of the
Company's Securities for an additional 180-day period thereafter.
Bonus Compensation; Options. Upon Closing of the Merger Messrs. Hayes and
Lam, each of whom is a director of Hayes, will be entitled to receive cash
bonuses of $450,000 and $275,000, respectively. Upon closing of the Merger,
pursuant to the terms of the present Employment Agreement between Mr. Howard and
the Company, Mr. Howard will be entitled to receive a cash payment equal to
$437,500. Mr. Howard has advised the Company that in lieu of receiving such cash
payment he will accept shares of Common Stock having a value equal to such
amount. See "MANAGEMENT OF THE COMPANY -- Employment and Consulting Agreements."
Employment Agreements. As of the Effective Time, the Company will enter
into the following employment agreements:
Dennis Hayes -- Pursuant to the terms of the Hayes Employment Agreement,
Mr. Hayes will be the Chairman of the Company. His annual base salary will be
$400,000 per year, with annual increases on each anniversary date of the
Effective Time directly proportional to any increase (but not decrease) in the
cost of living as reflected by the Consumer Price Index for Urban Wage Earners
and Clerical Workers -- All Items ("CPI") published by the Bureau of Labor
Statistics. Mr. Hayes will also be eligible for a personal incentive cash bonus
up to $500,000 per year based on attaining personal goals approved by the
Company Board in respect of his duties on behalf of the Company and a corporate
incentive bonus in the maximum amount of $300,000 per year upon the Company
attaining goals established by the Company Board. In addition, Mr. Hayes will
receive on January 1 of each year during the term of the Hayes Employment
Agreement ten-year stock options to purchase 200,000 shares of Common Stock with
an exercise price of fair market value on the date of award. Twenty-five percent
(25%) of the options will vest on the date of award, and an additional 25% will
vest on December 31 of such year and each ensuing year. If Mr. Hayes voluntarily
resigns his employment (except in the case of a breach of the Hayes Employment
Agreement by the Company, or in the event of a "change in control" as such term
is defined in the Hayes Employment Agreement) or is discharged for "Cause" as
such term is defined in the Hayes Employment Agreement, then no further vesting
will occur and all unvested options will terminate immediately upon termination
of employment. Mr. Hayes must exercise any vested options after such termination
of employment within the earlier to occur of five years after the date of
termination or the expiration of the 10-year term of the options. Mr. Hayes will
also receive certain short-term and long-term disability benefits under the
Company's respective disability plans and a car and driver on a full-time basis.
The Company will also pay the premiums on the life insurance policy of Mr.
Hayes. Mr. Hayes will receive a severance payment in an amount equal to
three-twelfths (3/12) of his base salary in the event of Mr. Hayes' death during
the term of the Hayes Employment Agreement. Mr. Hayes has agreed not to compete
with the Company and not to solicit the Company's employees during the term of
his employment and for 18 months thereafter.
Ronald Howard -- Pursuant to the terms of the Howard Employment Agreement,
Mr. Howard will be the Vice Chairman and Chief Executive Officer of the Company.
At any time after the first anniversary of the Effective Time, the Company may
require or Mr. Howard may determine that Mr. Howard cease to be Chief Executive
Officer and in such case, Mr. Howard shall be a consultant to the Company for
the balance of the term and on the same terms. His annual base salary will be
$280,000 per year, with annual increases to be reviewed by the Company Board.
Mr. Howard will also be eligible for a cash bonus in an amount calculated by
dividing his base salary by 59.4% and subtracting his base salary from the
resulting amount (the "Bonus Amount"). Such Bonus Amount shall consist of two
parts: (a) a personal incentive bonus in the maximum amount of 30% of the amount
remaining after subtracting $50,000 from the Bonus Amount, based on attaining
personal goals established by the Compensation Committee in respect of Mr.
Howard's duties on behalf of the Company and (b) a corporate incentive bonus in
the maximum amount of $50,000 plus 70% of the amount
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remaining after subtracting $50,000 from the Bonus Amount, based on the
Company's attaining such goals, objectives and benchmarks as shall be set by the
Company Board. In addition, Mr. Howard will receive on January 1 of each year
during the term, ten-year stock options to purchase 150,000 shares of Common
Stock with an exercise price of fair market value on the date of award.
Twenty-five percent (25%) of the options will vest on the date of award, and an
additional 25% will vest on December 31 of such year and each ensuing year. If
Mr. Howard voluntarily resigns his employment (except in the case of a breach of
the Howard Employment Agreement by the Company, or in the event of a "change in
control" as such term is defined in the Howard Employment Agreement) or is
discharged for "Cause" as such term is defined in the Howard Employment
Agreement, then no further vesting will occur and all unvested options will
terminate immediately upon termination of employment. Mr. Howard must exercise
any vested options after such termination of employment within the earlier to
occur of five years after the date of termination or the expiration of the
10-year term of the options. The Company will also continue to pay the premiums
on the life insurance policy that has been maintained by the Company on Mr.
Howard's life prior to the Effective Time. Mr. Howard has agreed not to compete
with the Company, and not to solicit the Company's customers and employees
during the term of his employment and for 18 months thereafter.
Shareholders Agreement. Each of the Hayes Shareholders and Mr. Howard have
entered into a Shareholders' Agreement, effective as of the Effective Time, in
respect of the voting of their respective shares of the Company's Securities for
the election of directors. Such Shareholders' Agreement provides that the shares
owned by such persons will be voted to elect Messrs. Hayes and Howard and five
persons designated by certain of the Hayes Shareholders.
Indemnification. All rights to indemnification existing in favor of the
current directors and officers of the Company and Hayes for acts and omissions
occurring prior to the Effective Time, as provided in their respective
certificates of incorporation and/or bylaws (as in effect as of the date of the
Merger Agreement) and as provided in the indemnification agreements between the
Company or Hayes and said directors and officers, shall survive the Merger and
shall be maintained by the Company and Hayes, as the surviving corporation in
the Merger, for a period of not less than six years from the Effective Time.
MANAGEMENT AND OPERATIONS OF THE COMPANY
The Company Board following the Merger shall consist of Dennis Hayes (the
Chairman of the Hayes Board), Ronald Howard (the Chairman of the Company Board),
Barbara Perrier Dreyer (presently a Company director), and four directors
designated by the Hayes Shareholders. Except for Mr. Howard, who will continue
in office, the above directors will take office effective as of the Closing,
except for Dennis Hayes and one designee of the Hayes Shareholders who take
office as of the day after the Closing. Hayes will be the surviving corporation
in the Merger and, following the Merger, will be, and will be operated as, a
wholly-owned subsidiary of the Company.
ACCOUNTING TREATMENT
The Merger will be treated as a reverse acquisition of the Company by
Hayes. In a reverse acquisition the accounting acquiror receives less than 100
percent of the post combination shares since it is not the legal issuer. The
Hayes Shareholders will receive approximately 79% of the post combination shares
of the Company, excluding the 6% Securities, and will be the accounting
acquiror. The cost of the acquisition of the Company will be based on the fair
value of the Company's outstanding shares and certain acquisition costs and
allocated to the issuer's net assets following the guidance of APB 16 Accounting
For Business Combinations. As a result of the reverse acquisition of the Company
by Hayes, the historical financial statements of the surviving corporation for
periods prior to the Merger will be those of Hayes rather than the Company. See
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
REGULATORY APPROVALS
Antitrust. The Merger is subject to the requirements of the HSR Act and
the rules and regulations thereunder, which provide that certain transactions
may not be consummated until required information and
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material have been furnished to the Antitrust Division and the FTC and certain
waiting periods have expired or been terminated. The Company and Hayes filed the
required information and material with the Antitrust Division and the FTC on
November 11, 1997 and the statutory waiting period under the HSR Act has been
terminated.
State Securities Laws. Prior to the Effective Time, the Company shall use
reasonable, diligent efforts to obtain all regulatory approvals needed to ensure
the Securities issued in the Merger will be registered or qualified under the
securities law, or exempt from the same, of every jurisdiction of the United
States in which any holder of the Hayes capital stock has an address of record
on the Record Date. Hayes shall use reasonable, diligent efforts to assist the
Company to comply with the securities and Blue Sky laws of all applicable
jurisdictions in connection with the Merger.
MATERIAL TAX CONSEQUENCES OF THE MERGER
The following discussion of the material federal income tax consequences of
the Merger is based on the current provisions of the Code applicable Treasury
Regulations, judicial authority and administrative rulings and practice. This
discussion, however, does not address all aspects of federal income taxation
that may be relevant to a particular Hayes Shareholder in light of his personal
investment circumstances and to certain types of shareholders subject to special
treatment under the federal income tax laws (for example, insurance companies,
tax exempt organizations, financial institutions or broker-dealers, persons who
acquired their Hayes stock pursuant to the exercise of employee stock options or
otherwise as compensation, or persons who are not citizens or residents of the
United States or who are foreign corporations, foreign partnerships or foreign
estates or trusts) and does not discuss any aspects of state, local or foreign
taxation. Further, this discussion assumes that all Hayes Shareholders will hold
their shares of Hayes capital stock as capital assets as of the date of the
Merger.
There can be no assurance that the Internal Revenue Service (the "IRS")
will not take a contrary view to those expressed herein. Moreover, legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to Hayes Shareholders.
In connection with the filing of the Registration Statement, Womble Carlyle
Sandridge & Rice, PLLC delivered a tax opinion ("Tax Opinion") to Hayes and
Access Beyond. The following discussion summarizes the material income tax
consequences to the shareholders of Hayes, and is qualified in its entirety by
reference to such opinion which is an exhibit to the Registration Statement. In
connection with the Tax Opinion, Womble Carlyle Sandridge & Rice, PLLC has
relied on such factual assumptions as are customary in similar tax opinions and
certain representations made by the Company and Hayes in the Merger Agreement,
and by the Company, Hayes and certain Hayes Shareholders to Womble Carlyle
Sandridge & Rice, PLLC. The accuracy of the Tax Opinion is dependent upon the
correctness of the factual assumptions and representations upon which the Tax
Opinion is premised. No ruling from the IRS concerning the tax consequences of
the merger has been (or will be) requested by the Company or Hayes, and the Tax
Opinion will not be binding upon the IRS or the courts.
EACH HAYES SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISER AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES IN
APPLICABLE TAX LAWS.
Qualification of the Merger as a Tax-free Reorganization. Although the
matter is not free from doubt and is subject to the accuracy of the assumptions
and representations set forth in the following paragraph, the Merger will be a
tax-free reorganization within the meaning of Section 368(a)(1) of the Code by
reason of the application of Section 368(a)(2)(E) of the Code with respect to,
and to the extent of, the exchange of
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Hayes Common Stock, Series A Preferred Stock and Series B Preferred Stock for
shares of the Company stock. See "Federal Income Tax Consequences to Hayes
Shareholders" below.
The conclusion of the previous paragraph is based on certain assumptions,
including the following: (i) the Merger will be consummated in accordance with
the Merger Agreement; (ii) the representations made by the Company, Subsidiary
and Hayes in the Merger Agreement are accurate; (iii) the representations made
to Womble Carlyle Sandridge & Rice, PLLC by the Company, Hayes and certain Hayes
Shareholders are accurate; (iv) the Company presently has no plan or intention
to liquidate Hayes, to merge Hayes with or into another corporation, to sell or
otherwise dispose of the capital stock of Hayes, to cause Hayes to issue
additional shares of its stock that would result in the Company's loss of
"control" of Hayes within the meaning of Section 368(c) of the Code or to cause
Hayes to sell or dispose of any of its assets except for dispositions made in
the ordinary course of business or which would not cause the Merger to fail to
satisfy the "continuity of the business enterprise" requirements as a result of
a failure by Hayes to continue its historic business or use a significant
portion of its historic business assets in a business; (v) Hayes has no declared
but unpaid dividends; (vi) the Company has no plan or intention to reacquire any
of its stock issued in the Merger; (vii) at the consummation of the Merger, the
fair market value of Hayes' assets will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject; (viii) the
Company will be in control of Subsidiary within the meaning of Section 368(c) of
the Code on the date of the Merger; (ix) following the consummation of the
Merger, Hayes will continue to hold "substantially all" (within the meaning of
Section 368(a)(2)(E)(i) of the Code) of its properties and the properties of
Subsidiary owned immediately prior to the Merger; (x) there will be no plan or
intention by the historic Hayes Shareholders to sell, exchange or otherwise
dispose of a number of shares of Common Stock received in the Merger that would
reduce the Hayes Shareholders' aggregate ownership of the Company's stock to a
number of shares having a value, as of the date of the Merger, less than the
number of shares as are necessary to satisfy the "continuity of interest"
requirement for transactions qualifying as reorganizations under Section
368(a)(1) of the Code; (xi) none of the compensation to be received by any Hayes
Shareholder is actually separate consideration for, or allocable to, any of his
or her shares of Hayes capital stock, and the compensation to be paid to any
Hayes Shareholder will be for services actually rendered and commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
and (xii) following the consummation of the Merger, the Company will not take
any actions that would cause the Merger to fail to qualify as a reorganization
within the meaning of Sections 368(a)(1) and 368(a)(2)(E) of the Code.
Federal Income Tax Consequences to Hayes Shareholders. If the Merger
constitutes a tax-free reorganization under Sections 368(a)(1) and 368(a)(2)(E)
of the Code, the historic shareholders of Hayes will not recognize gain or loss
upon the receipt of the Company stock in exchange for their Hayes shares, but
each Hayes Shareholder will be required to recognize a taxable gain (but not a
taxable loss) for federal income tax purposes with respect to such
reorganization in an amount equal to the lesser of (i) the amount of the excess,
if any, of the sum of the fair market value of the Company stock and the cash,
if any, received over the adjusted tax basis of the Hayes shares exchanged by
such shareholder, or (ii) the amount of cash and the fair market value of any
property other than the Company stock received by such Hayes Shareholder in
connection with the Merger. Such gain will be taxed as a capital gain unless the
payment of money (and other property, if any) to such shareholder is deemed to
have the effect of a dividend, in which case it will be taxed as a dividend to
the extent of such Hayes Shareholder's ratable share of the corporation's
accumulated earnings and profits. For purposes of this Section, the historic
shareholders of Hayes shall be those shareholders owning Hayes capital stock as
of July 29, 1997. Whether the money or other property received is taxed as a
dividend will depend on each Hayes Shareholder's particular facts and
circumstances and will be determined under the principles of the United States
Supreme Court's decision of Commissioner v. Clark, 489 U.S. 726 (1989) and
Section 302 of the Code, by assuming that such Hayes Shareholder receives only
shares of the Company stock in exchange for such shareholder's shares of Hayes
Common Stock and immediately thereafter exchanged a portion of the Company stock
having a fair market value equal to the amount of money received in redemption
of such shares.
If the Merger constitutes a reorganization under Section 368(a)(1) and
368(a)(2)(E) of the Code, the Company stock received by each Hayes Shareholder
will have a tax basis equal to the Hayes shares exchanged
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therefor decreased by the amount of cash received and increased by the amount of
gain recognized (including gain characterized as dividend income) by such
shareholder.
A Hayes Shareholder who exercises the right to dissent in connection with
the Merger and receives only cash in exchange for such shareholder's Hayes
shares will be treated as having received such cash as a distribution in
redemption of such Hayes Shareholder's Hayes shares and will recognize gain or
loss equal to the difference between the amount of cash received and the
adjusted basis of such Hayes Shareholder's Hayes shares, unless such payment,
under each such Hayes Shareholder's particular facts and circumstances (such as
constructive stock ownership), is deemed to have the effect of a dividend
distribution and not a redemption treated as an exchange under the principles of
Section 302 of the Code.
If the Merger were not to constitute a reorganization under Section
368(a)(1) of the Code, each Hayes Shareholder would recognize a taxable gain or
loss equal to the difference between (i) the fair market value of the Company
stock and cash received pursuant to the Merger and (ii) his basis in his Hayes
stock surrendered in the Merger. The basis in Company stock received in such a
case would be equal to the fair market value of such stock on the date of the
Merger.
Capital gains or capital losses, as the case may be, recognized by a Hayes
Shareholder as a result of the Merger will be long-term capital gains or losses
if the Hayes Shareholder has held the Hayes shares deemed sold or exchanged, in
whole or in part, in connection with the Merger for more than eighteen months as
of the date of the Merger.
Federal Income Tax Consequences to the Corporate Parties to the Merger
Agreement. No material gain or loss for federal income tax purposes will be
recognized by the Company, Subsidiary or Hayes in the transactions constituting
the Merger.
RESALE OF COMMON STOCK; AFFILIATES
All shares of Common Stock received by holders of Hayes Common Stock and
Hayes Series A Preferred Stock, and all shares of Series A Preferred Stock
received by holders of Hayes Series B Preferred Stock in the Merger will be
freely transferable, except that Common Stock received by persons who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of the
Company or Hayes prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of Hayes, or Rule 144 under the Securities Act with
respect to persons who are or become affiliates of the Company. Persons who may
be deemed to be affiliates of the Company or Hayes generally include individuals
or entities that control, are controlled by or are under common control with the
Company or Hayes, as the case may be, and may include certain officers and
directors of such party as well as principal stockholders of such party.
Concurrently with the execution of the Merger Agreement, Hayes delivered to
the Company a letter identifying all persons who are, in Hayes' reasonable
judgment, affiliates, and caused each of its affiliates to deliver to the
Company written agreements (the "Hayes Affiliate Agreements") providing, among
other things, that such persons will not offer to sell, sell or otherwise
dispose of any of the Company's stock issued to such person in the Merger in
violation of the Securities Act and Rule 145 promulgated thereunder, as they may
be amended from time to time. In addition, each shareholder of Hayes has agreed
to make no disposition of the Company's stock for 90 days after the Effective
Time, and Dennis Hayes has agreed that for 180 days after such 90 day period, he
will not dispose of more than $3.0 million of Common Stock.
NASDAQ/NMS LISTING
The Company has agreed to cause its Common Stock issued in the Merger to be
authorized for listing on NASDAQ/NMS, upon official notice of issuance. Such
authorization for listing is a condition to the obligations of Hayes under the
Merger Agreement to consummate the Merger.
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DISSENTERS' RIGHTS
In accordance with the applicable provisions of the GBCC, the shareholders
of Hayes are entitled to dissent from the Merger and to receive an appraised
value of such shares in cash. Pursuant to the provisions of Article 13 of the
GBCC, if the Merger is consummated, any Hayes Shareholder who (i) gives Hayes,
prior to the vote at the meeting with respect to the approval of the Merger
Agreement, written notice of such holder's intent to demand payment for such
holder's shares and (ii) does not vote in favor thereof, shall be entitled to
receive, upon compliance with the statutory requirements summarized below, the
fair value of such holder's shares as of the Effective Date.
The written objection requirement referred to above will not be satisfied
under the GBCC by merely voting against approval of the Merger Agreement by
proxy or in person at the Hayes Annual Meeting to approve the Merger. In
addition to not voting in favor of the Merger Agreement, a shareholder wishing
to preserve the right to dissent and seek appraisal must give a separate written
notice of such holder's intent to demand payment for such holder's shares if the
Merger is effected, as hereinabove provided.
If the Merger is authorized at the Hayes Annual Meeting, Hayes must deliver
a written dissenters' notice (the "Dissenters' Notice") to all of its
shareholders who satisfied the foregoing requirements. The Dissenters' Notice
must be sent within 10 days after the Effective Date and must (i) state where
the demand for payment must be sent and where and when certificates for the
shares must be deposited, (ii) set a date by which Hayes must receive the demand
for payment (which date may not be fewer than 30 nor more than 60 days after the
Dissenters' Notice is delivered), and (iii) be accompanied by a copy of Article
13 of the GBCC.
A record shareholder who receives the Dissenters' Notice must demand
payment and deposit such holder's certificates in accordance with the
Dissenters' Notice. Such shareholder will retain all other rights of a
shareholder until those rights are canceled or modified by the consummation of
the Merger. A record shareholder who does not demand payment or deposit such
holder's share certificates where required, each by the date set in the
Dissenters' Notice, is not entitled to payment for such holder's shares under
Article 13 of the GBCC.
Except as described below, Hayes as the surviving corporation following the
Merger with the Subsidiary must, within 10 days of the later of the Effective
Date or receipt of a payment demand, offer to pay to each dissenting shareholder
who complied with the payment demand and deposit requirements described above
the amount Hayes estimates to be the fair value of such holder's shares, plus
accrued interest from the Effective Date. Such offer of payment must be
accompanied by (i) certain recent financial statements of Hayes, (ii) Hayes'
estimate of the fair value of the shares, (iii) an explanation of how the
interest was calculated, (iv) a statement of the dissenter's right to demand
payment under Section 14-2-1327 of the GBCC, and (v) a copy of Article 13 of the
GBCC. If the shareholder accepts Hayes' offer, payment must be made within 60
days after the later of the making of the offer or the Effective Date.
If the Merger is not effected within 60 days after the date set forth
demanding payment and depositing share certificates, Hayes must return the
deposited certificates. If, after such return and release, the Merger is
effected, Hayes must send a new Dissenters' Notice and repeat the payment demand
procedure described above.
Section 14-2-1327 of the GBCC provides that a dissenting shareholder may
notify Hayes in writing of such holder's own estimate of the fair value of such
holder's shares and the interest due, and may demand payment of such holder's
estimate, if (i) such holder believes that the amount offered by Hayes is less
than the fair value of such holder's shares or that the interest due has been
calculated incorrectly, or (ii) Hayes, having failed to effect the Merger, does
not return the deposited certificates within 60 days after the date set for
demanding payment. A dissenting shareholder waives such holder's right to demand
payment under Section 14-2-1327 unless such holder notifies Hayes of such
holder's demand in writing within 30 days after the Company makes or offers
payment for such holder's shares. If Hayes does not offer payment within 10 days
of the later of the Effective Date or receipt of a payment demand, then (i) the
shareholder may demand the financial statements and other information required
to accompany Hayes' payment offer, and Hayes must provide such information
within 10 days after receipt of the written demand, and (ii) the
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shareholder may notify Hayes of such holder's own estimate of the fair value of
such holder's shares and the amount of interest due, and may demand payment of
that estimate.
If a demand for payment under Section 14-2-1327 remains unsettled, Hayes
must commence a nonjury equity valuation proceeding in the Superior Court of
Gwinnett County, Georgia, within 60 days after receiving the payment demand and
must petition the court to determine the fair value of the shares and accrued
interest. If Hayes does not commence the proceeding within those 60 days, it is
required to pay each dissenting shareholder whose demand remains unsettled the
amount demanded. Hayes is required to make all dissenting shareholders whose
demands remain unsettled parties to the proceeding and to serve a copy of the
petition upon each dissenting shareholder. The court may appoint appraisers to
receive evidence and to recommend a decision on fair value. Each dissenting
shareholder made a party to the proceeding is entitled to judgment for the fair
value of such holder's shares plus interest on the date of judgment.
Any dissenting shareholder who perfects such holder's right to be paid the
value of such shareholder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See
"-- Material Federal Income Tax Consequences of the Merger."
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached hereto as Exhibit A. The summary is
qualified in its entirety by reference to the Merger Agreement. The Company's
stockholders and the Hayes Shareholders are urged to read the Merger Agreement
in its entirety for a more complete description of the Merger.
THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
by both the stockholders of the Company and the shareholders of Hayes and the
satisfaction of the other conditions to the Merger, the Subsidiary will be
merged with and into Hayes, the separate existence of the Subsidiary will cease,
and Hayes will be the surviving corporation of the Merger and a wholly-owned
subsidiary of the Company.
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company, Hayes, the Subsidiary or the stockholders or
shareholders, each share of Hayes Common Stock, Hayes Series A Preferred Stock
and Series B Preferred Stock then outstanding and each share of the Subsidiary
shall be converted pursuant to the terms of the Merger Agreement, as described
below. See "-- Terms of the Merger."
The certificate of incorporation and by-laws of Hayes, as in effect
immediately prior to the Effective Time will be the certificate of incorporation
and by-laws of Hayes following the Merger. Thereafter both the certificate of
incorporation and by-laws of Hayes may be amended in accordance with their terms
and as provided by law. The name of the surviving corporation of the Merger
will, by virtue of the Merger, remain Hayes Microcomputer Products, Inc. The
name of the Company, however, will be changed to Hayes Corporation.
EFFECTIVE TIME
Subject to the terms and conditions of the Merger Agreement, the
Certificate of Merger of the Subsidiary with and into Hayes will be filed with
the Secretary of State of the State of Georgia on the Closing Date. The date and
time that the Certificate of Merger is filed with the Georgia Secretary of State
and the Merger becomes effective is the Effective Time.
TERMS OF THE MERGER
General. At the Effective Time, Hayes will become a wholly-owned
subsidiary of the Company and (a) the Hayes Shareholders will own approximately
79% of the total outstanding equity securities of the Company (excluding options
and the 6% Securities), (b) the Company will amend its Certificate of
Incorporation to (i) change its name to Hayes Communications Inc, (ii) increase
the number of authorized shares of capital stock and (iii) create the Series A
Preferred Stock; (c) the Board of Directors of the Company will be increased to
seven members, five of whom will be designated by the Hayes Shareholders; and
(d) the Company will assume Hayes' obligations under the Hayes Option Plan.
After giving effect to the Merger and assuming that (x) all then vested and
exercisable Hayes Options and Hayes Warrants are exercised and (y) none of the
options to purchase Access Beyond's Common Stock are exercised, the Hayes
Shareholders will own approximately 80.08% of the issued and outstanding equity
securities of the Company excluding the options and 6% Securities.
Insofar as Hayes and the Company have agreed that approximately 79% of the
total outstanding equity securities of the Company (excluding options and the 6%
Securities) will be owned by the Hayes Shareholders at the Effective Time, the
Conversion Ratio of 4.62894, which will be applied at the Effective Time to each
outstanding share of Hayes Common Stock, Hayes Series A Preferred Stock and
Hayes Series B Preferred Stock, was developed to achieve such result. Assuming
that none of the Hayes Shareholders perfect rights of appraisal, (i) the
4,991,750 shares of Hayes Common Stock outstanding on the date hereof
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will be converted into the right to receive 23,106,433 shares of Common Stock,
(ii) the 4,900,000 shares of Hayes Series A Preferred Stock outstanding on the
date hereof will be converted into the right to receive 22,681,729 shares of
Common Stock and (iii) the 263,113 shares of Hayes Series B Preferred Stock
outstanding on the date hereof will be converted into the right to receive
1,217,930 shares of Series A Preferred Stock.
The Merger Agreement provides that, any shares of Common Stock issued upon
conversion of the 6% Convertible Stock will result in proportionate dilution
resulting to the stockholders of the Company and the shareholders of Hayes.
Treatment of Hayes Options and Warrants. At the Effective Time, each Hayes
Option to purchase Hayes Common Stock granted under the Hayes Option Plan, and
each Hayes Warrant shall be assumed by the Company in accordance with the terms
of such option or warrant, and converted into rights with respect to that number
of shares of Common Stock, determined by multiplying the number of shares of
Hayes stock underlying the Hayes Option or Hayes Warrant at the Effective Time
by the Conversion Ratio, and the exercise price per share for each such option
or warrant will equal the exercise price of the Hayes Option or Hayes Warrant
immediately prior to the Effective Time divided by the Conversion Ratio (rounded
up to the nearest whole cent). If such calculation results in an assumed option
or warrant exercisable for a fraction of a share, then the number of shares of
Common Stock underlying such option or warrant will be rounded down to the
nearest whole number with no cash being payable for such fractional share. As of
the date hereof, 1,851,569 shares of Hayes Common Stock are subject to the Hayes
Warrants and 5,426,256 shares are subject to the Hayes Options.
Treatment of the Company's Options. Under the Directors' Plan as a result
of the Merger, options to purchase shares of Common Stock will become fully
vested commencing at least five days prior to the Effective Time, subject to any
limitation in the exercise of such options on the date of exercise, and will
terminate on the later of 90 days after the effective time or seven months
following the date of grant of each option. Options granted under the Incentive
Plan will not be affected by the Merger unless, as to each such option holder,
his employment is terminated without good cause within nine months following the
Effective Time in which case such optionholder's options will become fully
vested.
Fractional Shares. No fractional shares of the Securities will be issued
in connection with the Merger. In lieu of any fractional shares, the record
holder of any shares of Hayes stock who would otherwise be entitled to receive a
fraction of a share of the Company, upon aggregation of all shares and
fractional shares of the same class or series owned by such holder, will receive
from the Company promptly after the Merger, cash equal to the per share market
value of the Common Stock, which market value shall be the closing sale price of
the Common Stock on the last trading day prior to the Closing Date, as quoted on
the NASDAQ/NMS multiplied by such fraction of a share of the Company to which
such holder would otherwise be entitled.
SURRENDER AND PAYMENT
As of the Effective Time, all shares of Hayes stock that are outstanding
immediately prior thereto, other than Dissenting Shares will, by virtue of the
Merger and without further action, cease to exist, and all such shares will be
converted into the right to receive shares of Common Stock and/or Series A
Preferred Stock. See "THE ANNUAL MEETING -- Purpose of the Annual Meeting." At
and after the Effective Time, each certificate representing outstanding shares
of Hayes capital stock, other than Dissenting Shares, will represent the right
to receive the number of shares of Common Stock or Series A Preferred Stock into
which such shares of Hayes capital stock have been converted, and such shares of
Access Beyond stock will be registered in the name of the holder of such
certificate. Unless surrendered to the Company for exchange at the Closing, as
soon as practicable after the Effective Time, each holder of shares of Hayes
common stock, other than Dissenting Shares, will surrender (a) the Hayes
Certificates to the Company for cancellation or (b) an affidavit of lost (or
nonissued) certificate and indemnity with respect to the same, in form
reasonably satisfactory to the Company. Promptly following the Effective Time
and receipt of the Hayes Certificates, the Company will cause its transfer agent
to issue to each such surrendering holder, certificate(s) for the number
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of Securities to which such holder is entitled, and the Company will distribute
any cash payable in lieu of fractional shares. After the Effective Time, there
will be no further registration of transfers of the shares of Hayes stock on the
stock transfer books of Hayes. The Company will not issue new stock certificates
bearing the new company name following the Merger to the Company's stockholders
prior to the Merger, except as a result of stock transfers.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of,
among other things: (a) the due organization, valid existence and good standing
of the Company, Hayes and their respective subsidiaries and the corporate power
to operate their respective businesses; (b) the capitalization of the Company
and Hayes; (c) the authorization, execution, delivery and enforceability of the
Merger Agreement, Affiliate Agreements, Voting Agreements and Market Standoff
Agreements; (d) the accurate presentation of financial conditions in financial
statements prepared in accordance with GAAP; (e) that neither the execution and
delivery of the Merger Agreement, nor the consummation of the transactions
contemplated thereby by the Company and Hayes are in violation of their
respective certificates of incorporation, bylaws, material contracts, or any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation; (f) litigation against the Company and Hayes; (g) taxes, tax returns
and audits of the Company and Hayes; (h) the title to and ownership of assets of
the Company and Hayes; (i) the absence of any undisclosed liabilities or any
material change in the operation of the Company and Hayes; (j) material
contracts, agreements and commitments of the Company and Hayes; (k) ownership,
license of or possession of otherwise legally enforceable rights of the Company
and Hayes and their respective subsidiaries to certain intellectual property,
and the absence of any intellectual property litigation or breach of any license
or infringement upon any patent; (l) legal compliance by the Company and Hayes
and their respective subsidiaries; (m) intercompany agreements and arrangements
and affiliate transactions among the Company or any of its subsidiaries and its
affiliates and among Hayes or any of its subsidiaries and its affiliates; (n)
employees of the Company, Hayes and their respective subsidiaries; (o) insurance
maintained by the Company, Hayes and their respective subsidiaries; (p)
environmental matters relating to the Company, Hayes and their respective
subsidiaries; (q) government contracts of the Company, Hayes and their
respective subsidiaries; (r) the development by the Company of certain of its
remote access products, including their having passed quality testing and their
being ready for manufacture in volume, (s) absence of brokers fees in connection
with the origin, negotiation and execution of the Merger Agreement, except for
the obligation of the Company to DLJ, (t) absence of untrue statements of and
omissions of material facts by the Company and Hayes in the Registration
Statement of which this Proxy Statement/Prospectus is a part, and in the Merger
Agreement; and (u) failure to meet the definition of a "United States real
property holding corporation" by the Company and Hayes.
CONDUCT OF BUSINESS BY THE COMPANY AND HAYES PENDING THE MERGER
During the period from the date of the Merger Agreement until the Effective
Time, unless earlier terminated, each of the Company and Hayes has covenanted to
and agreed that, except as provided in the Merger Agreement, it will not,
without the prior written consent of an officer of the other party, such consent
not to be unreasonably withheld or delayed: (a) enter into any transaction not
in the ordinary course of business or enter into any transaction or make any
commitment involving a capital expenditure in excess of $100,000 with respect to
the Company, $10,000 with respect to the Subsidiary and $5.0 million with
respect to Hayes; (b) borrow any money or encumber or permit to be encumbered
any of its assets except in the ordinary course of its business consistent with
past practice and to an extent that is not material to such party or its
business; provided that the Company may establish a credit facility with any
institutional lender prior to the Effective Time in the approximate amount of
$3.0 million and may grant security interests in all or substantially all of its
assets in connection therewith, provided that the Company shall not agree to any
prepayment fees or penalties in connection therewith in excess of $100,000
without Hayes' prior consent; (c) dispose of any of its material assets except
in the ordinary course of business consistent with past practice; (d) with
respect to the Company, the Company will not enter into any material agreement
except in the
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ordinary course of business consistent with past practice without the consent of
Hayes, which will not be unreasonably withheld; (e) fail to maintain its
equipment and other assets that are material to the operation of its business in
good working condition and repair according to the standards it has maintained
to the date of the Merger Agreement, subject only to wear and tear; (f) except
as contemplated by the Merger Agreement and for severance and "stay put"
bonuses, pay any bonus, royalty, increased salary (except for annual increases
in the ordinary course of business consistent with past practice) or special
remuneration to any officer, employee or consultant (except pursuant to existing
arrangements previously disclosed in writing to the other party or in connection
with the transactions contemplated thereby) or enter into any new employment or
consulting agreement with any such person, or enter into any new agreement or
employee plan, as the case may be; (g) change accounting methods, unless
required by generally accepted accounting principles; (h) declare, set aside or
pay any cash or stock dividend or other distribution in respect of capital
stock, or, as necessary to redeem any or all of the issued and outstanding
shares of Hayes Series B Preferred Stock, redeem or otherwise acquire any of its
capital stock; (i) amend or terminate any material agreements to which the
Company is a party, except those amended or terminated in the ordinary course of
business consistent with past practice; (j) lend any amount to any person or
entity, other than advances for travel and expenses which are incurred in the
ordinary course of business consistent with past practice; (k) guarantee or act
as surety for any obligation, except for the endorsement of checks and other
negotiable instruments in the ordinary course of business consistent with past
practice; (l) waive or release any material right or claim, except in the
ordinary course of business consistent with past practice; (m) split or combine
the outstanding shares of its capital stock of any class or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or affecting any other of its securities; (n) except for the
Merger, consolidate or reorganize with, or acquire the business, stock or assets
of any entity, provided that Hayes may enter into any merger or acquisition with
any party in which the amount of the transaction does not exceed $10.0 million,
provided that no such transaction will be entered into by Hayes in which the
percentage of shares of the Company issuable to or retained by either the
stockholders of the Company or the shareholders of Hayes, as the case may be,
immediately after the Effective Time would be affected, without the consent of
the Company; and no such transaction will be entered into by either the Company
or Hayes after the filing of this Registration Statement until the earlier of
the Effective Time or termination of the Merger Agreement; (o) amend its
certificate of incorporation or by-laws, except as contemplated by, and in
accordance with, the Merger Agreement; (p) agree to any audit assessment by any
tax authority or file any federal or state income or franchise tax return unless
copies of such returns have been delivered to the Company or Hayes, as the case
may be, for its review prior to filing; (q) license any of the Company's or
Hayes' intellectual property, as the case may be, except in the ordinary course
of business consistent with past practice; (r) terminate the employment of any
officer, director or key employee of the Company or Hayes, as the case may be;
(s) agree to do any of the things described in (a) through (r) above; or (t)
file a registration statement with the Commission, other than a Form S-8 in
respect of the Company's 1996 Long Term Incentive Plan and 1996 Non-employee
Directors' Stock Option Plan, or become subject to the Exchange Act by directly
or indirectly merging with or acquiring an entity which is a reporting company.
CERTAIN COVENANTS
Pursuant to the terms of the Merger Agreement, the Company and Hayes have
each agreed, among other things, (a) to allow the other party to hold meetings
and discussions with its material customers and suppliers to determine any
business issues that may exist concerning the customer's or supplier's
relationship with the other party; (b) to notify the other party in writing of
(i) any event that would render untrue or inaccurate any representation or
warranty of such party contained in the Merger Agreement; (ii) any material
action, suit or proceeding by or before any court, board or governmental agency
initiated, against or threatened against such party or any subsidiary; (iii) any
material deterioration in the relationship with any material customer, supplier
or key employee of the party of which the party becomes aware; (c) to conduct
their respective businesses as described in "-- Conduct of Business by the
Company and Hayes Pending the Merger;" (d) to use reasonable, diligent efforts
to file, as soon as practicable after the date of the Merger Agreement, all
notices, reports and other documents required to be filed with any government
body or agency with respect to the Merger, and to promptly file any
notification, reports, forms or other information required under the HSR Act;
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(e) not to, directly or indirectly, solicit, initiate, encourage or induce the
making, submission or announcement of any offer or proposal, other than to the
Company or Hayes, contemplating or relating to any Acquisition Transaction (as
defined below) or take any action that could reasonable be expected to lead to
an Acquisition Transaction proposal; (f) furnish any nonpublic information
regarding the Company or Hayes to, or engage in any discussions with, any person
or entity with respect to any Acquisition Transaction proposal; and (g) enter
into any letter of intent or similar document or any agreement relating to any
Acquisition Transaction. Acquisition Transaction means any transaction or series
of related transactions involving (a) any merger, consolidation, share exchange,
business combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction in which (i) either the
Company or Hayes is a constituent corporation, (ii) a person or group (as
defined in the Exchange Act and the rules promulgated thereunder) of persons
directly or indirectly acquires either the Company or Hayes or more than 50% of
the business of the Company or Hayes or, directly or indirectly acquires
beneficial or record ownership of securities representing more than 50% of the
outstanding securities of any class of voting securities of the Company or
Hayes, or (iii) in which the Company or Hayes issues securities representing
more than 50% of the outstanding securities of any class of their voting
securities; or (b) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business) or disposition of more than 50% of the assets of the Company or Hayes.
With respect to unsolicited bona fide written Acquisition Transaction proposals,
each of Hayes and the Company may furnish non-public information with respect to
itself, engage in negotiations and take other action in furtherance thereof if
advised by its financial advisor that such Acquisition Transaction proposal
could reasonable be expected to result in a transaction that is more favorable
from a financial point of view to such party's stockholders and upon advice by
outside counsel that such action is required for the Company Board or the Hayes
Board to comply with its fiduciary obligations.
In addition, Hayes has agreed to (a) prepare a proposed detailed business
plan for the combination of the Company and Hayes; (b) furnish the Company with
the name and address of each Hayes dissenting shareholder, if any, and the
number of shares of Hayes stock owned by such dissenting shareholders; and
(c)(i) use its reasonable efforts to cause certain convertible notes (the
"Convertible Notes") (with approximately $11.2 million outstanding at November
20, 1997) to be converted to Hayes Common Stock or amended to terminate the
conversion feature and to adjust the repayment provisions following the Closing
such that repayment may only be made upon determination by the Company Board
that the Company's cash flow is sufficient to make such repayment and (ii) to
terminate an antidilution warrant (the "Antidilution Warrant").
MARKET STANDOFF AGREEMENTS
Each of the shareholders of Hayes has executed a Market Standoff Agreement
pursuant to which each such shareholder has agreed not to offer, sell or
otherwise dispose of any of the shares of Common Stock and/or Series A Preferred
Stock issued to such shareholder in the Merger for a period of 90 days after the
Effective Time. In addition, Dennis Hayes has agreed not to offer, sell or
otherwise dispose of more than $3.0 million of Common Stock issued to him in the
Merger for a period of 180 days after such 90 day period.
CONDITIONS
Conditions to Obligations of Both the Company and Hayes. The respective
obligations of the Company and Hayes to effect the Merger are subject to certain
conditions, including: (a) approval of the Merger Agreement and the transactions
contemplated thereby by the stockholders of the Company and the shareholders of
Hayes, including the election by the Company's stockholders of a new Company
Board, as described in "THE MERGER -- Management and Operations of the Company";
(b) there shall be no order, decree, or ruling by any court or governmental
agency, or threat thereof, and no fact or circumstance shall exist, that would
render illegal the transactions provided for in the Merger Agreement; (c)
receipt of such permits or authorizations, at or prior to the Closing, from any
regulatory authority having jurisdiction over the Company and/or Hayes, as may
be required to consummate the Merger, including but not limited to satisfaction
of all requirements under state and federal securities laws; (d) the
Registration Statement shall
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become effective under the Securities Act and shall not be subject to any stop
order or proceedings seeking a stop order and the Prospectus/Proxy Statement
shall, on the Closing Date, not be subject to any proceedings commenced or
threatened by the Commission; (e) all applicable waiting periods under the HSR
Act shall have expired or early termination shall have been granted by both the
FTC and the U.S. Department of Justice, which condition has been satisfied; (f)
the Company, Ronald Howard and Dennis Hayes shall have executed and delivered to
the Company employment agreements; and (g) the authorization for listing of the
shares of Common Stock to be issued in the Merger on NASDAQ/NMS, subject to
notice of issuance.
Conditions to Obligations of Hayes. The obligation of Hayes to effect the
Merger is subject to additional conditions, including: (a) the satisfactory
completion of due diligence by Hayes and receipt by the Company of a fairness
opinion from DLJ, updated as of a date not more than 5 days prior to the date of
this Proxy Statement/Prospectus, that the Merger is fair to the Company and its
stockholders from a financial point of view of the Conversion Ratio, which
conditions have been satisfied; (b) receipt of an officer's certificate of the
Company that the representations and warranties of the Company are true and
complete in all material respects as of the Closing; (c) receipt of all written
consents, assignments, waivers, authorizations or other certificates of third
parties to provide for the continuation in full force and effect of any and all
material contracts and leases of the Company; (d) delivery by the Company to its
transfer agent of the certificates representing the shares of Common Stock and
Series A Preferred Stock to be issued in the Merger, and receipt by Hayes from
the Company and the Subsidiary of an officer's certificate as to tax matters;
(e) certification from the Company that no litigation or proceeding is pending
which will prevent the consummation of any transactions provided for in the
Merger Agreement; (f) receipt by Hayes of an opinion of Morrison Cohen Singer &
Weinstein, LLP, counsel to the Company; (g) approval by the Company's
stockholders and acceptance for filing by the Secretary of State of Delaware of
the Company's amended and restated certificate of incorporation; and (h) the
resignation of the current officers and directors of the Company (other than
Ronald Howard) effective as of the Effective Time.
Conditions to Obligations of the Company. The obligation of the Company to
effect the Merger is subject to additional conditions, including: (a) the
satisfactory completion of due diligence by the Company and receipt by the
Company of a fairness opinion from DLJ, updated as of a date not more than 5
days prior to the date of this Proxy Statement/Prospectus, that the Merger is
fair to the Company and its stockholders from a financial point of view of the
Conversion Ratio, which conditions have been satisfied; (b) receipt of an
officer's certificate of Hayes that the representations and warranties of Hayes
are true and complete in all material respects as of the Closing; (c) receipt of
all written consents, assignments, waivers, authorizations or other certificates
of third parties to provide for the continuation in full force and effect of any
and all material contracts and leases of Hayes; (d) receipt by the Company from
Hayes of an officer's certificate as to tax matters; (e) certification from
Hayes that no litigation or proceeding is pending which will prevent the
consummation of any transactions provided for in the Merger Agreement; (f)
receipt by the Company of an opinion of Womble Carlyle Sandridge & Rice, PLLC,
counsel to Hayes; (g) conversion or amendment of the Convertible Notes, which
condition has been satisfied, and termination of the Antidilution Warrant; and
(h) execution of the Voting Agreement, the Hayes Affiliate Agreements and the
Market Stand-Off Agreements.
TERMINATION; EFFECT OF TERMINATION
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after approval of the Merger by the stockholders or shareholders of
either or both of the parties, (a) by mutual written consent of the Company and
Hayes; (b) by either the Company or Hayes if the Merger shall not have been
consummated by 5:00 p.m. (Eastern Time) on March 1, 1998 (unless the failure to
consummate the Merger is attributable to a failure on the part of the party
seeking to terminate the Merger Agreement to perform any material obligation
required to be performed by such party at or prior to the Effective Time); (c)
by either the Company or Hayes if a court of competent jurisdiction or other
governmental body or agency shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; (d) by
either the Company or Hayes
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if (i) any of the applicable Hayes Shareholders repudiate the Voting Agreements
or (ii) the Hayes Annual Meeting shall have been held and the Merger Agreement
and the Merger shall not have been adopted and approved at such meeting by the
vote required by law or (iii) the required Hayes Shareholder Meeting to vote on
the Merger Agreement is not held within ten (10) business days after the
Registration Statement is declared effective by the Commission; provided,
however, that (i) the Company shall not be permitted to terminate the Merger
Agreement if the failure of the Hayes Shareholders to adopt and approve the
Merger Agreement and the Merger at the Hayes Annual Meeting is attributable to a
failure on the part of the Company to perform any material obligation required
to have been performed by the Company under this Agreement, and (ii) Hayes shall
not be permitted to terminate this Agreement if the failure of the Hayes
Shareholders to adopt and approve this Agreement and the Merger at the Hayes
Annual Meeting is attributable to a failure on the part of Hayes to perform any
material obligation required to have been performed by Hayes under this
Agreement; (e) by either the Company or Hayes if (i) the Annual Meeting shall
have been held and (ii) the Merger Agreement and the Merger shall not have been
adopted and approved at such meeting by the vote required by law; provided,
however, that (i) Hayes shall not be permitted to terminate the Merger Agreement
if the failure of the Company's stockholders to adopt and approve the Merger
Agreement and the Merger at the Annual Meeting is attributable to a failure on
the part of Hayes to perform any material obligation required to have been
performed by Hayes under the Merger Agreement, and (ii) the Company shall not be
permitted to terminate the Merger Agreement if the failure of the Company's
stockholders to adopt and approve the Merger Agreement and the Merger at the
Annual Meeting is attributable to a failure on the part of the Company to
perform any material obligation required to have been performed by the Company
under the Merger Agreement; (f) by the Company (at any time prior to the
adoption and approval of the Merger Agreement and the Merger by the Hayes
Shareholders by the vote required by law) if a "Triggering Event" with respect
to Hayes as the "Triggering Party" shall have occurred. A "Triggering Event"
shall have occurred if (i) the Company Board or the Hayes Board (the "Triggering
Party") fails to recommend, or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to the other party its unanimous
recommendation in favor of, the Merger or approval or adoption of this
Agreement; or (ii) the Triggering Party fails to hold a stockholders meeting as
promptly as practicable and in any event within 60 days after the Form S-4
Registration Statement is declared effective; (g) by Hayes (at any time prior to
the adoption and approval of the Merger Agreement and the Merger by the
Company's stockholders by the vote required by law) if a Triggering Event with
respect to the Company as the Triggering Party shall have occurred; (h) by the
Company if any of Hayes' representations and warranties contained in the Merger
Agreement shall be or shall have become materially inaccurate, or if any of
Hayes' material covenants contained in the Merger Agreement shall have been
breached in any material respect; provided, however, that if an inaccuracy in
Hayes' representations and warranties or a breach of covenant by Hayes is
curable by Hayes and Hayes is continuing to exercise reasonable efforts to cure
such inaccuracy or breach, then the Company may not terminate the Merger
Agreement on account of such inaccuracy or breach; or (i) by Hayes if any of the
Company's representations and warranties contained in the Merger Agreement shall
be or shall have become materially inaccurate, or if any of the Company's
material covenants contained in the Merger Agreement shall have been breached in
any material respect; provided, however, that if any inaccuracy in the Company's
representations and warranties or a breach of a covenant by the Company is
curable by the Company and the Company is continuing to exercise reasonable
efforts to cure such inaccuracy or breach, then Hayes may not terminate the
Merger Agreement on account of such inaccuracy or breach.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall be of no further force or effect; provided, however, that (a)
Sections 9.2, 9.3, 10 and 11 of the Merger Agreement shall survive the
termination thereof and shall remain in full force and effect, and (b) the
termination of the Merger Agreement shall not relieve any party, from any
liability for any breach thereof.
Expenses. Each party will bear its respective expenses and fees of its own
accountants, attorneys, investment bankers and other professionals incurred with
respect to this Agreement and the transactions contemplated hereby, whether or
not the Merger is consummated; provided, however, that Hayes and the Company
shall share equally all fees and expenses, other than attorneys' fees, incurred
in connection with the
46
<PAGE> 57
printing and filing of the Registration Statement and the Prospectus/Proxy
Statement and any amendments or supplements thereto, any filings required of
Hayes or the Company pursuant to the HSR Act and any filings required by NASDAQ
requirements.
Break-up Fee. If the Merger Agreement is terminated by Hayes or the
Company upon the occurrence of a Triggering Event and the stockholders of the
Company or the shareholders of Hayes fail to approve the Merger, then the
non-terminating party shall pay the terminating party as non-refundable
liquidated damages, the total out-of-pocket expenses of the terminating party
incurred in connection with the negotiation and performance of the Merger
Agreement, plus $200,000, provided, however, that such payment shall not exceed
$500,000. In addition, if either the Company or Hayes publicly announces the
entering into of an agreement relating to an Acquisition Transaction within six
months after the date of termination then the nonrefundable liquidated damages
described above shall increase to $2.0 million. In addition, if the Merger
Agreement is terminated due to the occurrence of circumstances described in
clause (d) of the first paragraph of "-- Termination; Effect of Termination," or
is terminated by Hayes as a result of the amount of cash payable for Dissenting
Shares causing the Merger to fail to qualify as a tax-free reorganization, then
Hayes shall pay to the Company a termination fee of $2.0 million as
non-refundable liquidated damages.
AMENDMENT
Any term of the Merger Agreement may be amended or waived in writing by the
parties thereto at any time before or after approval of the Hayes Shareholders
or the Company's stockholders.
47
<PAGE> 58
MARKET PRICE INFORMATION, DIVIDENDS AND RELATED STOCKHOLDER MATTERS
THE COMPANY
The Common Stock is traded on NASDAQ/NMS under the symbol "ACCB." At the
Effective Time such symbol will be changed to "HAYZ." The stock prices listed
below represent the high and low closing sale prices of the Common Stock, as
reported by NASDAQ/NMS, for each fiscal quarter since the Common Stock began
trading on NASDAQ/NMS on November 18, 1996. There is no public market for the
Series A Preferred Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR 1997
Second quarter ended January 31, 1997 (from November 18, 1996)....... $87/8 $6
Third quarter ended April 30, 1997................................... $71/8 $3
Fourth quarter ended July 31, 1997................................... $67/8 $3 1/4
First quarter ended October 31, 1997................................. $83/16 $4 3/8
Second quarter (through December 9, 1997)............................ $6 $4 /16
</TABLE>
On December 9, 1997, the last reported sale price of the Common Stock on
NASDAQ/NMS was $5 1/16 per share and there were approximately 800 holders of
record of Common Stock, who management believes hold such shares of Common Stock
for more than 1,800 beneficial owners.
On July 28, 1997, the last trading day prior to the public announcement of
the Merger, the high and low sale prices of the Common Stock on NASDAQ/NMS were
$4 9/16 and $4, respectively.
On December 9, 1997, the high and low sale prices of the Common Stock on
NASDAQ/NMS were $5 1/4 and $5 1/16, respectively.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying any such dividends on its Common Stock in the foreseeable
future. The holders of 6% Convertible Stock are entitled to receive cumulative
dividends at the rate of six percent per annum of the liquidation preference
payable annually on December 31 of each year, in cash, Common Stock or by adding
the amount thereof to the liquidation preference. Holders of Series A Preferred
Stock will be entitled to receive, as and when declared by the Company Board,
cumulative compounding dividends at the rate of ten percent (10%) per annum of
the original issue price per share of the Series A Preferred Stock. Such
dividends are to be paid in cash upon redemption, or in additional shares of
Common Stock upon conversion of the Series A Preferred Stock. No dividends may
be paid on the Common Stock unless all accrued and unpaid dividends on the
Series A Stock and the 6% Convertible Stock are paid.
Pursuant to a loan and security agreement dated October 2, 1997, the
Company may not declare or pay any dividends, except dividends payable solely in
shares of capital stock, or make any other payments on its capital stock,
without the consent of the lender.
HAYES
Hayes is a privately-held company and its securities are not listed for
quotation on NASDAQ/NMS or a stock exchange. On November 15, 1994, Hayes filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy Code due to its
inability to pay its debts on a current basis. From November 15, 1994 to April
16, 1996, there were no sales of Hayes securities other than the redemption of
529,141.81 shares (after a 3.07835 for one reverse split) of Hayes Common Stock
owned by Melita E. Hayes pursuant to the court approved Plan and the redemption
of stock under the Hayes Profit Sharing, Savings and Stock Plan. In addition,
and in connection with the Plan, on April 16, 1996, Hayes issued 4,900,000
shares of Hayes Series A Preferred Stock for $35.0 million or $7.14 per share to
fund the Plan. On April 11, 1997, Hayes issued 263,113 shares of Hayes Series B
Preferred Stock to Vulcan Ventures for $5.5 million or $20.90 per share, without
giving effect to the
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<PAGE> 59
Conversion Ratio. The following is a summary of prices paid in private
transactions involving Hayes' capital stock during the past two years, without
giving effect to the Conversion Ratio:
<TABLE>
<CAPTION>
PRICE
TRANSACTION DATE DESCRIPTION OF SECURITY TRANSACTION VALUE PER SHARE
- ------------------- ------------------------- ----------------- ---------
<S> <C> <C> <C>
April 16, 1996 Common Stock $11,000,000 $ 20.79
April 16, 1996 Series A Preferred Stock $35,000,000 $ 7.14
September 12, 1996 Common Stock $ 1,741,805 $ 22.90
December 6, 1996 Common Stock $ 737,383 $ 22.90
April 11, 1997 Series B Preferred Stock $ 5,500,000 $ 20.90
</TABLE>
49
<PAGE> 60
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements have been
derived from the historical consolidated financial statements of the Company and
Hayes and give effect to (i) the Merger as a reverse acquisition and a purchase
for accounting purposes, and (ii) costs associated with the consummation of the
Merger. The unaudited pro forma condensed combined balance sheet gives effect to
the combination as if it had occurred on September 30, 1997 using the Company's
July 31, 1997 financial statements and the 1997 consolidated financial
statements of Hayes. The unaudited pro forma condensed combined statements of
operations give effect to the combination as if it had occurred at the beginning
of the earliest period presented. The pro forma adjustments are based on
preliminary estimates, available information and certain assumptions that
management deems appropriate. The pro forma financial data does not purport to
represent what the combined Company's financial position or results of
operations would actually have been if such transactions in fact had occurred on
those dates or to project the combined Company's financial position or results
of operations for any future period. The unaudited pro forma condensed combined
financial statements should be read in conjunction with the Company's and Hayes'
consolidated financial statements and the notes thereto included elsewhere
herein.
50
<PAGE> 61
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
HAYES THE COMPANY ACQUISITION
SEPTEMBER 30, 1997 JULY 31, 1997 ADJUSTMENTS PRO FORMA
------------------ ------------- --------------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 6,499 $ 578 $ 7,077
Accounts receivable............................. 40,624 3,050 43,674
Receivables from related parties................ 8,219 8,219
Inventories..................................... 26,763 5,678 749(1) 33,190
Prepaids and other(6)........................... 4,031 167 4,198
Total Current Assets................... 86,136 9,473 749 96,358
Property and equipment.......................... 8,549 3,484 12,033
Intangibles and other........................... 7,263 949 8,212
Acquired technology............................. 4,010(2) 4,010
Acquired in process research and development.... 46,398(3) (46,398)(3)
Excess of cost over identifiable assets
acquired...................................... 7,227(8) 7,227
Total Assets........................... 101,948 13,906 58,384 (46,398) 127,840
LIABILITIES:
Current debt.................................... 31,729 287 32,016
Accounts payable................................ 28,376 3,458 4,000(7) 35,834
Accrued liabilities............................. 26,311 2,097 28,408
Amounts due related parties..................... 13,147 13,147
Income taxes.................................... 1,017 1,017
Total current liabilities.............. 100,580 5,842 4,000 110,422
Long-term debt, less current.................... 4,502 456 4,958
Other long-term liabilities..................... 1,014 297 1,311
Total Liabilities...................... 106,096 6,595 4,000 116,691
Redeemable preferred stock, series B............ 5,455 5,455
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock.................................... 47 125 (47)(4) 470(4) 595
Preferred stock, series A....................... 35,000 (35,000)(4)
Additional paid in capital...................... 46,431 (46,431)(5) 96,147(4) 96,147
Accumulated deficit............................. (44,834) (39,206) 39,206(5) (46,398)(3) (91,232)
Other adjustments............................... 184 (39) 39(5) 184
Total stockholders' equity (deficit)... (9,603) 7,311 (42,233) 50,219 5,694
Total liabilities and stockholders'
equity............................... 101,948 13,906 (38,233) 50,219 127,840
</TABLE>
- ---------------
(1) Adjustment to reflect fair value of the Company's inventory less estimated
selling costs.
(2) Adjustment to capitalize the acquired product line technology using the
income forecast method.
(3) Adjustment to capitalize and expense the acquired in process research and
development based on an appraisal of the product line technology that has
not yet reached technological feasibility using the income forecast method.
(4) Adjustment to reflect the exchange of Hayes common and preferred stock for
common and preferred stock of the Company.
(5) Adjustment to reflect the elimination of additional paid in capital,
accumulated deficit and other equity adjustments account balances of the
Company.
(6) Consistent with the Company's historical financial statements for which
amounts have been fully reserved, the purchase allocation does not include
the $980,000 note receivable from Technipower, Inc. and the $1,950,000 note
receivable from Electro-Metrics, Inc. Repayment of these notes cannot be
assured beyond a reasonable doubt.
(7) Adjustment to record the estimate of costs associated with the consummation
of the Merger.
(8) The fair value of stock issued was based on the outstanding shares at the
average market price of $4.94 five days before and after the announcement
date of July 29, 1997. The unaudited and estimated fair value of assets
acquired and liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Fair value of stock issued........................................... $ 61,695
Other acquisition costs.............................................. 4,000
Fair value of liabilities assumed.................................... 6,595
Fair value of tangible and identifiable assets acquired.............. (14,655)
Acquired product line technology..................................... (4,010)
Acquired in process research and development......................... (46,398)
--------
Excess of cost over identifiable assets acquired..................... $ 7,227
=========
</TABLE>
51
<PAGE> 62
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HAYES THE COMPANY(2)
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, 1997 JULY 31, 1997 ADJUSTMENTS PRO FORMA
------------------ ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues from continuing
operations......................... $146,701 $ 11,085 $ 157,786
Cost of Revenues..................... 111,819 7,407 119,226
Gross profit......................... 34,882 3,678 38,560
Selling, general and
administrative..................... 41,366 8,331 49,697
Research and development............. 8,992 4,175 13,167
Amortization......................... 1,536(1) 1,536
Merger related expense............... 3,818 3,818
Restructuring charges................ 238 238
Write-down of assets................. 864 864
Operating loss from continuing
operations......................... (15,476) (13,748) (1,536) (30,760)
Interest (expense) income, net....... (3,541) 242 (3,299)
Other income......................... 4,648 655 5,303
Loss before tax expense.............. (14,369) (12,851) (1,536) (28,756)
Income tax expense................... (153) (153)
Loss before unusual items,
reorganization expenses,
discontinued operations, and
non-recurring gains................ (14,522) (12,851) (1,536) (28,909)
Loss per common share................ (0.50)
Shares used in per share
calculation........................ 58,283,453
</TABLE>
- ---------------
(1) Adjustment to recognize amortization of acquired product technology over its
estimated life of three to thirty-six months and to recognize amortization
of excess of cost over identifiable assets acquired over seven years.
(2) Includes revenues of $4,593,000 and loss before unusual items,
reorganization expenses, discontinued operations, and non-recurring gains of
$6,232,000 for the three month period ended January 31, 1997, which were
also presented within the unaudited pro forma condensed combined statement
of operations that included the Company's operations for the twelve month
period ended January 31, 1997
52
<PAGE> 63
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
HAYES TWELVE MONTH
YEAR ENDED PERIOD ENDED PENRIL THE COMPANY PRO FORMA
DECEMBER 31, 1996 JANUARY 31, 1997 ADJUSTMENTS AS ADJUSTED ADJUSTMENTS PRO FORMA
----------------- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues from
continuing
operations.......... $ 257,452 $ 33,596 $ (12,366)(1) $ 21,230 $ 278,682
Cost of Revenues...... 195,918 20,416 (8,683)(1) 11,733 207,651
Gross profit.......... 61,534 13,180 (3,683) 9,497 71,031
Selling, general and
administrative...... 61,727 17,239 (2,147)(2) 15,092 76,819
Research and
development......... 9,640 7,358 (1,400)(3) 5,958 15,598
Amortization.......... 367 367 3,389(4) 3,756
Restructuring
charges............. 3,600 9,718 9,718 13,318
Merger related
expenses............ 4,576 4,576 4,576
Operating loss from
continuing
operations.......... (13,433) (26,078) (136) (26,214) (3,389) (43,036)
Interest expense,
net................. (5,056) (150) (150) (5,206)
Other income.......... 2,279 3,885 3,885 6,164
Loss before tax
expense............. (16,210) (22,343) (136) (22,479) (3,389) (42,078)
Income tax expense.... (385) (385)
Loss before unusual
items,
reorganization
expenses,
discontinued
operations, and non-
recurring gains..... (16,595) (22,343) (136) (22,479) (3,389) (42,463)
Loss per common share... (0.73)
Shares used in per
share calculation... 58,283,453
</TABLE>
- ---------------
(1) Adjustments to exclude the modem business revenues and associated costs of
sales; the adjustments to Penril are only for those items that can be
directly attributed to the modem business sold to Bay.
(2) Adjustment to eliminate rent expense related to the modem business product
development and engineering, to exclude marketing and advertising expenses
related to the modem business and related depreciation, amortization and
other operating expense.
(3) Adjustment to eliminate modem business related engineering labor.
(4) Adjustment to recognize amortization of acquired product technology over its
estimated life of three to thirty-six months and to recognize amortization
of excess of cost over identifiable assets acquired over seven years.
53
<PAGE> 64
BUSINESS OF THE COMPANY
GENERAL DEVELOPMENTS
The Company is in the business of developing and marketing products which
enable local, remote or mobile users to access network resources (the "Remote
Access Business"). The Company was incorporated on July 23, 1996 and, as
described more fully in Note 1 to the Company's Consolidated Financial
Statements, was spun-off from Penril on November 18, 1996 pursuant to the
distribution (the "Distribution") to the Penril stockholders on such date of
shares of the Company's Common Stock. The Company retains the historical
financial information of Penril through November 18, 1996 when Penril was merged
into Bay Networks, Inc. For accounting purposes, the disposition of Penril's
modem business, as a result of the merger agreement with Bay Networks, Inc. has
been accounted for as a reduction of paid in capital. The Company's product
lines consists of the product line called Access Beyond, serving the remote
access market, and products which serve the LAN and Host Access Products.
Restructuring: In the fourth quarter of fiscal 1996, Penril took actions
to strategically restructure its business to reduce costs and improve
competitiveness for the long term. As a result of this plan, Penril recorded a
charge of approximately $9.7 million in the fourth quarter of fiscal 1996. The
restructuring included a plan to focus the Company's business operations on the
remote access server and remote connectivity markets and away from the data
transmission markets. See Note 2 to the Consolidated Financial Statements.
Reduction in Work Force: In August 1997, the Company completed a reduction
in work force and other cost-saving measures which will result in an annual
savings of approximately $2.0 million and is expected to improve the Company's
competitiveness. The cost of such reduction in work force was immaterial.
Acquisitions: On May 2, 1997, the Company and Paradyne Corporation, a
Delaware corporation ("Paradyne"), entered into the Hawk Technology Transfer
Agreement pursuant to which Paradyne (i) transferred to the Company technology
relating to certain open remote dial access cards (in the form of a
comprehensive set of specifications, technical information, hardware and
software) (the "Hawk Technology"), (ii) sold to the Company certain inventory,
tools and equipment used in the application of the Hawk Technology to develop
and manufacture products, ("Hawk Products") which include the Hawk Technology,
(iii) licensed to the Company certain intellectual property in connection with
the Hawk Technology, and (iv) agreed to provide the Company with technical,
engineering, manufacturing and marketing support, for an aggregate purchase
price of 503,704 shares of the Common Stock (the "Paradyne Shares"), and
$425,000 in cash. The Company and Paradyne also entered into a Stock Purchase
Agreement, dated as of May 2, 1997 (the "Purchase Agreement"), pursuant to which
the Company sold and issued the Paradyne Shares to Paradyne. The Company is
required to register the Paradyne Shares for Paradyne under the Securities Act
and use its best efforts to maintain the effectiveness of the Registration
Statement. The Company has filed a Registration Statement to register the
Paradyne Shares, which it expects will be declared effective during December,
1997. See Note 7 to the Company's Consolidated Financial Statements.
PRINCIPAL PRODUCTS
Access Beyond Product Line
The Company's Access Beyond product family is targeted at the remote access
market, providing a scalable modular platform combining advanced modem, ISDN
BRI/PRI, remote access, internet working and terminal connectivity capabilities
within a single family of products. The Access Beyond products currently use
three chassis configurations supporting from one to eight interface modules for
end users to choose from, based on current needs and anticipated future growth.
Interface modules are then selected based upon WAN and LAN technology and port
density requirements. The result is a fully integrated solution that effectively
solves the end user's specific remote access needs.
The Access Beyond advanced remote access software delivers complete IP, IPX
and Appletalk routing, remote node and remote control capabilities including
NACS/NASI, all combined with full support for PPP,
54
<PAGE> 65
SLIP, CSLIP, LAT, Telnet, and a wealth of security and management capabilities.
In addition to full support for SNMP, it provides an advanced, easy to use
Windows(R) based management and configuration utility.
The Company recently introduced a new class of remote access solutions that
integrates both T1 and PRI-ISDN directly within Microsoft Windows NT(R) servers.
This new technology, dubbed "Hawk", supports either digital or analog (modem or
ISDN) remote access transmission and can be easily plugged into any Microsoft
Windows NT(R) or Novell Netware Connect(R) and Border Manager configured server.
Servers can be configured to simultaneously support existing network
applications as well as remote access, with the Dynamic Access Switching
available in the Hawk solution. This substantially reduces network traffic by
connecting users directly into the server hosting the network applications.
LAN and Host Access Products
The LAN and Host Access Products currently sold by the Company include
statistical multiplexers and host access servers (VCX), and Ethernet terminal
servers (CSX). Each of the LAN and Host Access Products provides the Company
with an existing revenue stream as well as an installed base.
The VCX product line of multiplexers ranges from 4-port remote site
multiplexers to enterprise solutions providing up to 304 ports or 36 trunk lines
and multipurpose communication servers that combine both WAN and LAN
capabilities. These products can function as a data PBX, X.25 PAD, statistical
multiplexer, terminal server or any combination of these. Although the market
for these products is in decline, the Company continues to serve the installed
base and fulfill customer applications.
The CSX Ethernet communications server family provides local and dialup
access to Ethernet LANs. Available as either 8-port or 16-port stand alone units
or as a modular chassis based solution, the CSX server provides terminal and
dialup access for TCP/IP networks.
DISCONTINUED OPERATIONS
In fiscal 1995, the board of directors of Penril decided to sell
Technipower, Inc. ("TPI"), a subsidiary manufacturing uninterruptible power
supplies and power regulating equipment. In October 1996, the Company completed
the sale of TPI business for $1.6 million in cash and a $2.8 million note. As of
July 31, 1997, a balance of $980,000 remained unpaid on the note which was due
July 31, 1997. The Company reserved the unpaid balance of this note with a
charge of $980,000 to loss on disposal of discontinued operations.
In fiscal 1996, the board of directors of Penril decided to sell EMI, a
subsidiary manufacturing test equipment and systems for analysis of
electromagnetic interference and communications security including applications
in satellite communications. In June 1997, the Company completed the sale of the
EMI business to EMI Holding Corp. (the "Borrower"), for $2.0 million in cash,
$1.5 million in subordinated term notes, and $500,000 in warrants. The
subordinated term notes include a $1.0 million note with payments of principal
and interest to be made in seven (7) quarterly installments of $50,000 each,
beginning on June 30, 1997, and one final installment together with accrued
interest being due on June 30, 1999. Interest on the $1.0 million note is at 3%
above the highest interest rate being charged to the Borrower by the Borrower's
principal bank lender ("Bank Rate"). The remaining subordinated term note of
$500,000 accrues interest at 2% above the Bank Rate, accruing from June 30, 1997
and payable in monthly installments beginning on July 1, 1999. The principal
shall be paid in one (1) installment on June 30, 2002. The warrants are
exercisable on June 30, 2002, wherein the Borrower issues to the Company shares
of preferred stock of the Borrower equal to 19.678% of the shares of the
Borrower outstanding immediately after the exercise of these warrants. In
accordance with the Securities and Exchange Commissions Staff Accounting
Bulletin No. 81, "Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity," a provision was charged to Loss from Disposal of
Discontinued Operations for the outstanding balance of the subordinated term
notes and warrants at July 31, 1997 of $1,950,000. The Company fully expects to
collect these notes and warrants, however the repayments will be recorded as
income when received due to the highly leveraged structure of the Borrower.
55
<PAGE> 66
SUPPLIERS
Material and components for the Company's products are purchased from
outside suppliers. While most components are available from several suppliers, a
few are provided from sole-source vendors. The Company believes that in most
cases alternative sources of supply could be obtained within a reasonable time
period; however, an interruption in the supply of such components could have a
temporary adverse effect on the Company's operations. In March 1997, the Company
entered into an agreement (the "Hibbing Agreement") with Hibbing Electronics
Corporation ("Hibbing") pursuant to which Hibbing manufactures and sells printed
circuit card products to the Company. The Hibbing Agreement expires August 31,
1998 at which time Hibbing shall have the option to purchase for nominal
consideration all of the equipment covered under the agreement and the Company
will assign all right, title, and interest in the covered leases and equipment
to Hibbing in exchange for Hibbing's agreement to pay and perform the Company's
obligations under those leases.
PATENTS, COPYRIGHTS AND LICENSES
The Company owns, or is licensed or otherwise possesses legally enforceable
rights to use, several patents, patent applications, trademarks, trade names,
service marks, copyrights, schematics, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information or
material essential and necessary to the business of the Company. The Company may
desire in the future to obtain additional licenses related to its products and
believes, based on industry practice, that any necessary licenses could be
obtained. The costs of such licenses may vary significantly depending on the
nature of the technology involved.
The United States trademarks, trade names and service marks owned by Access
Beyond include ACCESS BEYOND.
The Company may license much of its technology including integrated access
software; CSU/DSU technology; frame relay assembler disassembler technology;
PC/TCP SNMP technology; terminal emulation software; remote access software;
router card technology and software; network management software; and basic
frame relay software for LAN interconnect products.
On June 16, 1996, Penril and Bay entered into a Development and License
Agreement on behalf of Access Beyond whereby Bay licensed to Penril on behalf of
Access Beyond certain intellectual property, software, and technical know-how
related to certain 24-port Digital Modem Cards. The agreement contemplates that
Bay will develop a 24-port Digital Modem Card for Access Beyond, train Access
Beyond's personnel in the underlying technology, and provide technical
assistance where necessary to permit Access Beyond to market this digital
technology.
BACKLOG
A significant portion of data communications revenues are based on customer
purchase orders with immediate shipment requirements. Backlog, which tends not
to be significant in data communications products, is a result of the occasional
customer order with future scheduled shipment requirements or misalignment of
demand and production of a particular product. Because data communications
revenues constitute such a significant portion of the revenues of the Company,
it is the opinion of the Company's management that the dollar amount of backlog
at any given time is not indicative of the actual level of revenues which will
ultimately be realized during future periods. Consequently, the Company's
management believes that the amount of backlog is not a material consideration
in understanding the Company's business operations.
COMPETITION
The Company encounters substantial competition in the marketing of its
products and many of its competitors have greater financial, marketing and
technical resources. Important competitive factors in the markets for the
Company's products are established customer base, product performance and
features, service
56
<PAGE> 67
and support as well as price. The Company believes that it competes favorably
with respect to these factors. The networking industry is highly competitive and
competition is expected to intensify. There are numerous companies competing in
various segments of the network management and remote access markets.
Competitors include Ascend Communications, Shiva Corporation, Cisco Systems,
Inc., 3Com Corporation ("3Com"), Microcom, Inc. ("Microcom") and Bay Networks,
Inc., among others. Many of the Company's competitors have greater name
recognition, more extensive engineering, manufacturing and marketing
capabilities and greater financial, technological and personnel resources than
those available to the Company. In addition, certain companies in the networking
industry have expanded their product lines or technologies in recent years as a
result of acquisitions. There can be no assurance that the Company's products
will compete successfully with competitive products that may be offered in the
future or that aggressive pricing will not negatively impact the profitability
of the Company.
RESEARCH AND DEVELOPMENT
Under its own sponsorship, the Company is continuously engaged in the
development of new products as well as the development and enhancement of its
existing products. The Company expensed approximately $6.2 million (34% of
consolidated revenues) for product development and engineering during fiscal
1997 compared to $7.4 million (19% of consolidated revenues) in fiscal 1996 and
$7.4 million (14% of consolidated revenues) in fiscal 1995.
ENVIRONMENTAL MATTERS
The Company's compliance with federal, state and local environmental laws
had no material effect upon the Company's capital expenditures, earnings or
competitive position.
SALES AND MARKETING
The Company's distribution channel is composed of value-added resellers
("VARs"), original equipment manufacturers ("OEMs") and distributors in more
than 40 countries. Sales to end-user customers account for less than 10% of the
Company's revenues. This multi-channel strategy allows the Company to meet
specific customer needs while giving coverage to the worldwide markets.
Value Added Resellers. VARs integrate the Company's products with products
of other vendors, into networking systems that are sold directly to end-users.
VARs also sell the Company's products as stand-alone units. Sales to VARs are
made at discounts based on purchase volumes and other incentive programs.
Original Equipment Manufacturers. The Company also customizes its product
for sale through OEMs. This customization may range from simple private labeling
of existing products to complete customization of software and/or hardware to
fit the product lines of the OEM.
Distributors. The Company also sells its products to distributors who
generally resell to VARs and other dealers. Distributors generally provide a
minimal level of systems integration. The Company offers sales and marketing
programs to assist distributors in promoting, selling and supporting the
Company's products.
Many of the Company's VARs and distributors carry products which are
complementary to, or compete with, those of the Company, and may choose to give
higher priority to products of other suppliers or competitors of the Company.
CUSTOMER SUPPORT, SERVICE AND WARRANTY
The Company services, repairs and provides technical support for its
products. A large portion of these support activities, provided through a 24
hour United States support center, are related to software and hardware
configuration. The Company sells products with end-user warranty periods of up
to sixty months. Following the expiration of the warranty period, if any, the
Company offers services on a time and materials basis, or under maintenance
contracts.
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<PAGE> 68
INTERNATIONAL OPERATIONS
The Company has a subsidiary (Access Beyond, Ltd.) located in the United
Kingdom. Financial information about foreign and domestic operations and export
sales is more fully described in Note 10 of the Company's Consolidated Financial
Statements.
PROPERTIES
The Company's executive offices are located in Gaithersburg, Maryland in
facilities which had previously been leased to Penril. The lease between the
Company and Real Estate Income Partners III was assigned to the Company by
Penril as part of the spin-off, is for 54,874 square feet and expires on
September 30, 1999. The Company has an option to extend the term of the lease
for a period of 119 months and may exercise the option by giving written notice
to the landlord prior to the end of the initial term of the lease. Approximately
50% of the premises is subleased to Hibbing, which pays the Company an amount
equal to 50% of the rent and other charges payable by the Company.
The Company leases a research and development facility in Carlstadt, New
Jersey. The lease is for approximately 44,403 square feet and expires in
September 2001. As more fully described in Note 5 to the Company's Consolidated
Financial Statements, the Company has sublet to other parties a substantial
portion of such premises.
In addition to the facilities mentioned above, the Company and its
subsidiaries lease manufacturing, warehouse and office facilities in
Basingstoke, England. The lease is for approximately 6,800 square feet and
expires in December 2001.
The Company believes its properties are adequate for its needs for the
foreseeable future.
EMPLOYEES
The Company employed approximately 120 full time employees as of July 31,
1997. The Company believes that its future success will depend largely on its
ability to retain certain key personnel and to recruit and retain additional
highly skilled employees who are in great demand. The Company has an employment
contract with Ronald A. Howard, President and CEO, but does not have employment
contracts with its other employees. The Company has employee retention
arrangements with two employees. The Company has experienced no work stoppages
and believes that its employee relations are satisfactory. See "MANAGEMENT OF
THE COMPANY -- Employment and Consulting Agreements."
LEGAL PROCEEDINGS
The Company initiated a lawsuit in December 1994 against Network Systems
Corporation ("NSC") for breach of contract, fraudulent inducement and
defamation. The suit, which is pending before the Circuit Court of Montgomery
County, Maryland, is seeking specific performance, compensatory damages of $2.0
million and punitive damages of $5.0 million. The litigation arises out of a
contract in which the Company agreed to develop certain computer hardware and
software to NSC's specifications. NSC subsequently brought a counterclaim
alleging negligent misrepresentation, fraud and breach of contract by the
Company. NSC is seeking recision of the contract, restitution of monies paid by
NSC to the Company, compensatory damages of $5.0 million and punitive damages in
an unspecified amount. As of November 21, 1997, the Company was in settlement
discussions with NSC.
The Company is involved in other routine litigation. Management believes
none of the litigation will have a material adverse effect on the Company's
financial position or results of operations.
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<PAGE> 69
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Certificate of Incorporation and the By-laws, the Company
Board is divided into three classes with each director serving a three year term
(after the initial term). The following table sets forth certain information as
to persons who currently serve as directors and executive officers of the
Company.
DIRECTORS
<TABLE>
<CAPTION>
NAME, AGE AND POSITIONS WITH THE
COMPANY OTHER THAN DIRECTOR PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
Class I -- Term Expiring at 1997 Annual Meeting
Barbara Perrier Dreyer, 42........... Ms. Perrier Dreyer has served as a Vice President and
Chief Financial Officer of Communication Systems
Technology, Inc., a developer of software and hardware
communications and control equipment, since March
1996, and became a Senior Vice President in October
1997. In July 1997, Ms. Perrier Dreyer was appointed a
member of the Board of Directors of the International
Teleconferencing Association. Ms. Perrier Dreyer was
President and founder of VideoGrafects, Inc., a
multimedia communications company specializing in the
production of video and computer based material, from
its founding in August 1992 until the Company was sold
to French Bray in March 1996. Prior to founding
VideoGrafects, Inc., Ms. Perrier Dreyer was a special
(investing) partner with New Enterprise Associates, a
venture capital firm.
Paul Schaller, 49.................... Mr. Schaller has served as President of Schaller
Associates, a management consulting firm, since March,
1996. From September 1995 to March 1996, Mr. Schaller
was Vice President of Business Development with the
LAN Switching Division of FORE Systems, Inc., a
provider of ATM switching solutions. From August 1993
to August 1995, Mr. Schaller was the Vice President of
Marketing at Alantec, Inc., a provider of routing
switches for the internet working market. Mr. Schaller
was Vice President of Sales and Marketing at Harmonic
Lightwaves, Inc., a fiber optic equipment provider
from 1992 to 1993. From 1982 to 1991 Mr. Schaller was
Vice President of Sales and Marketing and General
Manager of the Digital Division of Vitalink
Corporation, a provider of remote internet working
equipment.
Class II -- Term Expiring at 1998 Annual Meeting
John Howard, 44...................... Mr. Howard has served as Senior Managing Director of
Bear, Stearns & Co., Inc. since March 1997. Mr. Howard
was the Chief Executive Officer of Gryphon Capital
Partners Corporation, an investment firm, from July
1996 to March 1997. He served as Co-Chief Executive
Officer of Vestar Capital Partners, a leveraged buyout
firm, from 1990 to 1996. Mr. Howard is also a director
of Celestial Seasonings, Inc., a manufacturer of
herbal teas. Mr. Howard is the brother of Ronald A.
Howard, the Chairman of the Board, President and Chief
Executive Officer of the Company.
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
NAME, AGE AND POSITIONS WITH THE
COMPANY OTHER THAN DIRECTOR PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
Arthur Samberg, 56................... Mr. Samberg has served as President of Dawson-Samberg
Capital Management, Inc., a registered investment
advisor, since 1985. Mr. Samberg is a General Partner
and senior portfolio manager of Pequot Partners Fund,
L.P., Pequot International Fund Inc. and Pequot
Endowment Fund, L.P.
Class III -- Term Expiring at 1999 Annual Meeting
Ronald Howard, 41.................... Mr. Howard has served as Chairman of the Board,
Chairman of the Board, President and President and Chief Executive Officer of the Company
Chief Executive Officer since November 1996. Mr. Howard served as President of
the Datability Networks Division of Penril from
November 1994 to November 1996, and as Co-President of
that division from May 1993 until November 1994. He
had held the position of Executive Vice President of
Penril from May 1993 until November 1996. Mr. Howard
was President of Datability Inc. from its founding in
1977 until it was acquired by Penril in May 1993. Mr.
Howard is the brother of John Howard, a director of
the Company.
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
James Gallagher, 52.................. Mr. Gallagher has served as Vice President of Sales of
Vice President -- Sales the Company since November 1996. He was Vice
President -- Sales of the Datability Networks Division
of Penril from November 1994 until November 1996. From
May 1993, when Penril acquired Datability, Inc, until
November 1994, Mr. Gallagher was Vice President, North
and South American Sales of the Datability Networks
Division. At Datability, Inc, he was Vice President of
Sales from April 1990 until May 1993.
</TABLE>
MANAGEMENT POST MERGER
As part of the Proposal, as of the Closing, the size of the Company Board
will be increased to seven, all of the directors of the Company, other than Mr.
Howard, will resign, Mr. Howard will fill the vacancies thereby created in
Classes II and III and the stockholders will elect two persons to Class I, the
term of which expires at the 1997 Annual Meeting. All of such persons will take
office effective as of the Closing Date, except that Messrs. Hayes and Lam will
take office effective as of the day after the Closing Date. The following table
sets forth certain information as to persons who will serve as directors and
executive officers of the Company after the Merger. The directors of Class I
will hold office until the Annual Meeting of stockholders in 2000, the directors
of Class II will hold office until the Annual Meeting of stockholders in 1998
and the directors of Class III will hold office until the Annual Meeting of
stockholders in 1999. Thereafter, stockholders will elect the directors of each
Class at the appropriate succeeding Annual Meeting of stockholders.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
Class I -- Term Expiring at 2000 Annual Meeting
Chiang Lam, 43....................... Mr. Lam has served as a director of Hayes since April
1996. Mr. Lam is a financial investment advisor
serving various venture capital interests. Mr. Lam
served on the Board of Directors of Paradigm
Technology from June 1994 to August 1996.
</TABLE>
60
<PAGE> 71
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
P. K. Chan, 56....................... Mr. Chan has served as President and Chief Operating
President and Chief Operating Officer Officer of Hayes since October 1997 and served as Vice
President of Operations from October 1994 to October
1997. Prior to joining Hayes in October 1994, Mr. Chan
served as Managing Director of Achiever Group, a
subsidiary of Achiever Industrial Limited from 1991 to
1994. Prior to joining Achiever Industrial Limited, he
held various positions with Ampex and Meadville Group,
most recently serving as Managing Director of
Manufacturing.
Class II -- Term Expiring at 1998 Annual Meeting
S.P. Quek, 50........................ Mr. Quek is Chairman of ACMA, a publicly traded
company in Singapore. Mr. Quek currently serves as a
director of Hayes.
M. C. Tam, 46........................ Mr. Tam is Vice Chairman of Kaifa Technology (H.K.)
Limited, a publicly traded company in China. Mr. Tam
currently serves as a director of Hayes.
Class III -- Term Expiring at 1999 Annual Meeting
Dennis Hayes, 47..................... Mr. Hayes founded Hayes in 1977 at the age of 27 and
Chairman has served as Chairman and a director of Hayes since
its inception. Mr. Hayes worked on the first four-bit
microprocessor technology while employed at Financial
Data Services. After concluding his studies at Georgia
Tech, Mr. Hayes worked for National Data Corporation
where he developed microcomputer based systems to
interconnect networks and maintain communications
systems on large mainframe computers. Mr. Hayes is
active in both community and industry associations
including the Public Policy Committee of the Computing
Technology Industry Association, the Association of On
Line Professionals, Georgia High Tech Alliance,
Governor's Advisory Council on Science and Technology
and Georgia Center for Advanced Telecommunications
Technology. Mr. Hayes is also the Georgia
Representative to the Federal Lab Consortium and is
one of the four initial inductees into the Technology
Hall of Fame of Georgia.
Ronald Howard, 41.................... Mr. Howard has served as Chairman of the Board,
Vice Chairman and Chief Executive President and Chief Executive Officer of the Company
Officer since November 1996. Mr. Howard served as President of
the Datability Networks Division of Penril from
November 1994 to November 1996, and as Co-President of
that division from May 1993 until November 1994. He
had held the position of Executive Vice President of
Penril from May 1993 until November, 1996. Mr. Howard
was President of Datability Inc. from its founding in
1977 until it was acquired by Penril in May 1993.
</TABLE>
61
<PAGE> 72
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
Barbara Perrier Dreyer, 42........... Ms. Perrier Dreyer has served as a Vice President and
Director Chief Financial Officer of Communication Systems
Technology, Inc., a developer of software and hardware
communications and control equipment, since March
1996, and became a Senior Vice President in October
1997. In July 1997, Ms. Perrier Dreyer was appointed a
member of the Board of Directors of the International
Teleconferencing Association. Ms. Perrier Dreyer was
President and founder of VideoGrafects, Inc., a
multimedia communications company specializing in the
production of video and computer based material, from
its founding in August 1992 until the Company was sold
to French Bray in March 1996. Prior to founding
VideoGrafects, Inc., Ms. Perrier Dreyer was a special
(investing) partner with New Enterprise Associates, a
venture capital firm.
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
Alan Clark, 44....................... Dr. Clark joined Hayes in March 1993 and has served as
Vice President and Chief Technical Vice President and Chief Technical Officer since March
Officer 1996. Prior to joining Hayes, Dr. Clark served as
Director, Research and Strategy for Dowty
Communications in the United Kingdom. Prior to this
position, Dr. Clark held a Marketing Director position
and an Engineering Director position for the Dowty
Advanced Development Centre from 1989 to 1993. Prior
to joining Dowty, Dr. Clark served British Telecom in
various positions.
James Jones, 40...................... Mr. Jones joined Hayes in January 1996 as Vice
Vice President and Chief Financial President and Chief Financial Officer and Treasurer.
Officer He previously served in various positions with Genicom
Corporation for nine years, most recently as Vice
President -- Finance. Prior to Genicom, Mr. Jones
served as a manager with Coopers and Lybrand L.L.P.
C. Bruce Meyer, 48................... Mr. Meyer has served as Vice President of Human
Vice President of Human Resources Resources since August 1997. He joined Hayes in August
1996 as Director of Human Resources. Prior to joining
Hayes, Mr. Meyer served at Genicom Corporation since
1983, most recently as Vice President of Human
Resources and Corporate Communications.
Keith Mintzer, 43.................... Mr. Mintzer joined Hayes in January 1997 as Vice
Vice President of Worldwide Sales President of Worldwide Sales. Prior to joining Hayes,
Mr. Mintzer served in a number of senior executive
positions with GBC Technologies for 10 years. Prior to
joining GBC Technologies, Mr. Mintzer held various
sales and channel management positions at the Sperry
Corporation and Reynolds & Reynolds.
</TABLE>
62
<PAGE> 73
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ------------------------------------- ------------------------------------------------------
<S> <C>
Marshall Toplansky, 46............... Mr. Toplansky joined Hayes in August 1996 as Vice
Vice President of Marketing President of Marketing. Prior to joining Hayes, Mr.
Toplansky was Chief Executive Officer of Core
Strategies, a high technology consulting firm. Prior
to Core Strategies, Mr. Toplansky served as Vice
President of Marketing for U.S. Robotics, Inc.
Charles Riehm, 58.................... Mr. Riehm joined Hayes in October 1996 as Director of
Vice President of Engineering Development. In April 1997, he was promoted to Vice
President of Engineering. Mr. Riehm served as Vice
President of Operations of SPE Microsystems, Inc. from
1994 to 1996. Prior to SPE Microsystems, Inc., he
served as Director of Communications Products of
Silicom Systems, Inc.
</TABLE>
COMMITTEES OF THE COMPANY'S BOARD
The Company Board met six times during the Company's last fiscal year. The
Company Board has established an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee").
The general functions of the Audit Committee include selecting the
independent auditors (or recommending such action to the Company Board),
evaluating the performance of the independent auditors and their fees for
services, reviewing the scope of the annual audit with the independent auditors
and the results of the audit with management and the independent auditors,
consulting with management, internal auditors and the independent auditors as to
the systems of internal accounting controls, and reviewing the nonaudit services
performed by the independent auditors and considering the effect, if any, on
their independence. The members of the Audit Committee are to be outside
directors and are selected by the full Company Board. The current members of the
Audit Committee are Barbara Perrier Dreyer and John Howard, the brother of
Ronald Howard. During the Company's last fiscal year, the Audit Committee met
several times in conjunction with meetings of the Company Board and Ms. Perrier
Dreyer, on behalf of the Audit Committee, met several times with Company
management and the Company's auditors.
The Compensation Committee is authorized and directed to (i) review and
approve the compensation and benefits of the Company's executive officers, (ii)
review and approve the annual salary plans, (iii) review management organization
and development, (iv) review and advise management regarding the benefits,
including bonuses, and other terms and conditions of employment of other
employees, (v) administer the Incentive Plan and the granting of options under
that plan, the Directors' Plan and any other plans that may be established, (vi)
review and recommend for the approval of the Company Board the compensation of
directors, and (vii) determine the compensation and benefits of the Chief
Executive Officer and review and approve, or modify if appropriate, the
recommendations of the Chief Executive Officer with respect to compensation and
benefits of other executive officers. The members of the Compensation Committee
are to be outside directors and are selected by the full Company Board. The
current members of the Compensation Committee are Paul Schaller and Arthur
Samberg. The Compensation Committee met twice during the Company's last fiscal
year.
COMPENSATION OF DIRECTORS
Members of the Company Board who are also employees of the Company do not
receive any additional compensation for service on the Company Board or any
committees of the Company Board. Members of the Company Board who are not
employees receive an annual retainer of $5,000 plus a stipend of $1,000 for each
Company Board meeting attended. Non-employee directors receive additional
stipends for service on committees of the Company Board of $1,000 per committee
meeting not held on the same day as a Company Board meeting.
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<PAGE> 74
EXECUTIVE COMPENSATION
The following table provides information with respect to the annual
compensation for services in all capacities to Penril or the Company for fiscal
years ended July 31, 1997, 1996 and 1995 of (i) the Company's chief executive
officer and (ii) the other three most highly compensated executive officers of
the Company (the "Named Executive Officers") who were employed by the Company at
the end of fiscal 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION(1) ---------------------------------
------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY STOCK OPTIONS COMPENSATION(2)
- -------------------------------------------- ---- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald Howard............................... 1997 $218,982 300,000(3) $ 568,269
Chairman of the Board, 1996 $221,877 250,000(4) $ 784
President and Chief 1995 $200,000 30,000(4) $ 5,458
Executive Officer
James Gallagher............................. 1997 $236,204 75,000(3) $ 200
Vice President -- Sales 1996 $188,293 20,000(4) $ 300
1995 $167,786 10,000(4) $ 250
Mark Silverman(5)........................... 1997 $155,993 60,000(3) $ 200
Vice President -- Research 1996 $109,577 15,000(4) $ 300
and Development 1995 $105,674 5,000(4) $ 250
John Clary(6)............................... 1997 $155,993 225,000(3) $ --
Senior Vice President and Chief 1996 -- -- --
Operating Officer 1995 -- -- --
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical, group life
insurance or other benefits which are available to all salaried employees of
the Company, and certain perquisites and other benefits, securities or
property which do not exceed the lesser of $50,000 or 10% of the Named
Executive Officer's salary and bonus shown in the table.
(2) Includes for fiscal 1997, $562,500 paid to Mr. Howard upon the closing of
the Penril/Bay Merger in a change of control payment and $5,569 paid for
one-half of the life insurance premium purchased on behalf of Mr. Howard,
pursuant to the Mr. Howard's employment agreement with the Company. Includes
for fiscal 1997 and 1996, $200 and $300 respectively paid for benefits to
Mr. Howard, Mr. Gallagher and Mr. Silverman pursuant to the 401(k) plan.
Includes for fiscal 1996 $274 for Mr. Howard, under the Penril Split Dollar
Life Insurance Program and $210 for Mr. Howard paid to the Exec-u-Care
Medical Insurance Trust.
(3) Represents options granted under Access Beyond's 1996 Long-Term Incentive
Stock Option Plan. The options are exercisable at the price of $6.625 per
share, the fair market value on the date of grant, except for 100,000
options granted to Mr. Clary which are exercisable at $4.00 per share, the
exercise price on the date of grant.
(4) Represents options granted under Penril's 1980 Long-Term Incentive Stock
Option Plan. The options were exercisable at prices varying from $2.31 to
$8.00 per share, the fair market value on the date of grant. All options
were exercised prior to the spin-off of the Company in November 1996.
(5) Mr. Silverman's employment with the Company terminated after the end of
fiscal 1997.
(6) Mr. Clary joined Penril on August 5, 1996 as Vice President of Strategic
Planning at an annual salary of $150,000. Mr. Clary's employment with the
Company terminated after the end of fiscal 1997.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Employment Agreement dated November 18, 1996 between Ronald Howard and
the Company provides for Mr. Howard serving as Chairman of the Board, President
and Chief Executive Officer. Such employment agreement further provides for,
among other things, a two year term of employment, an annual
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<PAGE> 75
salary of $175,000, an opportunity for bonus compensation in an amount at least
equal to his annual salary pursuant to a plan to be established by the Company
Board, and benefits consistent with those normally provided by the Company to
its executive employees as well as a $5.0 million term life insurance policy.
Pursuant to such employment agreement, Mr. Howard was granted options to
purchase 300,000 shares of Common Stock and is entitled to receive, upon a
change of control of the Company, which includes transactions such as the
Merger, a payment equal to two and one-half times his annual compensation. Upon
the Effective Time, the November 18, 1996 Employment Agreement will terminate.
Henry Epstein is a consultant to the Company under the terms of a November
18, 1996 consulting agreement (the "Epstein Agreement") between the Company and
Ideonics, a financial and technology consulting firm owned by Mr. Epstein. The
Epstein Agreement provides, among other things, for a four year consulting term
with an annual consulting fee of $137,500. In addition, pursuant to the Epstein
Agreement, the Company provides Ideonics with office space, secretarial
assistance and health care benefits for Mr. Epstein. Mr. Epstein was the
Chairman of the Board of both Penril and the Company until the Penril/Bay Merger
and the Distribution, respectively.
As of the Effective Time, the Company will enter into employment agreements
with Messrs. Hayes and Howard. See "MERGER -- Interests of Certain Persons in
the Merger."
RETIREMENT AND SAVINGS PLAN
Access Beyond's Retirement and Savings Plan ("401(k) Plan") is a defined
contribution plan that includes a "cash or deferred" option for participants, as
described in Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code"). Employees of Access Beyond who have completed 90 days of
eligibility service ("Participants") are eligible to participate in the 401(k)
Plan. The 401(k) Plan permits, but does not require Access Beyond to make
matching contributions. In addition, Access Beyond may make discretionary
contributions to the 401(k) Plan which will be allocated to each Participant
based on the ratio of such Participant's eligible compensation to the total of
all Participants' eligible compensation. Amounts contributed by Access Beyond
vest as to 30% after 1 year of eligible service, 60% after 2 years of eligible
service and 100% after 3 years of eligible service. Participants may elect to
direct the investment of their contributions in accordance with the provisions
of the 401(k) Plan. As a part of the Transfer, a retirement and savings plan of
Penril ("Penril Plan") was transferred to the Company and active participation
in the Penril Plan is limited to eligible employees of the Company.
The following table sets forth certain information with respect to options
granted during the year ended July 31, 1997 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERMS($)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ----------------------------- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald Howard................ 300,000 20.4% 6.625 12/5/06 $1,249,928 $3,167,563
James Gallagher.............. 75,000 5.1% 6.625 12/5/06 312,482 791,891
Mark Silverman............... 60,000 4.1% 6.625 12/5/06 249,986 633,513
John Clary................... 125,000 8.5% 6.625 12/5/06 520,803 1,319,818
100,000 6.8% 4.00 6/4/07 251,558 637,497
</TABLE>
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<PAGE> 76
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning each exercise
of stock options, during the fiscal year ended July 31, 1997 by the Named
Executive Officers and unexercised stock options held by the Named Executive
Officers as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED PER SHARE IN-THE-MONEY
SHARES OPTIONS/SARS AT EXERCISE PRICE OF OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END UNEXERCISED FISCAL YEAR-END
EXERCISE REALIZED EXERCISABLE/ OPTIONS AT FISCAL EXERCISABLE/
NAME (#)(1) ($)(2) UNEXERCISABLE(3) YEAR-END UNEXERCISABLE(4)
- ---------------------------- ----------- ---------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Ronald Howard............... 370,000 $1,697,125 --/300,000 $6.625 --/--
James Gallagher............. 75,000 611,695 --/ 75,000 $6.625 --/--
Mark Silverman.............. 40,000 286,481 --/ 60,000 $6.625 --/--
John Clary.................. none none --/225,000 $4.00-6.625 --/$125,000
</TABLE>
- ---------------
(1) Reflects shares of Penril's common stock acquired prior to the Spin-off
transaction pursuant to the exercise of options under Penril's 1986
Long-Term Incentive Stock Option Plan.
(2) Reflects the difference between the exercise price of the options exercised
under Penril's 1986 Long-Term Incentive Stock Option Plan, and the market
price of Penril's common stock on the date of exercise.
(3) Reflects only stock options granted under the Company's 1996 Long-Term
Incentive Plan; the Company does not grant SARs.
(4) Based on the fiscal year-end per share closing price of $5.25 (as reported
on the NASDAQ/NMS on July 31, 1997), 100,000 options held by Mr. Clary were
in-the-money.
THE AMENDED AND RESTATED 1996 INCENTIVE OPTION PLAN
The Company Board unanimously adopted and approved the Company's 1996
Incentive Long-Term Option Plan on November 18, 1996, and unanimously adopted
the plan, as amended and restated, on February 4, 1997 (the "Incentive Plan").
The Incentive Plan was approved by the stockholders of the Company at a Special
Meeting on March 6, 1997. On December 5, 1996, the Compensation Committee
granted 1,080,000 options to officers and key employees of the Company at an
exercise price of $6.625, on February 4, 1997, an additional 75,000 options were
granted at an exercise price of $6.75 and on June 4, 1997, an additional 314,000
options were granted at an exercise price of $4.00, which was the fair market
value of shares of Common Stock on each such day, determined in accordance with
the provisions of the Incentive Plan. All of such options vest at the rate of
30% after one (1) year, 60% after two (2) years and 100% after three (3) years,
subject to acceleration in certain circumstances. The grant of options prior to
March 6, 1997 was conditioned upon the approval of the Incentive Plan by the
stockholders of the Company, which was obtained at the Special Meeting of
Stockholders on March 6, 1997.
The purpose of the Incentive Plan is to encourage ownership of Common Stock
of the Company by officers, key employees, consultants, advisors and other
service providers ("Eligible Persons"), to encourage their continued employment
with the Company and providing of services to the Company and to provide them
with additional incentives to promote the success of the Company.
The Incentive Plan authorizes the grant to Eligible Persons of options
("Options") consisting of "incentive stock options," as that term is defined
under the provisions of Section 422 of the Code and non-qualified stock options.
There are 2,000,000 shares of Common Stock available for granting of Options
under the Incentive Plan. The Compensation Committee administers the Incentive
Plan and has sole discretion to determine those Eligible Persons to whom Options
will be granted, the number of Options granted, the provisions applicable to
each Option and the time periods during which Options may be exercisable;
provided, however, that no person may receive Options to acquire more than
500,000 shares of Common Stock during
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<PAGE> 77
any given year. The Compensation Committee has complete authority to interpret
all provisions of the Incentive Plan, to prescribe, amend, and rescind rules and
regulations for its administration, and to make all other determinations
necessary or advisable for the administration of the Incentive Plan.
Options may be granted to such Eligible Persons as the Compensation
Committee, in its discretion, shall determine. In determining the Eligible
Persons to whom Options shall be granted and the number of shares of Common
Stock to be issued or subject to purchase or issuance under such Options, the
Compensation Committee shall take into account the recommendations of the
Company's management as to the duties of the Eligible Persons, their present and
potential contributions to the success of the Company and its subsidiaries, and
such other factors as the Compensation Committee shall deem relevant in
connection with accomplishing the purposes of the Incentive Plan. No Option
shall be granted to any member of the Compensation Committee so long as his or
her membership on the Compensation Committee continues or to any member of the
Company Board who is not also an officer, employee or consultant of the Company
or any subsidiary.
As a condition to the grant of an Option under the Incentive Plan, an
optionee must enter into two agreements with the Company: (1) an Assignment of
Inventions and Non-Disclosure Agreement ("Confidentiality Agreement") and (2) a
Non-interference Agreement ("Non-Interference Agreement").
The Compensation Committee may grant incentive stock options, non-qualified
stock options, or a combination of the two. The exercise price of each incentive
stock option may not be less than the fair market value of the Common Stock on
the date of grant. Under the Incentive Plan, fair market value is generally the
closing price of the Common Stock on NASDAQ/NMS on the last business day prior
to the date on which the value is to be determined. Unless the Compensation
Committee determines otherwise, the option price per share of any non-qualified
stock option will be the fair market value of the shares of Common Stock on the
last business day immediately preceding the date on which the option is granted.
The exercise price of each incentive stock option granted to any stockholder
possessing more than 10% of the combined voting power of all classes of capital
stock of the Company, or, if applicable, a parent or subsidiary of the Company,
on the date of grant must not be less then 110% of the fair market value on that
date. In addition, no Eligible Person may be granted an incentive stock option
to the extent the aggregate fair market value, as of the date of grant, of the
stock with respect to which incentive stock options are first exercisable by
such Eligible Person during any calendar year exceeds $100,000.
No Option shall be exercisable more than ten (10) years from the date it
was granted. Options granted as incentive stock options shall not be exercisable
more than five (5) years from the date of grant. Options shall be subject to
earlier termination as provided for in the Incentive Plan.
Unless the Compensation Committee determines otherwise, Options may be
exercised as to 30% of the shares subject to an Option at any time after the
first anniversary of the date of grant, as to 60% of the shares subject to an
Option at any time after the second anniversary of the date of grant and as to
all shares subject to an Option at any time after the third anniversary of the
date of grant.
Options granted under the Incentive Plan are non-transferable except (a) by
will or the laws of descent and distribution or (b) pursuant to a qualified
domestic relations order as defined in the Code or in the Employee Retirement
Income Security Act of 1974, as amended.
Pursuant to the Incentive Plan, Options are terminated upon the termination
of the Eligible Person's employment or other relationship with the Company, for
(i) cause, (ii) voluntarily without the written consent of the Company or (iii)
upon a breach or threatened breach of the Confidentiality Agreement or Non-
Interference Agreement (entered into by the Eligible Persons upon the grant of
the Option). Upon any other termination of the employment or such other
relationship with the optionee (other than in (i)-(iii) above), the vested
portion of the Option is exercisable within three months after the date of such
termination (but not beyond the term of the Option). If an optionee dies while
in the employ of the Company or while providing consulting or other services to
the Company or dies within three months after the termination of employment or
such other relationship with the Company (other than a termination in (i)-(iii)
above), then the vested portion of the Option may be exercised by a legatee or
legatees or by his or her personal representative, at any time within one year
after his or her death (but not beyond the term of the Option). If the
employment or other relationship of an optionee terminates upon disability (as
defined in Section 221(e)(3) of the Code)
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such person may exercise the vested portion of the Option for one year after the
date of termination of employment (but not beyond the term of the Option).
An optionee entitled to exercise an Option shall do so by delivery of a
written notice to that effect specifying the number of shares of Common Stock
with respect to which the Option is being exercised. The notice shall be
accompanied by payment in full of the purchase price of any shares of Common
Stock to be purchased, which payment may be made in cash or, upon authorization
by the Compensation Committee, in shares of Common Stock.
Options granted under the Incentive Plan are subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting the Common
Stock.
In the case of a "change in control" of the Company, each Option granted
under the Incentive Plan will terminate 90 days after the occurrence of such
"change in control" and an officer, employee or consultant will generally have
the right, commencing at least five days prior to the "change in control" and
subject to any other limitation on the exercise of the Option (but without
regard to any vesting limitations) in effect on the date of exercise, to
immediately exercise any Option in full to the extent not previously exercised.
Under the Incentive Plan, the transactions contemplated by the Merger Agreement
will not constitute a change in control and options granted under the Incentive
Plan will not become fully vested as a result of the Merger unless, as to each
such option holder, his employment is terminated without good cause within nine
months following the Effective Time.
The Incentive Plan will terminate ten (10) years after adoption and Options
will not be granted under the Incentive Plan after that date although the terms
of any Option may be amended in accordance with the Incentive Plan at any date
prior to the end of the term of such Option. Any Options outstanding at the time
of termination of the Incentive Plan will continue in full force and effect
according to the terms and conditions of the Option and the Incentive Plan.
The Incentive Plan may be amended by the Company Board, provided that
stockholder approval will be necessary to the extent required under Section 422
of the Code or Rule 16b-3 of the General Rules and Regulations of the Exchange
Act, and provided further that no amendment may impair any rights of any holder
of an Option previously granted under the Incentive Plan without the holder's
consent.
Some of the Options granted under the Incentive Plan are intended to
qualify as incentive stock options for federal income tax purposes as described
in Section 422 of the Code. Generally, an optionee recognizes no taxable income
upon either the grant or exercise of an incentive stock option, although the
difference between the exercise price and the fair market value of the stock on
the date of exercise is an item of tax preference in computing the optionee's
alternative minimum tax liability, if any. If certain holding period
requirements are met, gain or loss on a subsequent sale of the stock by the
optionee is taxed at capital gain rates. Generally, long-term capital gains
rates will apply to the optionee's full gain at the time of the sale of the
stock, provided that: (i) no disposition of the stock is made within two (2)
years from the date of grant of the Option nor within one (1) year after the
acquisition of such stock, and (ii) the Option is exercised within three months
of the optionee's termination of employment (one year in the event of
disability).
A sale, exchange, gift or other transfer of legal title of stock acquired
pursuant to an incentive stock option within two (2) years from the date of
grant or within one (1) year after acquisition of the stock pursuant to exercise
of the option constitutes a disqualifying disposition. A disqualifying
disposition involving a sale or exchange produces taxable income to the
optionee, and an income tax deduction to the Company, in an amount equal to the
lesser of (i) the fair market value of the stock on the date of exercise minus
the option price or (ii) the amount realized on disposition minus the option
price. Otherwise, generally, neither issuance nor exercise of an incentive stock
option nor the disposition of the underlying stock produces a deduction for the
Company. A disqualifying disposition as a result of a gift produces taxable
income to the optionee in an amount equal to the difference between the option
price and the fair market value of the stock on the date of exercise
Some of the Options granted under the Incentive Plan may also be considered
to be so-called non-qualified stock options for federal income tax purposes. An
optionee recognizes no taxable income upon the grant of such stock options.
Generally, Section 83 of the Code requires that, upon exercise of an option, the
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<PAGE> 79
optionee recognizes ordinary income in an amount equal to the difference between
the option exercise price and the fair market value of the shares on the date of
exercise; and such amount, subject to certain limitations, is deductible as an
expense by the Company for federal income tax purposes. The ordinary income
resulting from the exercise of such options is subject to applicable withholding
taxes. Generally, any profit or loss on the subsequent disposition of such
shares is short-term or long-term capital gain or loss, depending upon the
holding period for the shares.
THE AMENDED AND RESTATED 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company Board unanimously adopted and approved the Company's 1996
Non-employee Directors' Stock Option Plan on November 18, 1996, and unanimously
adopted the plan, as amended and restated, on February 4, 1997 (the "Directors'
Plan"). The Directors' Plan was approved by the stockholders of the Company at a
Special Meeting on March 6, 1997. In accordance with the provisions of the
Directors' Plan, each non-employee director, or his or her designee(s), was
granted 25,000 options ("Options") under the Directors' Plan on November 18,
1996, at the exercise price of $7.7375, which was the fair market value of
shares of Common Stock on such day, based on the average of the closing price of
the Common Stock for the 10 day period of November 19, 1996 to December 3, 1996,
in accordance with the provisions of the Directors' Plan. All of such Options
vest at the rate of 30% after one (1) year, 60% after two (2) years and 100%
after three (3) years, subject to acceleration in certain circumstances,
including the occurrence of a transaction such as the Merger. The grant of these
Options was conditioned upon the approval of the Directors' Plan by the
stockholders of the Company, which was obtained at the Annual Meeting of
stockholders on March 6, 1997.
The Directors' Plan is intended to encourage non-employee directors of the
Company ("Eligible Directors") to acquire or increase their ownership of Common
Stock on reasonable terms, and to foster a strong incentive to put forth maximum
effort for the continued success and growth of the Company. The Directors' Plan
provides for the granting of non-qualified stock options to purchase 250,000
shares of Common Stock to current and future Eligible Directors.
The Directors' Plan is administered by the Compensation Committee. The
principal terms of the Option grants are fixed in the Directors' Plan.
Therefore, the Compensation Committee has no discretion to select which Eligible
Directors receive Options, the number of shares of Common Stock included in any
grant, or the exercise price of options.
Immediately prior to the Distribution, each of the then identified Eligible
Directors, or his or her designee(s), was granted an Option to purchase 25,000
shares of Common Stock. Each Eligible Director who subsequently joins the
Company Board will be granted on the first business day following the first day
of his or her term, an Option to purchase 25,000 shares of Common Stock. On the
fifth business day after the Company's Annual Report on Form 10-K is filed with
the Commission for each fiscal year that the Directors' Plan is in effect, each
person who is an Eligible Director on such date will receive an additional
Option to purchase 5,000 shares of Common Stock. Accordingly, on October 21,
1997, each Eligible Director received an additional Option to purchase 5,000
shares of Common Stock. If the number of shares available for grant under the
Directors' Plan on a scheduled date of grant is insufficient to make all the
grants, then Each Eligible Director will receive an Option to purchase a pro
rata number of the available shares.
250,000 shares of Common Stock (subject to adjustment) have been reserved
for issuance by the Company under the Directors' Plan. Any shares of Common
Stock subject to an option which, for any reason, terminates unexercised or
expires, shall be available again for issuance under the Directors' Plan.
The Option price per share is the fair market value of the shares of Common
Stock on the date of grant. Under the Directors' Plan, fair market value is
generally the closing price of the Common Stock on NASDAQ/NMS on the last
business day prior to the date on which the value is to be determined; provided,
however, that with respect to the Options granted immediately prior to November
18, 1996, fair market value means the average of the daily closing price of the
Common Stock for the first ten (10) consecutive trading days that Common Stock
is traded on NASDAQ/NMS other than on an "as issued" or "when issued" basis,
calculated to the nearest cent, as determined by the Company.
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Options granted under the Directors' Plan are exercisable for a term of ten
(10) years from the date of grant, subject to earlier termination, and may be
exercised as follows: (a) any Option granted as of the effective date of the
Director's Plan or as the first day of an Eligible Director's initial term on
the Company Board may be exercised as to 30% of the shares subject to such
option at any time after the first anniversary of the date of grant, as to 60%
of the shares subject to such option at any time after the second anniversary of
the date of grant, and as to all shares subject to such option at any time after
the third anniversary of the date of grant and (b) any other Options may be
exercised at any time after the third anniversary of the date of grant.
Options granted under the Directors' Plan are non-transferable other than
by will or pursuant to the laws of descent and distribution or pursuant to a
qualified domestic relations order.
In the event that an Eligible Director ceases to be a member of the Company
Board (other than by reason of death or disability), an option may be exercised
by the director (to the extent the director was entitled to do so at the time he
ceased to be a member of the Company Board) at any time within seven months
after he ceases to be a member of the Company Board, but not beyond the term of
the option. If the Eligible Director dies or becomes disabled while he is a
member of the Company Board or within seven months thereafter, an option may be
exercised (to the extent the director was entitled to do so as of the date of
his death or the termination of his directorship by reason of his disability) by
a legatee of the director under his will, or by him or his personal
representative or distributees, as the case may be, at any time within 12 months
after his death or disability, but not beyond the term of the Option.
An Eligible Director entitled to exercise an Option shall do so by delivery
of a written notice to that effect specifying the number of shares of Common
Stock with respect to which the Option is being exercised. The notice shall be
accompanied by payment in full of the purchase price of any shares of Common
Stock to be purchased, which payment may be made in cash or, upon authorization
by the Committee, in shares of Common Stock of the Company that such Eligible
Director has held for more than six (6) months.
In accordance with Rule 16b-3(d)(3) promulgated under the Exchange Act,
Eligible Directors are not permitted to dispose of the shares of Common Stock
underlying an option granted pursuant to the Directors' Plan during the six
month period commencing from the date of the acquisition of such option.
Options granted under the Directors' Plan are subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting the Common
Stock.
Upon a "change of control" of the Company, which includes transactions such
as the Merger, each option granted under the Directors' Plan will terminate on
the later of (i) 90 days after the occurrence of such "change of control" and
(ii) seven months following the date of grant of each Option, and an Option
holder will have the right, commencing at least five days prior to the "change
of control" and subject to any other limitation on the exercise of the option
(except without regard to any vesting limitations) in effect on the date of
exercise, to immediately exercise any options in full, to the extent they have
not previously been exercised.
The Directors' Plan will terminate on November 18, 2006 and options may not
be granted under the Directors' Plan after that date, although the terms of any
Option may be amended in accordance with the Directors' Plan at any date prior
to the end of the term of such option. Any options outstanding at the time of
termination of the Directors' Plan will continue in full force and effect
according to the terms and conditions of the option and the Directors' Plan.
The Directors' Plan may be amended by the Company Board, provided that
stockholder approval will be necessary to the extent required under Rule 16b-3
of the General Rules and Regulations of the Exchange Act, and no amendment may
impair any of the rights of any holder of an option previously granted under the
Directors' Plan without the holder's consent.
The tax treatment of Options granted under the Directors' Plan will be the
same as the tax treatment for non-qualified Options discussed under the
Incentive Plan above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Paul Schaller and Arthur Samberg.
Neither Mr. Schaller nor Mr. Samberg is or was an officer or employee of the
Company.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Introduction
The Compensation Committee is responsible for determining and administering
the Company's compensation policies for the remuneration of the Company's
officers. The Compensation Committee annually evaluates individual and corporate
performance from both a short-term and long-term perspective.
Philosophy
The Company's executive compensation program seeks to encourage the
achievement of business objectives and superior corporate performance by the
Company's executives. The program enables the Company to reward and retain
highly qualified executives and to foster a performance-oriented environment
wherein management's long-term focus is on maximizing stockholder value through
equity-based incentives. The program calls for consideration of the nature of
each executive's work and responsibilities, unusual accomplishments or
achievements on the Company's behalf, years of service, the executive's total
compensation and the Company's financial condition generally.
Components of Executive Compensation
Historically, the Company's executive employees have received cash-based
and equity-based compensation.
Cash-Based Compensation. Base salary represents the primary cash component
of an executive employee's compensation, and is determined by evaluating the
responsibilities associated with an employee's position at the Company and the
employee's overall level of experience. In addition, the Compensation Committee,
in its discretion, may award bonuses. The Compensation Committee and the Board
believe that the Company's management and employees are best motivated through
stock option awards and cash incentives.
Equity-Based Compensation. Equity-based compensation principally has been
in the form of stock options. The Compensation Committee and the Board believe
that stock options represent an important component of a well-balanced
compensation program. Because stock option awards provide value only in the
event of share price appreciation, stock options enhance management's focus on
maximizing long-term stockholder value and thus provide a direct relationship
between an executive's compensation and the stockholders' interests. No specific
formula is used to determine stock option awards for an employee. Rather,
individual award levels are based upon the subjective evaluation of each
employee's overall past and expected future contributions to the success of the
Company.
Compensation of the Chief Executive Officer
The philosophy, factors and criteria of the Compensation Committee
generally applicable to the Company's officers are also applicable to the Chief
Executive Officer. The Chief Executive Officer's salary for 1997 was based on
his existing employment agreement with the Company. The Chief Executive Officer
did not receive a bonus in 1997. The stock option to purchase 300,000 shares of
Common Stock granted to the Chief Executive Officer in November 1996 was in
recognition of his anticipated significant contributions to the Company.
Paul Schaller
Arthur Samberg
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SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth the beneficial ownership of Common Stock as
of November 18, 1997, by each director and Named Executive Officer of the
Company and all directors and executive Officers of the Company as a group, as
well as by any person known by the Company to own beneficially more than 5% of
the Common Stock of the Company, based upon such person's reported ownership of
Common Stock in filings made with the Commission pursuant to Sections 13(d) and
13(g) of the Exchange Act as of November 18, 1997 and projected as of the
Effective Time. The information in this table was based in part on information
supplied by the named individuals.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
COMMON STOCK OWNERSHIP AS OF OWNERSHIP AS OF OWNERSHIP AS OF OWNERSHIP AS OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY OWNED AS OF NOVEMBER 18, THE EFFECTIVE NOVEMBER 18, THE EFFECTIVE
OWNER NOVEMBER 18, 1997(1) 1997 (1) TIME(1)(11) 1997(1)(12) TIME(1)(11)(13)
- ------------------------------ ------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ronald Howard................. 1,018,603(2) 8.1% 1.7% 6.9% 1.5%
John Howard................... 30,000(3) * * * *
Barbara Perrier Dreyer........ 50,000(3)(4) * * * *
Arthur Samberg................ 1,955,000(3)(5)(6) 15.6% 3.4% 13.3% 2.9%
Paul Schaller................. 30,000(3) * * * *
James Gallagher............... 22,500(7) * * * *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (6
PERSONS)..................... 3,106,103(8) 24.4% 5.3% 20.9% 4.6%
Richard Chilton, Jr. 399 Park
Avenue New York, New York
10022........................ 672,800(9) 5.4% 1.2% 4.6% *
Pequot Partners Fund, L.P. and
Pequot International Fund,
Inc. 354 Pequot Avenue
Southport, Connecticut
06490........................ 1,485,600(5) 11.9% 2.5% 10.1% 2.2%
Cramer Partners, L.P. 100 Wall
Street, 8th Floor New York,
New York 10004............... 3,052,800(10) 24.4% 5.2% 20.8% 4.5%
</TABLE>
- ---------------
(*) Less than 1%
(1) Includes, in certain instances, shares held in the name of an executive
officer's or director's spouse or minor children, the reporting of which is
required by applicable rules of the Commission, but as to which shares the
executive officer or director may have disclaimed beneficial ownership.
Beneficial ownership includes (i) 115,500 shares issuable upon exercise of
options granted under the Incentive Plan and (ii) 120,000 shares issuable
upon exercise of options granted under the Director's Plan, assuming that
the Merger is consummated within 60 days of the date of this Proxy
Statement/Prospectus.
(2) Includes 90,000 shares of Common Stock issuable upon the exercise of an
option. Does not include additional shares of Common Stock issuable to Mr.
Howard in lieu of a $437,500 cash bonus payable upon a change in control.
(3) Includes 30,000 shares of Common Stock issuable upon the exercise of an
option, assuming that the Merger is consummated within 60 days of the date
of this Proxy Statement/Prospectus.
(4) Mrs. Perrier Dreyer and her husband, John Dreyer, have shared voting and
dispositive power with respect to these shares.
(5) Includes 787,100 shares of Common Stock owned by Pequot Partners Fund,
L.P., a Delaware limited partnership whose general partner and investment
manager is Pequot General Partners, LLC, a Connecticut limited liability
company ("General Partners") and 698,500 shares of Common Stock owned by
Pequot International Fund, Inc., a British Virgin Islands corporation,
whose investment manager is DS International Partners, L.P., a Delaware
limited partnership ("International Partners"). (Pequot Partners Fund, L.P.
and Pequot International Fund, Inc. are together referred to as the
"Funds"). Mr. Samberg is a General Partner and senior portfolio manager of
each of the Funds. General Partners and International Partners (together,
the "Partners") are the beneficial owners, as such term is used in Rule
13d-3 of the Exchange Act of the shares of Common Stock owned by the
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Fund for which they act as investment manager, respectively. The Partners
may be deemed to constitute a group as such term is used in Section
13(d)(3) of the Exchange Act. Each of the Partners disclaims beneficial
ownership of the Common Stock beneficially owned by the other Partners.
(6) Includes 86,500 shares of Common Stock owned by Dawson-Samberg Capital
Management, Inc., of which Mr. Samberg is President, and 352,900 shares of
Common Stock owned by Pequot Endowment Fund, L.P., a Delaware limited
partnership ("Endowment Fund") whose general partner and investment manager
is Pequot Endowment Partners, L.P., a Delaware limited partnership. Mr.
Samberg is a General Partner and senior portfolio manager of Endowment
Fund.
(7) Includes 22,500 shares of Common Stock issuable upon the exercise of an
option.
(8) Includes (i) 115,500 shares issuable upon exercise of options granted under
the Incentive Plan and (ii) 120,000 shares issuable upon exercise of
options granted under the Director's Plan, assuming that the Merger is
consummated within 60 days of the date of this Proxy Statement/Prospectus.
(9) According to the Amendment No. 1 to the Schedule 13D, dated March 21, 1997,
includes shares of Common Stock held by Chilton Investment Partners, L.P.
("Chilton Partners"), a Delaware limited partnership, Chilton Opportunity
Trust, L.P. ("Chilton Trust"), a Delaware limited partnership, or managed
accounts over which Mr. Chilton has investment discretion. Mr. Chilton is
the general partner of Chilton Investments, L.P. ("Chilton Investments"), a
Delaware limited partnership, and Olympic Equity Partners, L.P., a Delaware
limited partnership ("Olympic"). Chilton Investments is the general partner
of Chilton Partners. Olympic is the general partner of Chilton Trust,
serves as the investment advisor to Chilton International (BVI) Ltd., a
British Virgin Islands corporation, and advises several managed accounts.
(10) James J. Cramer, President of J.J. Cramer & Co., and Karen Cramer, Vice
President of J.J. Cramer & Co., have shared voting and dispositive power
with respect to these shares.
(11) Assumes consummation of the Merger, the issuance of additional shares of
Common Stock based upon the Conversion Ratio and no change in beneficial
ownership from November 18, 1997.
(12) Assumes $10.0 million of the 6% Convertible Stock is converted into Common
Stock at $4.65375 which is 85% of the five day average closing bid price
prior to November 18, 1997.
(13) Assumes $45.0 million of the 6% Convertible Stock is converted into Common
Stock at $4.65375, $35.0 million of which is converted immediately
following the Merger.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the Effective Time, Messrs. Hayes and Howard will have employment
agreements with the Company, the terms of which are described in
"MANAGEMENT -- Interests of Certain Persons in the Merger" above.
STOCK PERFORMANCE GRAPH
The following graph compares the monthly percentage change in cumulative
stockholder return on the Common Stock since November 18, 1996, the date on
which the Common Stock began trading on NASDAQ/NMS with (i) the cumulative total
return on the NASDAQ/NMS Stock Market Index, and (ii) Hambrecht and Quist
Technology Index selected by the Company (see below). The figures presented
below assume a reinvestment of all dividends paid on the applicable dividend
payment date and that $100 was invested in the Company's Common Stock, and in
the stock of the companies comprising each of the indices, and such stock was
held through July 31, 1997.
LOGO
The Hambrecht and Quist Technology Index is based upon stock prices of
approximately 275 electronic manufacturing and service companies, including
computer hardware, computer software, semiconductor, communications and
information services companies.
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ACCESS BEYOND'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the fourth quarter of fiscal 1996, Penril took actions to strategically
restructure the business to focus on the remote access connectivity products, to
reduce costs and improve competitiveness for the long-term. This restructuring
plan included the elimination of the VCP and BRX product lines and the
introduction of the new remote access product line. As described more fully in
Note 2 to the Company's Consolidated Financial Statements, Penril recorded a
restructuring charge in the fourth quarter of fiscal 1996 of $9.7 million. As of
July 31, 1997, the Company had completed all phases of the restructuring plan
and does not anticipate any additional cost associated with this plan.
In the first quarter of fiscal 1997, prior to the spin-off of the Company,
Penril received approximately $6.1 million from the exercise of employee and
director stock options. The cash generated from these exercises was used for the
expenditures related to the merger and spin-off of the Company. These
expenditures included legal and accounting fees of approximately $700,000,
investment banker fees of $1.6 million, and change of control payments to
certain officers of Penril of $1.8 million. Also in the first quarter of fiscal
1997, prior to the spin-off of the Company, Penril received the following; $3.5
million in cash from Standard Micro Systems Corp. for settlement of the law suit
with Penril, and $1.6 million in cash and $2.8 million in notes from the sale of
its TPI subsidiary. As of July 31, 1997, a balance of $980,000 on the TPI note
was past due. The Company reserved the unpaid balance of this note with a charge
in the fourth quarter of fiscal 1997 of $980,000 to loss on disposal of
discontinued operations.
On November 18, 1996, as a result of the merger between Penril and Bay,
certain assets and liabilities related to the modem business were transferred to
Bay. The assets included $2.5 million in accounts receivables, $2.7 million in
inventory, $1.7 million in deferred tax assets, and $761,000 in other assets.
The liabilities included a $4 million line of credit, $1.5 million in accounts
payables, and $887,000 in other liabilities. All cash and rights to future cash
from the sale of TPI were spun-off to the Company pursuant to the merger
agreement with Bay. In addition, the Company received $1.5 million in cash from
Bay pursuant to the Transitional Services Agreement between Penril and the
Company.
In March 1997, the Company entered into an agreement with Hibbing in which
Hibbing will manufacture and sell printed circuit card products to the Company.
Under the agreement, Hibbing has the right to use the lower level of the
Company's Gaithersburg, Maryland, facility as well as certain equipment needed
for the manufacturing process. Hibbing will pay the Company 50% of the monthly
rent and utilities associated with that facility, and will pay the current
installment amounts on the equipment that the Company leases. This agreement
expires August 31, 1998 at which time Hibbing shall have the option to purchase
all of the equipment covered under the agreement and the Company will assign all
right, title and interest in the covered leases and equipment to Hibbing in
exchange for Hibbing's agreement to pay and perform the Company's obligations
under those leases.
In May 1997, the Company and Paradyne Corporation, a Delaware corporation
("Paradyne"), entered into the 2290 Remote Access Gateway ("Hawk") Technology
Transfer Agreement (the "Technology Agreement") pursuant to which Paradyne (i)
transferred to the Company technology relating to certain open remote dial
access cards (in the form of a comprehensive set of specifications, technical
information, hardware and software)(the "Hawk Technology"), (ii) sold to the
Company certain inventory, tools and equipment used in the application of the
Hawk Technology to develop and manufacture products, ("Hawk Products") which
include the Hawk Technology, (iii) licensed to the Company certain intellectual
property in connection with the Hawk Technology, and (iv) agreed to provide the
Company with technical, engineering, manufacturing and marketing support, for an
aggregate purchase price of 503,704 shares of the Common Stock (the "Paradyne
Shares"), and $425,000 in cash. The Company and Paradyne also entered into a
Stock Purchase Agreement, dated as of May 2, 1997 (the "Purchase Agreement"),
pursuant to which the Company sold and
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issued the Paradyne Shares to Paradyne. Pursuant to the Purchase Agreement, the
Company has registered the Paradyne Shares for resale by Paradyne under the
Securities Act.
On June 30, 1997, the Company sold the assets of its EMI subsidiary to a
company principally owned by the former president of EMI and received $2.0
million in cash, $1.5 million in subordinated term notes, and $500,000 in
warrants (repayment terms of the notes and warrants are more fully described in
Note 3 to the Company's Consolidated Financial Statements). In accordance with
the Securities and Exchange Commissions' Staff Accounting Bulletin No. 81, "Gain
Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged
Entity", a provision was charged to Loss from Disposal of Discontinued
Operations for the outstanding balance of the subordinated term notes and
warrants at July 31, 1997 of 2.0 million. The Company fully expects to collect
these notes and warrants, however the repayments will be recorded as income when
received due to the highly leveraged structure of the buyer. The purchase price
was determined by arms-length negotiation.
The cash received from the sources described above was used to fund the
Company's loss from continuing operations for fiscal 1997 of $13.9 million.
Contributing to the Company's cash flow in fiscal 1997 was the reduction of
accounts receivable of $1.4 million (after adjusting for the transfer of
accounts receivable to Bay). This reduction was the result of lower sales
volumes in fiscal 1997 compared to fiscal 1996.
The Company's inventories and accounts payables declined by $600,000 and
$1.1 million respectively (after adjusting for the transfer of inventory and
accounts payable to Bay), as a result of the lower level of business and the
outsourcing of its board level manufacturing to Hibbing Electronics, Inc.
In August 1997, the Company completed a reduction in force of 19 employees
which, in combination with reductions in other expenses, is expected to result
in an annual savings of approximately $2.0 million.
On October 2, 1997, the Company obtained a secured working capital facility
of $3.0 million with borrowings based on qualified accounts receivable and
inventory.
On November 12, 1997 the Company and several investors entered into a
Preferred Stock Investment Agreement pursuant to which the Company agreed to
sell to the Investors up to 45,000 shares of the Company's 6% Convertible Stock,
with a liquidation preference of $1,000 per share, at a purchase price of $1,000
per share. On November 12, 1997 10,000 shares of 6% Convertible Stock were sold
for $10,000,000. The Preferred Stock Investment Agreement provides that up to
35,000 shares of 6% Convertible Stock will be purchased for $1,000 per share (up
to $35,000,000) immediately following closing of the Merger, provided that no
material adverse change occurs in the interim. See "Ratification of Preferred
Stock Investment Agreement."
The ability of the Company to generate adequate cash for operational and
capital needs is dependent on the success of the Company to increase sales of
its new Access Beyond products including the AB2400/4400 and the "Hawk," coupled
with the collection of cash from notes received in the sale of its TPI and EMI
subsidiaries. In addition it may seek to raise cash from other sources including
sales of securities or other assets of the Company.
RESULTS OF OPERATIONS
The Company was incorporated on July 23, 1996, and filed a Form S-1
Registration Statement with the Securities and Exchange Commission which became
effective October 17, 1996. On November 18, 1996 Penril distributed a dividend
to its stockholders of record of one share of common stock of Access Beyond for
each share of Penril common stock held. Penril transferred all of the assets and
liabilities of Penril's remote access business to Access Beyond before becoming
a wholly owned subsidiary of Bay on November 18, 1996. As the successor company
to Penril, the Company retains the historical financial information of Penril
through November 18, 1996, when Penril was merged into Bay. For accounting
purposes, the disposition of the modem business, as a result of the merger
agreement with Bay, has been accounted for as a reduction of paid in capital.
For purposes of this discussion, revenue and expenses that could be specifically
identified with the modem business ("Modem Products") are shown separately from
the Company's Access Beyond and LAN/Host Access Products (the "Company's
Products"). Certain expenses that could not be specifically
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<PAGE> 87
identified with the modem business were included with the Company's business,
consequently the expenses reported for the Company's business in fiscal 1996 and
1995 are in excess of those that would have been incurred had the Company been a
stand alone entity at that time. The results of operations from the discontinued
operations of the EMI and TPI subsidiaries are not included in this discussion.
Dollar amounts are reported in thousands.
FISCAL 1997 COMPARED TO FISCAL 1996
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1997 1996 CHANGE
------- ------- --------
<S> <C> <C> <C>
Revenues:
The Company's Products............................. $13,772 $19,916 $ (6,144)
Modem Products..................................... 4,228 19,519 (15,291)
------- ------- --------
$18,000 $39,435 $(21,435)
======= ======= ========
</TABLE>
Revenues from the Company's Products declined in fiscal 1997 as a result of
the delay in launching the new Access Beyond products including the AB2400/4400
models. These models were released in the fourth quarter of fiscal 1997. In
addition, there was a continued decline in the market demand for the Company's
CSX terminal servers and VCX multiplexers which represent older technology. The
Company believes that the new Access Beyond products are competitively priced
and will generate revenues over the next fiscal year to offset the decline in
revenues from the older LAN and Host Access products. Revenues from Modem
Products declined because of the sale of the modem product business to Bay in
November 1996.
Exports represented 21% of the Company's total revenues in fiscal 1997 and
32% of the Company's revenues in fiscal 1996. Revenues from the Company's
foreign subsidiary, which is primarily a sales and marketing operation in
England, represented 20% of the Company's total revenues in fiscal 1997 and 19%
of the Company's total revenues in fiscal 1996. The Company does not believe it
has any significant exposure to exchange rate risk.
In the three years ended July 31, 1997, 1996, and 1995, foreign operations
have generated net losses after eliminations of $164,000, $401,000, and $49,000
respectively, while domestic operations generated net losses of $13.7 million,
$20.3 million and $5.1 million respectively. The Company's foreign operation
consists of a sales and distribution facility. The net losses from the Company's
foreign operation is due to greater price competitiveness, which has caused a
decline in gross profit margins. The net losses from the Company's domestic
operations in fiscal 1996 included a restructuring charge of $9.7 million and
merger related expenses of $500,000. The net losses from the Company's domestic
operations in fiscal 1997 and 1996 were due to lower sales volumes and higher
absorption of manufacturing variances and other fixed charges related to the
Company's domestic manufacturing operation. The Company's domestic manufacturing
operation performs all manufacturing for the Company and consequently must
absorb all of the unfavorable manufacturing variances resulting from the lower
sales volumes.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Gross Profit Margin:
The Company's Products................................. 36% 37% (1)%
Modem Products......................................... 23% 49% (26)%
</TABLE>
Gross profit margins for the Company's Products declined slightly in fiscal
1997 because of manufacturing inefficiencies due to lower sales volumes and
because of delays in launching the new Access Beyond product line. Gross profit
margins for Modem Products declined sharply as a result of the sale of the modem
business to Bay and the efforts prior to the closing to reduce inventory of
Modem Products with discounted pricing.
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<TABLE>
<CAPTION>
JULY JULY
31, 31,
1997 1996 CHANGE
------- ------- -------
<S> <C> <C> <C>
Selling, general and administrative expenses:
The Company's Products.............................. $12,253 $15,917 $(3,664)
Modem Products...................................... 634 2,694 (2,060)
------- ------- -------
$12,887 $18,611 $(5,724)
======= ======= =======
</TABLE>
Selling, general and administrative expenses for the Company's Products
declined as a result of the restructuring plan implemented in fiscal 1997.
Expenses related to the Modem Products declined as a result of the sale of the
modem business to Bay.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1997 1996 CHANGE
------ ------ -------
<S> <C> <C> <C>
Product development expenses:
The Company's Products................................ $5,644 $5,624 $ 20
Modem Products........................................ 520 1,765 (1,245)
------ ------ -------
$6,164 $7,389 $(1,225)
====== ====== =======
</TABLE>
Product development expenses increased slightly in fiscal 1997 due to the
continued development of the new Access Beyond product line including the
AB2400/4400 and the "Hawk" products which were launched in the fourth quarter of
fiscal 1997. Modem Product development expenses declined due to the sale of the
modem business to Bay in November 1996.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1997 1996 CHANGE
------ ------ -------
<S> <C> <C> <C>
Other Operating expenses:
Merger related expenses............................... $4,077 $ 500 $ 3,577
Write-down of assets.................................. 864 -- 864
Provision for restructuring........................... 238 9,718 (9,480)
Other Income(expenses):
Interest income....................................... 380 -- 380
Interest expense...................................... 200 698 (498)
Other: Settlement of Lawsuit............................ 3,547 -- 3,547
</TABLE>
Pursuant to the merger of Penril and Bay in the first quarter of fiscal
1997, Penril incurred merger related expenses of $4.2 million. In the fourth
quarter of fiscal 1997, the Company determined that as a result of the
introduction of its new AB2400/4400 products, an additional reserve for
inventory obsolescence of $864,000 needed to be recorded. Also in the fourth
quarter, the Company recorded a charge to restructuring of $238,000 for
additional inventory that was disposed of as part of the original restructuring
plan. Interest income was generated from the shortterm investments that the
Company made in fiscal 1997 with its excess cash. Interest expense resulted from
the Company's capital equipment leases. The decline in interest expense resulted
from the elimination of the line of credit as part of the merger and spin-off
transaction with Bay in fiscal 1997.
In 1993 the Company had initiated a lawsuit against Standard Microsystems
Corp. ("SMC") for breach of contract including failure to transfer technology,
unfair competition and false representations. In September 1996, the Company and
SMC agreed to drop the charges of false representation and settle the
contractual dispute. In October 1996, the Company received from SMC, in
settlement of the litigation, $3.5 million cash, net of legal payments.
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<PAGE> 89
FISCAL 1996 COMPARED TO FISCAL 1995
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1996 1995 CHANGE
------- ------- --------
<S> <C> <C> <C>
Revenues:
The Company's Products............................. $19,916 $33,637 $(13,721)
Modem Products..................................... 19,519 18,974 545
------- ------- --------
$39,435 $52,611 $(13,176)
======= ======= ========
</TABLE>
The decrease in revenues for the Company's Products was primarily
attributable to the continued decline in market demand for terminal servers and
multiplexers which resulted in lower volumes and more competitive pricing.
In the fourth quarter of fiscal 1996, Penril and Bay entered into a License
Agreement whereby Bay acquired a license to certain intellectual property rights
related to Penril's modem technology, and Penril was paid $4.5 million. Revenues
for Modem Products without this license agreement would have been $15.0 million
in fiscal 1996 compared with $19.0 million in fiscal 1995. The decrease in
revenue from the sale of Modem Products was due to slower than expected sales of
Penril's V.34 modems, and a decline in sales of older Modem Products.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Gross Profit Margin:
The Company's Products.................................. 37% 46% (9)%
Modem Products.......................................... 49% 41% 8%
</TABLE>
The decrease in the gross profit margins for the Company's Products was due
to reductions in product pricing of the VCX multiplexers in order to remain
competitive in the market place, and increases in manufacturing inefficiencies
due to lower sales volumes. As noted above, Penril entered into a License
Agreement with Bay in the fourth quarter of fiscal 1996 for $4.5 million. Gross
profit margins without this License Agreement would have been 34% in fiscal 1996
compared to 41% in fiscal 1995. The decrease in gross profit margins for Modem
Products was due to higher costs of materials in the V.34 modem product line as
well as pricing competition and lower manufacturing efficiencies related to the
lower sales volume.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Selling, general and administrative expenses:
The Company's Products................................ $ 15,917 $ 16,479 $(562)
Modem Products........................................ 2,694 2,286 408
------- ------- ----
$ 18,611 $ 18,765 $(154)
======= ======= ====
</TABLE>
Selling, general and administrative expenses decreased for the Company's
Products primarily from lower commissions paid due to lower sales volume. There
was also a reduction in personnel costs as a result of eliminating several
administrative positions in Penril's Gaithersburg, Maryland facilities during
fiscal 1995. All expenses which could not be specifically identified with the
modem products were included with the Company's Products. Consequently the
expenses for the Company's Products are in excess of those that would have been
incurred had the Company been a stand alone company.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Product development expenses:
The Company's Products.................................. $ 5,624 $ 5,520 $ 104
Modem Products.......................................... 1,765 1,918 (153)
------- ------- ----
$ 7,389 $ 7,438 $ (49)
======= ======= ====
</TABLE>
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<PAGE> 90
Product development expenses for the Company's Products increased because
of an increase in personnel costs related to development of the new Access
Beyond product line. Modem Product development expenses decreased because of
reductions in personnel costs as a result of Penril's cost reduction efforts in
fiscal 1995. All expenses which could not be specifically identified with the
Modem Products were included with the Company's Products. Consequently the
expenses for the Company's Products are in excess of those that would have been
incurred had the Company been a stand alone company.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Interest expense.......................................... $698 $ 1,228 $(530)
</TABLE>
During fiscal 1996, Penril sold Penril Stock in private placements which
generated approximately $14.7 million in cash. A portion of the proceeds was
used to repay all of Penril's term debt during fiscal 1996, which resulted in
decreased interest expense.
BUSINESS OF HAYES
GENERAL
Hayes was incorporated in January 1978 as a Georgia corporation. Hayes
engages in the design, manufacturing, marketing and support of computer
communication products for business, government, small office, professional and
individual consumers worldwide through the sale of modem, access systems and
broadband products.
While historically Hayes' business has focused on its core modem business,
Hayes has recently broadened its products to include integrated network
communication products (access systems). In addition, Hayes has pursued
penetrating the broadband market by offering products for the asymmetric digital
subscriber line ("ADSL") and the cable markets.
For nearly two decades, Hayes has been the leader in providing value-based
modems. The Hayes standard AT command set has become the de facto industry
standard for personal computer modems and, along with the patented escape
sequence, created the market requirement for "Hayes compatibility."
Hayes was founded by Mr. Hayes in 1977 to develop and market modems
designed for the microcomputer marketplace. Hayes' first product was released in
April 1977 which was a modem for the early S-100 type computers. Hayes developed
the Micromodem II for the Apple II before Apple had a disk drive. Hayes
introduced the Smartmodem in June 1981. In August 1981, IBM introduced the first
IBM PC that legitimized the personal computer industry. Personal computer ("PC")
sales began to skyrocket and Hayes was the leading manufacturer of modems to
serve this market. Fueled by the growth in the PC market and the introductions
of 1200 and 2400 bits per second modems, Hayes' sales grew from $4.8 million in
1981 to $120.1 million in 1985. Hayes was included twice in Inc. Magazine's list
of Fastest Growing Privately Owned Companies.
In the 1987 to 1988 time frame, the "low price" modem competition began to
consolidate into recognizable brands from the multitude of market players. By
1989, Hayes realized the significance of the emergence of what was internally
referred to as clone modems (claiming Hayes compatibility) as had been observed
with clone PCs (IBM compatible) slightly earlier. Practical Peripherals, Inc.
had established itself as a true brand in the clone modem segment. In August
1989 Hayes purchased Practical Peripherals, Inc. to establish a presence in the
clone modem segment.
In the early 1990s, the consumer, small office/home office ("SOHO") market
segment experienced rapid expansion. In response, Hayes introduced the ACCURA
product line in 1993. This product line provided a different feature set and a
lower price point than Hayes Ultra and Optima product lines. Competitors in this
market segment pursued an extremely aggressive price strategy to gain market
share by initiating rapid price erosion for this market.
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<PAGE> 91
Due to market price pressures Hayes reduced its ACCURA pricing in March
1994 to competitive levels. As a result, the ACCURA volumes increased
dramatically. In responding to the ACCURA volume increase, Hayes experienced a
number of operational and manufacturing problems. Due to excess inventory of old
designs, Hayes could not benefit from new lower cost product designs.
Additionally, there was an inadequate internal infrastructure and process in
place to support subcontractor start-up necessary to support increased demand
and significant air freight expense was required due to resultant delays in
subcontractor production. Inventory increased and margins compression occurred.
The resulting strain on Hayes' cash position and operating losses combined with
insufficient capitalization precipitated Hayes' filing a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code on November 15, 1994.
On April 16, 1996, Hayes consummated a court approved Reorganization Plan.
Under the terms of the Plan, all prepetition creditors were paid in full plus
interest, except where other agreements were made. Funding of the Plan was
provided through three major sources. First, pursuant to the Agreement and Plan
of Merger dated April 12, 1996 entered into by and between ACMA, Kaifa
Technology (H.K.) Limited, Rolling Profit Holdings, Ltd., Lao Hotel (H.K.),
Limited, Saliendra Pte Ltd., and S.P. Quek Investments Pte. Ltd. (collectively,
the "Investors"), certain subsidiaries were created by the investors which
collectively contributed $35.0 million to fund the Plan and merge with Hayes.
The Investors received preferred stock representing a 49% voting interest in
Hayes. Second, Hayes entered into an agreement with CIT to borrow up to an
aggregate of $64.5 million through three separate debt instruments
collateralized by Hayes' intellectual property, certain equipment, and accounts
receivable and inventory balances. Third, pursuant to the Plan, Hayes sold
certain parcels of real property for $8.2 million. On October 9, 1997, Hayes
received the final decree bringing its Chapter 11 case to a close.
During 1996, Mr. Hayes assembled a new management team comprised of
individuals from the communications industry including a new chief financial
officer, vice president of sales, marketing, development and human resources.
On April 24, 1997, Hayes acquired Cardinal which Hayes management believes
added a highly visible brand to Hayes' brand portfolio and strengthened Hayes'
position in the North American retail market. Cardinal's 1996 revenues were
approximately $64.0 million. In connection with the Cardinal acquisition, in
April 1997 Hayes received a $5.5 million investment from Vulcan Ventures, Inc.,
one of the Paul Allen Group of Companies. The investment involved the issuance
of 263,113 shares of Series B Preferred Stock of Hayes, which will be
convertible into 1,217,930 shares of Series A Preferred Stock at the Effective
Time.
PRINCIPAL PRODUCTS
Hayes has invested in technologies that expand its products to meet
changing market demands. Hayes' business is structured around three core product
categories; modems, broadband products and access systems.
Modems
Analog and ISDN modems represent the core of Hayes' business, and accounted
for approximately 96% of all revenues of Hayes for the first nine months of
1997. Hayes is widely recognized as being the company that commercialized the PC
modem in the early 1980's. The Hayes Standard AT Command Set has become the de
facto industry standard for PC modems and along with the patented escape
sequence created the market requirement for "Hayes compatibility."
Hayes markets its modem products under the Hayes ACCURA(TM), Hayes
OPTIMA(TM), Practical Peripherals(TM), and Cardinal(TM) brands. The modem
products are sold through the distribution, value added reseller and mass
merchant channels.
Due to demand for increased speed in delivery of information, modem speeds
have historically changed every 12 to 24 months. In 1997, Hayes introduced a
series of new products that transmit information at 56Kbs. Hayes anticipates
that the market will transition over the next 12 months to the 56Kbs speed from
the current 33.6Kbs standard. At present, the industry has not adopted a 56Kbs
standard, although such a standard is
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<PAGE> 92
expected to be established in 1998. Hayes currently sells products utilizing the
two primary 56Kbs technologies offered in the market.
Broadband Products
Recognizing the market's need for more information at faster speeds, Hayes
has launched significant activities to deliver its customers products at speeds
of multiples of those offered by current analog and ISDN products. Hayes'
efforts are focused on the ADSL and cable markets.
ADSL
On June 6, 1997 Hayes announced that it had been selected by Alcatel Bell
N.V. ("Alcatel") to jointly develop, manufacture and market products and
equipment implementing ADSL technology. These end-to-end ADSL solutions will
enable consumers, telecommuters and small business users to achieve affordable,
convenient, bandwidth-efficient, high-speed access to the Internet and other
interactive services, such as corporate intranets.
ADSL technology, which utilizes the existing telephone copper-wiring
infrastructure serving virtually all homes and businesses, allows customers to
interact with data networks, the Internet and associated services at speeds more
than 100 times faster than current 56Kbps modems. In recent months, Alcatel has
signed contracts with Ameritech, Bell South, Pacific Bell, Southwestern Bell,
Singapore Telecom, Telia (Sweden) and others to provide its 1000 ADSL system.
Hayes is pursuing other opportunities utilizing ADSL technologies to
develop a strong market position in the emerging ADSL market.
Cable
Management believes that the consumer's demand for higher speed
communications will result in significant demand for cable modems. In 1996 Hayes
launched a development and marketing effort with an Israeli cable modem company.
In the fourth quarter of 1996 Hayes introduced its cable modem products to the
industry and began a number of successful cable modem trials. Hayes began
shipping cable modems in the second half of 1997, under its ULTRA(TM) brand.
On September 18, 1997 Hayes and Cisco Systems, Inc. ("Cisco") signed a
Collaboration Agreement whereby Hayes and Cisco agreed to promote Multimedia
Cable Network System ("MCNS") compliant cable modems and head end systems. The
Collaboration Agreement contemplates joint development and marketing of such
products.
On September 18, 1997 Cisco announced that Samsung Electronics Corp., Ltd.
and Thomson Consumer Electronics had joined Cisco and Hayes in promoting MCNS
compliant cable modems.
In October 1997, Hayes submitted three cable modem proposals in response to
a request for proposal by TeleCommunications, Inc. (the "TCI RFP"). The TCI RFP
is believed to cover a potential six million cable modem lines and is the
largest single cable modem opportunity in North America. Hayes is also pursuing
cable modem opportunities in China and Latin America.
Access Systems
The communications industry has seen tremendous growth in the area of
network connectivity. As the number of telecommuters, traveling employees and
branch offices grow, the demand for fast, low cost connectivity has grown.
Connectivity is enabled through client modems, modem pools and integrated remote
access devices. Hayes is seeking to leverage its experience and technology
strengths in communications to provide a portfolio of products that meet the
market's needs.
In the fourth quarter of 1996, Hayes entered into a comprehensive
technology collaboration agreement with the Company through which Hayes
introduced a family of remote access servers including its Century 2000 series,
Century 9200 series and Century 9400 series products. These products support the
connectivity
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needs of the small business or branch office. They are fully-integrated remote
access servers providing advanced management software which enables easy
configuration and network monitoring. These products use a modular design for
flexibility and ease of upgrade.
In April 1997 Hayes announced a technology agreement with Microcom. Hayes
and Microcom agreed to develop end-to-end communication solutions drawing from
the technology in Microcom's ISP Porte Chassis and Hayes' client and server
remote access products. According to terms of the agreement, the two companies
will explore product development, product branding and co-marketing
opportunities worldwide. The agreement is expected to enable Hayes to quickly
broaden its product offerings for modem pools.
SUPPLIERS
Hayes depends upon certain suppliers for its sole source for certain
components, including Rockwell and Lucent Technologies, Inc. for certain modem
chips used in most of Hayes' product. In addition, Hayes acquires a significant
portion of its network products from two domestic suppliers.
PATENTS, COPYRIGHTS AND LICENSES
Hayes' patent estate strategy is based upon three fundamental goals: (i) to
protect Hayes' technology and to enhance its commercial deployment, (ii) to
obtain cross licenses of the technology of others to optimize a royalty-free
access to new technology, and (iii) to generate income. This strategy has
resulted in a significant patent estate consisting of more than 115 owned and
licensed patents, including internationally recognized patents, in the area of
data communications.
Hayes is committed to a licensing program which defends the value of its
intellectual property and offers licenses to responsible third parties. As a
result of Hayes' aggressive patent estate development program, many of Hayes'
competitors formed the Modem Patent Defense Group. This group attempted to
refute the validity of the Hayes' patents, specifically the Heatherington '302
patent, U.S. patent #4549302 ("Heatherington Patent"), and to avoid payment of
royalty fees by filing suits against Hayes. To date, Hayes has successfully
defended its patent estate, resulting in additional manufacturers signing
license agreements to use Hayes' patents.
The Heatherington Patent has been Hayes' most valuable patent to date. This
patent enables the modem to be switched between data transmission mode and
command mode for configuring the modem. The patent was issued in 1985 and is
valid until February 14, 2001. The Heatherington Patent is licensed to virtually
every major modem manufacturer in the United States and is recognized around the
world as an industry standard for computer communications. The validity of the
patent was upheld by the U.S. Federal Court and since the fall of 1994 has been
fully protected in the European Community.
Another significant patent is the AutoSync patent, U.S. patent #4700358
which expires on October 13, 2004. This patent is a sophisticated asynchronous
to synchronous converter which allows serial communication through the
asynchronous serial port. Industry interest has been expressed in implementing
and licensing this technology. Currently there are approximately 12 companies
licensing this patent from Hayes.
Hayes has other valuable license rights that were obtained through
cross-license agreements with key industry players, including AT&T, 3Com, Intel,
Compaq, IBM, Racal Datacom and Microcom.
Hayes has current and pending patents with potential commercial value in
the area of data compression, multi-channel communication and various other
technologies related to data communications.
CIT has collateralized rights to Hayes' intellectual property. Use of
Hayes' intellectual property is not adversely affected by this collateralization
and the intellectual property is being used in the manufacturing and
distribution of Hayes' products. CIT approval is required prior to any material
sale of Hayes' intellectual property.
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BACKLOG
Hayes forecasts demand and builds products in order to fill expected
demand. Customers generally expect delivery within one to two weeks and Hayes'
backlog of firm orders generally represents orders expected to be filled not
later than two months following the date of the order. Management believes that
current backlog may not necessarily be indicative of future revenues.
COMPETITION
The data communications industry is very competitive. Product life cycles
are short with rapid improvements required in terms of product performance,
features and cost. Hayes competes in a number of different markets within the
overall data communications market.
Modem Business Market
Hayes faces competition primarily from established companies such as 3Com,
Microcom, Multitech, Racal Datacom, and Motorola. The primary basis of
competition is brand recognition, performance, features, quality, reliability,
price, service and support.
Modem Consumer Markets
The retail modem market is expected to continue its consolidation. The
primary basis of competition is brand recognition and price. 3Com is the most
significant competitor in this market with several smaller competitors competing
at the very low price points. A sample of these smaller competitors include GVC,
Boca Research, Inc., Zoom, and Diamond Multimedia, Inc. The battle for retail
shelf space is and will continue to be fierce and brand recognition is and will
continue be a major benefit to Hayes and to the Company.
OEM Modem Market
Hayes intends to make significant efforts to reenter the OEM modem market
which is the fastest growing segment of the analog modem market. Low cost,
quality and responsiveness are critical to success in this market. The key
competitors in this market are CIS Technology, Inc., GVC, 3Com and others.
Access Systems
The access systems market is characterized by a large number of
participants, none of which have a dominant market position. The market is
experiencing high growth and higher margins in comparison to modems. Companies
such as 3Com, Shiva, Asend, and General Datacom compete in this market.
Management believes that in addition to leveraging its strong brand name,
its products can be priced competitively which will enable Hayes to grow its
share of this market.
Broadband
ADSL is an emerging market with no competitor having dominant market
position. Many of the network product and modem companies are likely to
introduce products into this market. In addition, major telecommunications
companies such as Alcatel are expected to have significant presence in the ADSL
market as it matures.
The cable market is also an emerging market. Cable equipment companies such
as Scientific Atlanta, Inc. and Nextlevel Systems, Inc. are expected to capture
a share of this market. In addition, management believes that modem companies
such as 3Com will offer products in this market. Management expects competition
to intensify as cable modem products gain acceptance.
International
Hayes' products are sold internationally in more than 45 countries. Some of
the U.S. based competitors are present in Hayes' international market but
competition is also present from smaller local modem and access systems
suppliers.
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<PAGE> 95
SALES
Americas Region
North America
Hayes sells its products directly to high-volume computer superstores, mail
order resellers, and mass merchants as well as through the two-tiered PC
distribution channel that includes distributors, large national corporate
resellers and aggregators through its own sales force. In the two-tiered
distribution model, the distributors and national corporate resellers provide an
inventory, logistics, and credit function to smaller resellers such as computer
chains, company-owned locations and value-added resellers.
The sales strategy for Hayes branded products is to retain a channel "push"
sales organization (reseller, marketing and telephone) ensuring channel support
and appropriate field inventory levels. The sales organization is structured to
focus both on the Hayes, Practical Peripherals and Cardinal brands and each
respective product categories and product lines.
Hayes' sales force consists of the Field Sales Group and the National
Account Group. The Field Sales Group maintains relationships with the corporate
headquarters of Hayes' channel partners as well as the individual reseller
locations that sell to end users. The Field Sales Group ensures that resellers
maintain adequate inventory of Hayes' products and that Hayes maximizes the mind
set of the resellers sales personnel to sell Hayes products.
The National Account Group calls on large corporate customers and directly
markets Hayes' products to these large sophisticated end users. This group is
responsible for creating and maintaining demand in Fortune 1000 companies for
Hayes' technologies. Hayes also maintains a sales office in Washington D.C. to
market to the Federal Government and maintains dedicated resources within its
National Account Group to stimulate sales to state and local governments.
Latin America
Hayes has recently launched an initiative in Brazil to serve Brazil and the
Latin American region. Business is presently conducted directly with large end
users and through distributors for other customers.
Asia Pacific Region
Hayes' sales strategy in the Asia Pacific region is similar to its sales
strategy in North America. Hayes operates sales, marketing and service
subsidiaries in China, Hong Kong and Australia. Relationships are developed with
key distributors in each of the major Asia Pacific region countries.
Europe Region
Hayes' European sales, marketing and service efforts are headquartered in
the United Kingdom at its Fleet offices. Offices are also maintained in France,
Germany and Denmark. Strategic partners are identified in major markets to
distribute Hayes' products.
Revenues From Export Sales
Hayes' revenues from export sales to its principal foreign markets were
immaterial for the periods presented.
MARKETING
Hayes' marketing activities focus on developing brand recognition in key
market segments and geographic markets, as the underlying basis for cost
effective promotion of its products.
Public Relations
Hayes has focused its public relations activities on establishing strong
relationships with trade publications, reviewers and columnists. Hayes' products
have been consistently recognized for performance, quality, service and support
(i.e. Government Computer News, Computer Shopper, PC Week, Mobile Office, PC
Magazine, Computerworld). Hayes has pursued a proactive posture in public
affairs, taking a prominent
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<PAGE> 96
role in standard setting committees (ITU, ANSI) and public policy organizations
(AOP, GHTA and CompTIA).
Advertising, Packaging and Documentation
Over the years, Hayes has developed an in-house expertise to create
advertising that has consistently scored well in advertising readership studies
(i.e. Starch & Harvey Studies in PC Week, PC Magazine, Info World). Hayes has
been recognized by winning coveted awards from the Society for Technical
Communication Publications competition for the quality of its documentation and
packaging, which is also developed by Hayes in-house.
Channel and Infrastructure Activities
Hayes has established an effective channel marketing program which allows
the sales force to consistently execute on tactical promotions through the
entire channel spectrum. Hayes was most recently successful in developing new
mail order and mass merchant distribution channels. Hayes also has had success
through its infrastructure program in seeding its new products with influential
user groups of early adopters. In addition, customers can purchase Hayes
products over the worldwide web via ordering and fulfillment programs recently
implemented by Hayes.
CUSTOMER SUPPORT, SERVICE AND WARRANTY
Hayes strives to provide users of its products with the highest quality
technical support and customer service, dedicating more than 90 professionals
processing more than 60,000 incoming calls a month. Hayes constantly surveys its
user base with regard to customer satisfaction and it believes it consistently
outperforms its competitors in the area of support and service.
Hayes offers a standard two-year warranty which permits customers to return
any product for repair or replacement if the product does not perform as
warranted. In the U.S. and Canada only, Hayes also offers its customers the
option of an additional three-year warranty upon completion of a registration
card within 90 days of purchase. Some of the Practical Peripheral modems
previously sold have a lifetime warranty. Hayes to date has not encountered
material warranty claims or liabilities.
RESEARCH AND DEVELOPMENT
Hayes focuses its research and development ("R&D") efforts on hardware and
firmware system design, integration and testing for standalone and board level
data, fax, and voice modems, modem pools, remote access servers and broadband
technologies for high speed communications. Additional R&D activities include
access systems and software products, object oriented programming, and digital
signal processing technologies. Specialized knowledge and skills in the areas of
electromagnetic compatibility ("EMC"), agency approvals, communications
standards and product integration are applied to ensure timely product delivery.
The Company utilizes computer aided design systems for three dimensional
mechanical design and is upgrading its computer aided engineering tools to
improve the engineering process and strengthen applications specific integrated
circuit design capabilities.
Product development cycles typically range from three to 12 months. Project
duration of fifteen to eighteen months are common for new access systems and new
technology platforms. Engineering strategies employed to reduce product costs
and time to market include focused application of resources, simulation,
standardization, on-going product and process value engineering, simplification,
automation and reduction of the number of development cycles. Hayes expensed
approximately $7.0 million and $9.0 million for product development and
engineering for the nine months ending September 30, 1996 and 1997,
respectively, $16.2 million, $10.7 million and $9.6 million for the twelve
months ending September 30, 1994 and 1995, respectively, and December 31, 1996,
respectively.
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<PAGE> 97
ENVIRONMENTAL MATTERS
Hayes' compliance with federal, state and local environmental laws has had
no material effect upon Hayes' capital expenditures, earnings or competitive
position.
PROPERTIES
Hayes' executive offices are located in Norcross, Georgia in leased
facilities. Hayes' also has manufacturing and distribution facilities at the
same location. The manufacturing facility has five surface mount lines and
occupies approximately 50,000 square feet. The leases between Hayes and Essex
Capital are for 172,342 square feet and cover both the executive offices and
Hayes' manufacturing and distribution facilities. The leases expire between
December 31, 1999 and September 30, 2000.
In addition to the above lease, Hayes leases sales and marketing facilities
in China, Hong Kong, Australia, United Kingdom, France and Denmark.
Hayes believes its properties are adequate for its needs for the
foreseeable future.
EMPLOYEES
Hayes employed approximately 634 employees and 125 temporary employees as
of October 1, 1997. Hayes' management believes that its future success will
depend largely on its ability to retain certain key personnel and to recruit and
retain additional highly skilled employees. Hayes has experienced no work
stoppages and believes that its employee relations are satisfactory. The Company
will have a new employment agreement with Dennis Hayes as of the Effective Time
(see "THE MERGER -- Interests of Certain Persons in the Merger") and employment
agreements with other executives will be assumed by the Company (see MANAGEMENT
OF HAYES -- Employment Agreements").
LEGAL PROCEEDINGS
On March 22, 1996, Hayes filed a Complaint for Declaratory Judgment and
Damages for breach of fiduciary duties in the Superior Court of Fulton County,
Atlanta, Georgia against three of Hayes' former vice presidents, Gary Franza,
John Stuckey, and Mikhail Drabkin. In the Complaint, Hayes claims $5.0 million
in minimum damages against the defendants, jointly and severally, plus punitive
damages. The Complaint also seeks a declaratory judgment that a rescission by
the defendants of an earlier partial release executed by them is enforceable and
for the recovery of attorneys' fees. All three defendants have filed
counterclaims against Hayes and Dennis C. Hayes individually seeking total
contract damages against Hayes and Dennis C. Hayes of approximately $450,000 and
specific performance of claims for stock options for 292,012 shares of stock
under certain option agreements. Two of the three defendants assert libel claims
and allege compensatory damages resulting therefrom in the total amount of $10.0
million and punitive damages in the total amount of $10.0 million. All three
defendants seek recovery of their attorney's fees and expenses of litigation.
Hayes' management believes that the likelihood of a material adverse result in
the amount of damages claimed by the plaintiffs is remote. Hayes' insurer has
undertaken coverage of the libel and slander claims alleged in the counterclaim
against the Company. Other than the litigation matter described above, Hayes
believes that there are no other material legal proceedings to which Hayes is a
party or of which any of its properties are subject; nor are there material
legal proceeding known to Hayes to be contemplated by any governmental
authority; nor are there material legal proceedings known to Hayes, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of Hayes, or any associate of any of the foregoing, is a party
or has any interest adverse to Hayes.
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<PAGE> 98
MANAGEMENT OF HAYES
DIRECTORS AND EXECUTIVE OFFICERS
Following the Merger Messrs. Hayes, Lam and Chan will become directors of
the Company. The executive officers of Hayes immediately prior to the Merger
will become the executive officers of the Company. Joseph Formichelli resigned
as President and Chief Executive Officer of Hayes effective October 1, 1997. Mr.
Chan became President and Chief Operating Officer effective October 1, 1997. See
"MANAGEMENT OF THE COMPANY -- Management Post-Merger."
EXECUTIVE COMPENSATION
The following tables provide information with respect to the annual
compensation for services in all capacities to Hayes for the fiscal year ended
December 31, 1996 of (i) Hayes' chief executive officer and (ii) the other four
most highly compensated executive officers of Hayes who were employed by Hayes
at the end of fiscal 1996 and who will be executive officers of the Company
following the Merger (the "Hayes Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION(1) AWARDS OF
SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)(2) COMPENSATION ($)
- --------------------------------------- ---- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Dennis Hayes........................... 1996 1,000,000 250,000 -- 202,094(3)
Chairman
Joseph Formichelli..................... 1996 206,667 92,500 180,000 100,113(5)
President and Chief Executive
Officer (4)
James Jones............................ 1996 161,064 29,016 150,000 37,396(6)
Vice President and Chief Financial
Officer
P. K. Chan............................. 1996 198,024 13,792 150,000 1,275(7)
Vice President of Operations
Alan Clark............................. 1996 157,996 66,636 150,000 425(7)
Vice President and Chief Technical
Officer
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical, group life
insurance or other benefits which are available to all salaried employees of
Hayes, and certain perquisites and other benefits, securities or property
which do not exceed the lesser of $50,000 or 10% of the person's salary and
bonus shown in the table.
(2) Does not give effect to the Conversion Ratio.
(3) Includes $192,307 for payout of accrued vacation and $6,690, $1,754 and
$1,200 for payment of life insurance premiums, automobile use and club dues,
respectively.
(4) Effective October 1, 1997, Mr. Formichelli resigned as President and Chief
Executive Officer of Hayes.
(5) Payments for relocation expenses of $99,345 and life insurance premium of
$768.
(6) Includes payments for relocation expenses of $37,143 and life insurance
premiums of $253.
(7) Represents life insurance premiums.
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<PAGE> 99
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the option grants
in fiscal 1996 for the Hayes Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PERCENT OF PRICE APPRECIATION
NUMBER OF TOTAL FOR
SECURITIES OPTIONS GRANTED OPTION TERM
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ------------------
NAME OPTIONS GRANTED(1) IN FISCAL YEAR $ PER SHARE DATE 5% 10%
- ------------------------ ------------------ --------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Dennis Hayes............ -- -- -- -- -- --
Joseph Formichelli...... 80,000 6.7% $.714 6/4/06 $35,922 $ 91,034
100,000 8.4% 1.00 10/23/06 62,889 159,374
James Jones............. 50,000 4.2% .714 6/4/06 22,451 56,897
100,000 8.4% 1.00 10/23/06 62,889 159,374
P. K. Chan.............. 50,000 4.2% .714 6/4/06 22,451 56,897
100,000 8.4% 1.00 10/23/06 62,889 159,374
Alan Clark.............. 50,000 4.2% .714 6/4/06 22,451 56,897
100,000 8.4% 1.00 10/23/06 62,889 159,374
</TABLE>
- ---------------
(1) Does not give effect to the Conversion Ratio.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table provides information with respect to the aggregated
option exercises in the fiscal 1996 and option year end values for the Hayes
Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE (2) EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Dennis Hayes.................................. --/-- --/--
Joseph Formichelli............................ (1)/150,000 (1)/$40,880
James Jones................................... (1)/150,000 (1)/$29,300
P. K. Chan.................................... (1)/150,000 (1)/$29,300
Alan Clark.................................... (1)/150,000 (1)/$29,300
</TABLE>
- ---------------
(1) All options were unexercisable at December 31, 1996.
(2) Does not give effect to the Conversion Ratio.
EMPLOYMENT AGREEMENTS
Mr. Chan is employed pursuant to an Executive Employment Agreement dated
October 7, 1996 and amended on October 1, 1997. The term of the agreement is two
(2) years from the date of the Agreement as amended. Mr. Chan's annual base
salary is $240,000 and he is entitled to receive additional incentive
compensation of up to $72,000 based upon criteria to be determined by Hayes. He
is generally eligible for participation in the employee benefits programs,
including stock option plans. In the event of a termination for "Cause" (as
defined in the Agreement), a voluntary termination by Mr. Chan, or the
expiration of the term, Mr. Chan will receive no right to compensation or other
benefits. If Mr. Chan's employment is terminated by the Board of Directors for
any reason other than "Cause" within the term of the Agreement, Mr. Chan is
entitled to receive a severance in the form of salary continuation for twelve
(12) months following the effective date of the termination. In the event of a
termination or qualifying resignation relating to a "Change of Control" (as
defined in the Agreement), then Mr. Chan is entitled to receive a severance in
the form of salary continuation for twelve (12) months following the effective
date of the termination. Finally, the Agreement includes an invention assignment
and protective covenants of two (2) years in duration.
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<PAGE> 100
Mr. Jones is employed pursuant to an Executive Employment Agreement dated
October 31, 1997. The term of the agreement is two (2) years from the date of
the Agreement. Mr. Jones's annual base salary is $181,000 and he is entitled to
receive additional incentive compensation of up to $54,300 upon criteria to be
determined by Hayes. He is generally eligible for participation in the employee
benefits programs, including stock option plans. In the event of a termination
for "Cause" (as defined in the agreement), a voluntary termination by Mr. Jones,
or the expiration of the term, Mr. Jones will receive no right to compensation
or other benefits. If Mr. Jones's employment is terminated by the Board of
Directors for any reason other than "Cause" within the term of the Agreement,
Mr. Jones is entitled to receive a severance in the form of salary continuation
until the later in time of the remainder of the term of the Agreement or twelve
(12) months following the effective date of the termination. Finally, the
Agreement includes an invention assignment and protective covenants of two (2)
years in duration.
Mr. Clark is employed pursuant to a letter of agreement dated February 5,
1996, Mr. Clark's base salary is $160,000. He is entitled to an executive
incentive of up to $40,000 based on Hayes' performance relative to its business
plan. Mr. Clark is generally eligible for participation in the employment
benefit programs including stock option plans. If Mr. Clark's employment with
Hayes is terminated without "Cause," he is entitled to six (6) months of his
base salary as in effect on the date of termination and shall be payable monthly
in the same manner as salary prior to the date of termination for a six (6)
month period, provided that Hayes' obligation to pay such severance will be
reduced on a dollar-for-dollar basis by the amount of any compensation received
by Mr. Clark from employment by any other party during the six (6) months
severance period.
Pursuant to the Hayes Option Plan, and after giving effect to the
Conversion Ratio, 8,332,063 shares of authorized, unissued Hayes Common Stock
are currently reserved for issuance upon exercise of stock options granted and
to be granted pursuant to the Hayes Option Plan. These options are classified as
"executive," "management" and "performance" under the Hayes Option Plan. There
are 1,573,834 shares reserved for executive options, 2,129,305 shares reserved
for management options and 4,628,924 shares reserved for performance options.
There are 1,157,231 executive options issued and outstanding, 1,260,224
management options issued and outstanding and 3,008,800 performance options
issued and outstanding. No further options will be issued pursuant to the Hayes
Option Plan following the Merger.
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<PAGE> 101
SECURITY OWNERSHIP OF HAYES
The following table sets forth the beneficial ownership of capital stock in
Hayes as of November 18, 1997 and the Company as of the Effective Time, by each
director and Hayes Named Executive Officer by all directors and executive
officers as a group, as well as by any person known to own beneficially more
than 5% of the capital stock of Hayes.
<TABLE>
<CAPTION>
OF HAYES OF THE COMPANY
AS OF NOVEMBER 18, 1997 AS OF THE EFFECTIVE TIME(10)
---------------------------------- ------------------------------------------------------------------
NUMBER OF NUMBER OF SHARES
NAME AND ADDRESS OF SHARES OF STOCK PERCENTAGE OF COMMON STOCK PERCENTAGE PERCENTAGE PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP BENEFICIALLY OWNED OWNERSHIP(11) OWNERSHIP(12) OWNERSHIP(13)
- -------------------------- --------------------- ---------- ------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Hayes.............. 4,991,750(2) 49.1% 23,106,431 38.8% 37.5% 33.4%
Mina Hayes................ 200,000(3) 1.9% 925,785 1.5% 1.5% 1.3%
Chiang Lam................ 200,000(4) 1.9% 925,785 1.5% 1.5% 1.3%
Rinzai Limited
17 Jurong Port Road
Singapore 619092........ 3,062,500(5) 30.2% 14,176,080 23.8% 23.0% 20.5%
S.P. Quek................. 3,062,500(6) 30.2% 14,176,080 23.8% 23.0% 20.5%
K.S. Chou................. -- -- -- -- -- --
Kaifa Technology (H.K.)
Limited
2201 Hong Kong Worsted
Mills
Industrial Building
31-39 Wo Tong Jsui
Street
Kwai Chury, New
Territories
Hong Kong............... 816,667(7) 8.0% 3,780,289 6.4% 6.1% 5.5%
M.C. Tam.................. 816,667(8) 8.0% 3,780,289 6.4% 6.1% 5.5%
Joseph Formichelli........ 20,000(9) * 92,578 * * *
James Jones............... 50,000(9) * 231,446 * * *
Alan Clark................ 50,000(9) * 231,446 * * *
P. K. Chan................ 50,000(9) * 231,446 * * *
ALL DIRECTORS AND
EXECUTIVE OFFICERS AS A
GROUP (14 PERSONS)...... 9,530,317 88.1% 44,115,113 70.5% 68.2% 61.1%
</TABLE>
- ---------------
* Less than 1%.
(1) On a fully-diluted basis including options exercisable within 60 days and
without giving effect to the Conversion Ratio.
(2) Consists of Hayes Common Stock. Includes 4,400,000 shares owned by Chestnut
Capital, LP of which Mr. Hayes is the General Partner. Includes 48,529
shares held by a Hayes employee benefit plan of which Mr. Hayes serves as
trustee. Mr. Hayes disclaims beneficial ownership of warrants held by Ms.
Hayes.
(3) Consists of warrants to purchase Hayes Common Stock. Ms. Hayes disclaims
beneficial ownership of shares held by Mr. Hayes and Chestnut Capital
Limited Partnership.
(4) Consists of warrants to purchase Hayes Common Stock.
(5) Consists of Hayes Series A Preferred Stock which has voting rights
equivalent to those of Hayes Common Stock. Includes Series A Preferred
Stock held by S.P. Quek Investments Pte. Ltd., which is an affiliate of Mr.
S.P. Quek, Chairman of Rinzai Limited.
(6) Consists of Hayes Series A Preferred Stock held by Rinzai Limited of which
Mr. Quek serves as Chairman and Hayes Series A Preferred Stock held by S.P.
Quek Investments Pte. Ltd.
(7) Consists of Hayes Series A Preferred Stock which has voting rights
equivalent to those of the Hayes Common Stock.
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<PAGE> 102
(8) Consists of Hayes Series A Preferred Stock, held by Kaifa Technology (H.K.)
Limited, of which Mr. Tam serves as President.
(9) Consists of options to purchase Hayes Common Stock. Assumes stock price
targets which could permit exercise of performance options are not met.
(10) After giving effect to the Conversion Ratio.
(11) Assumes no 6% Convertible Stock is converted to Common Stock.
(12) Assumes $10.0 million of the 6% Convertible Stock is converted into Common
Stock at $4.65375 which is 85% of the five day average closing bid price
prior to November 18, 1997.
(13) Assumes $45.0 million of the 6% Convertible Stock is converted into Common
Stock at $4.65375, $35.0 million of which is converted immediately
following the Merger.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 10, 1997, Hayes sold 72,277 shares of common stock of BVRP
Software S.A. ("BVRP"), to an affiliate of ACMA, a shareholder of Hayes, for a
purchase price of approximately $2.0 million. Such shares were sold at a
discount of 15% from the market price established by the average of the closing
price of BVRP for the three days prior to November 25, 1997. BVRP common stock
is registered and traded on the Nouveau Marche.
Vulcan Ventures is a shareholder of Hayes, currently owning 263,113 shares
of Hayes Series B Preferred Stock (without giving effect to the Conversion
Ratio). Vulcan Ventures was the majority shareholder of Cardinal, a company that
Hayes acquired in April, 1997. With respect to certain obligations of Cardinal,
Vulcan Ventures had certain guarantee obligations. As a part of the transaction
to acquire Cardinal, Hayes entered into a guarantee agreement in favor of Vulcan
Ventures relating to Vulcan Venture's guarantee of Cardinal obligations. Vulcan
Ventures and Hayes have also entered into a Strategic Relationship Agreement
pursuant to which Hayes and Vulcan Ventures have agreed to develop mutually
beneficial business opportunities.
Dennis Hayes has an employment agreement with Hayes. Hayes has loaned funds
to Dennis Hayes of approximately $244,214 at September 30, 1997, bearing
interest at the prime rate. Dennis Hayes sits on the Boards of Directors of
three companies in which Hayes has an ownership interest: Scaleable Software
Solutions, Inc., BVRP Software S.A., and Xylon Semiconductors, Inc. Such loan
will be repaid in full by Mr. Hayes at the closing of the Merger.
Kaifa Technology (H.K.) Limited, ("Kaifa") is a shareholder of Hayes,
currently owning 816,667 shares of Hayes Series A Preferred Stock (without
giving effect to the Conversion Ratio). Kaifa and Hayes have entered into a
Subcontract Manufacturing Agreement, pursuant to which Kaifa performs certain
manufacturing work for Hayes in its factory in Hong Kong.
Rolling Profit Holdings, Ltd. is a shareholder of Hayes, currently owning
408,333 shares of Hayes Series A Preferred Stock (without giving effect to the
Conversion Ratio). Wong's Electronics Limited ("Wong's") is an affiliate of
Rolling Profit Holdings, Ltd. Wong's and Hayes have entered into a Subcontract
Manufacturing Agreement, pursuant to which Wong's performs certain manufacturing
work for Hayes in its factory in China.
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<PAGE> 103
HAYES' MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
In October 1997, a modem manufacturer disclosed its intent to sell its
modem products division ("MPD") based in the Southern U.S. Hayes has had
preliminary discussions with this modem manufacturer concerning MPD and has
engaged an investment banker to assist in evaluating the MPD business. Due to
the preliminary nature of the discussions, the structure of and the likelihood
of any transaction involving MPD cannot be determined at this time.
GENERAL BUSINESS DEVELOPMENTS
Hayes is comprised of three business units: the Modem Products business,
the Access Systems business and the recently formed Broadband Products business.
The Modem Products business designs, manufactures and markets analog and ISDN
modem products. The Modem Products business distributes its products under the
Optima, Accura, Practical Peripherals, and Cardinal brands. The Access Systems
business designs and markets modem pool and remote access server products. These
products are distributed under the Century brand. The Broadband Products
business designs and markets ADSL and cable modem products and was formed in
June 1997. The Broadband Products business markets its products under the Ultra
brand.
On October 1, 1995, Hayes changed its year end from September 30 to
December 31. In the following discussion, fiscal 1996 is the calendar year and
is compared to Hayes' fiscal year ending September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
General. Hayes' primary capital requirements are for working capital,
acquisitions and other capital expenditures. Hayes has historically met its
capital requirements through a combination of equity transactions, cash flow
from operations, bank lines of credit and credit terms from suppliers.
Cash Flows. Cash and cash equivalents increased by approximately $800,000
to $6.5 million at September 30, 1997 as compared to $5.7 million at December
31, 1996. Cash and cash equivalent increased by $500,000 at December 31, 1996
from $5.2 million at September 30, 1995. Cash and cash equivalents decreased by
$3.1 million at September 30, 1995, as compared to September 30, 1994. The
increase in cash in fiscal 1996 resulted from implementation of the Plan and
reduction in restricted cash. The decrease in fiscal 1995 resulted primarily
from the increase in restricted cash as a result of Hayes' debtor-in-possession
financing with General Electric Capital Corporation ("GECC"). The increase in
cash and cash equivalents in fiscal 1994 resulted from extending vendor payments
prior to Hayes' Chapter 11 filing.
Cash used in operations was $19.3 million and $45.0 million in the first
nine months of 1997 and the first nine months of 1996, respectively. Cash usage
in the first nine months of 1997 was caused primarily by $14.5 million of losses
and higher receivables due to reduction in prompt payment discounts. Cash usage
in the first nine months of 1996 was caused primarily by the implementation of
the Plan. Cash used in operations was $41.1 million in fiscal 1996 due to the
implementation of the Plan, which included payments of approximately $44.6
million to pre-petition claimants, and a net loss of $13.2 million. Cash
generated by operations was approximately $1.5 million in fiscal 1995 and
resulted from a net loss of approximately $14.4 million which was more than
offset by non-cash depreciation and amortization and reduced working capital
investment. Cash used in operations was $7.7 million in 1994 due to a net loss
of approximately $28.1 million reduced by non cash depreciation and amortization
and reduced working capital investment.
Cash used in investment activities was approximately $200,000 in the first
nine months of 1997 due to the net impact of capital expenditures and changes in
other long term assets largely offset by the sale of stock in a French software
company and cash from investment activities was approximately $15.4 million in
the first nine months of 1996 due to the sale of certain parcels of real estate.
Cash from investment activities in fiscal 1996 was due to the sale of real
estate, investments and equipment and a reduction in restricted cash partially
offset by capital expenditures. Cash used in investment activities was $1.5
million and $8.1 million in
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<PAGE> 104
fiscal 1995 and 1994, respectively. The primary uses of these funds were capital
investments and an increase in restricted cash.
Cash provided from financing activities was approximately $21.2 million and
$34.2 million in the first nine months of 1997 and in the first nine months of
fiscal 1996, respectively. In March 1997, Hayes exercised its right to request
additional loans from certain shareholders to meet short-term capital needs.
Hayes issued short-term promissory notes totaling $4.0 million. Such notes are
convertible into Hayes Series A Preferred Stock. On April 23, 1997, Hayes
completed an agreement with Vulcan Ventures, Inc. to issue 263,113 shares of
Hayes Series B Preferred Stock (without giving effect to the Conversion Ratio)
for $5.5 million.
The cash provided in fiscal 1996 was due to the issuance of $35.0 million
of Hayes Series A Preferred Stock partially offset by the repurchase of $13.5
million of common stock less borrowings under Hayes' credit facilities. Cash
used in financing activities was $3.0 million in fiscal 1995 due to payments
exceeding borrowings under the GECC credit facility. Cash provided by financing
activities was $18.1 million in fiscal 1994 due to borrowings under Hayes'
credit facility with NationsBank of Georgia N.A.
At September 30, 1997, Hayes' principal sources of liquidity included cash
and cash equivalents and its credit facilities with CIT (the "CIT Facility").
The CIT Facility, which expires on April 16, 2000, consists of two term loans
and a revolving loan which provide for maximum borrowings of $64.5 million. The
revolving loan provides for financing based upon eligible receivables and
inventory. The term loans are based upon appraised values of equipment and
intangibles. The term loans and the CIT Line of Credit bear interest at prime
plus 1.625% (9.875% at December 31, 1996). The CIT Line of Credit has covenants
requiring minimum levels of tangible net worth and net income, as defined. If
these minimum levels are not met, CIT may raise the interest rate to prime plus
2.125% and can accelerate the existing loan amortization on the term facilities.
The Company did not meet the minimum levels at December 31, 1996, at June 30,
1997 and at September 30, 1997. The interest rate was raised effective January
1, 1997 and the loan amortization on the term facilities was accelerated
effective July 1, 1997. At September 30, 1997, Hayes had borrowed to the full
extent of availability under the CIT Facility.
Management believed that such sources were insufficient to enable it to
expand its business and sought additional funding through the issuance of Hayes'
equity. Hayes and the Company also pursued other sources of capital. As a result
of the Company's agreement to sell $45.0 million of 6% Convertible Stock, Hayes
terminated the letter of intent related to the $30.0 million preferred stock
sale. Management believes the proceeds from the sale of the 6% Convertible Stock
if such sale is consummated in addition to cash and cash equivalents and its CIT
credit facilities, will be sufficient to satisfy operating cash and capital
expenditure requirements after the Merger through at least the next twelve
months.
Inflation
Hayes believes that inflation has not had a material impact on its
operating results and does not expect inflation to have a material impact on its
operating results in the foreseeable future.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 CHANGE
------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues:
Modem Products............................... $192,970 $141,114 $(51,856)
Access Systems............................... 8,464 5,587 (2,877)
-------- ------- --------
$201,434 $146,701 $(54,733)
======== ======= ========
</TABLE>
Net revenues in the nine months ended September 30, 1997 decreased by $54.7
million, or 27.2%, from the same period in 1996 primarily due to lower revenues
in both the Modem Products and Access Systems
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<PAGE> 105
businesses. The decrease in net revenues was largely attributable to Hayes'
introduction of modems with 56Kbs speeds. In the third quarter of fiscal 1996,
Rockwell and 3 Com announced the introduction of modem technology that would
permit data to be transmitted on analog phone lines at 56Kbs. These
announcements were followed by announcements by most modem providers, including
Hayes, indicating product availability in the first and second quarters of 1997.
As a result of these announcements and commentary from various industry
analysts, management believes that its channel partners assumed that modem
customers would move quickly to 56Kbs modems and away from the then industry
standard 33.6Kbs modems. Consequently, Hayes' channel partners significantly
reduced orders for 33.6Kbs products and substantially reduced channel
inventories of such products in the first quarter. Instead of placing orders for
33.6Kbs products, Hayes' channel partners began placing orders for Hayes' 56Kbs
products. Due to the lack of availability of 56Kbs modem chips from its
suppliers, Hayes was unable to fill many of these orders and backlog rose to
$10.5 million at March 31, 1997 from $4.6 million at December 31, 1996.
In the second quarter of 1997, Hayes began to fill its channel partners
demand for 56Kbs product. Management believes that during this period its
channel partners realized that customer demand was weighted heavily toward
33.6Kbs products and the market had not yet accepted 56Kbs products. As a
result, Hayes' channel partners began to place significant orders for 33.6Kbs
products. Hayes had converted much of its manufacturing schedule to 56Kbs
products and was therefore unable to meet much of its channel partners' demand
for 33.6Kbs product during the second quarter. Although second quarter 1997
revenues increased 42.2% from the first quarter of 1997 to $55.7 million at June
30, 1997, backlog grew to $20.9 million at June 30, 1997.
In the third quarter of 1997, market demand continued to be unstable, Hayes
experienced 33.6Kbs chip shortages from its vendors and experienced quality
problems with certain 33.6Kbs chips provided by a supplier. These factors
limited shipments and disrupted supply to certain customers. Backlog declined to
$14.8 million at September 30, 1997.
Gross profit, as a percentage of net revenues, declined to 23.8% in the
first nine months of 1997 from 24.1% in the first nine months of 1996 due to
unfavorable manufacturing variances caused by disruption to manufacturing
schedules and lower average selling prices for 33.6Kbs products resulting from
the introduction of 56Kbs products.
Selling, general and administrative expenses decreased by $6.0 million in
the first nine months of 1997 from the comparable period in 1996. Such expenses
represented 28.2% of revenue in the first nine months of 1997 compared to 23.5%
in the first nine months of 1996. Hayes reduced operating expenditures in
anticipation of lower revenues in the first nine months of 1997, but expenses as
a percent of revenue were higher due to such lower revenues.
Research and development expense increased to $9.0 million from $7.0
million in the first nine months of fiscal 1997 compared to the same period in
fiscal 1996 as a result of increased development expenses related to new
products for the network and broadband markets.
In the first nine months of 1997 Hayes recognized a gain of $2.2 million
from the sale of stock in a French software company. Hayes also recognized a
gain in the first nine months of 1996 of $8.2 million from the sale of certain
parcels of real estate.
Interest expense was $564,000 lower in the first nine months of 1997
compared to the same period in 1996. The interest expense in the first nine
months of 1996 included interest at 12%, which was payable on most of the
pre-petition claims. These claims were paid in full in April of 1996.
Hayes reported a net loss of $14.5 million for the nine months ended
September 30, 1997 and net loss of $9.7 million for the nine months ended
September 30, 1996. On a per share basis, net loss was $(2.91) and net loss was
$(1.82) in the nine months ended September 30, 1997 and September 30, 1996,
respectively.
95
<PAGE> 106
Fiscal 1996 Compared to Fiscal 1995
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996 CHANGE
------------- ------------ --------
<S> <C> <C> <C>
Net Revenues:
Modem Products............................... $ 260,303 $245,438 $(14,865)
Access Systems............................... 8,852 12,014 3,162
-------- -------- --------
$ 269,155 $257,452 $(11,703)
======== ======== ========
</TABLE>
In fiscal 1996, Hayes reported net sales of approximately $257.5 million, a
decrease of 4.4% from fiscal 1995. Modem Products business net revenues
decreased 5.7% to $245.4 million in fiscal 1996. This decrease resulted from
price erosion in the Company's 14.4Kbs and 28.8Kbs modem products. Access
Systems business net revenues increased 35.7% in fiscal 1996 to $12.0 million
due to growth in Century product sales.
Gross profit, as a percentage of net sales, remained constant at 23.9% in
1996 and 1995. Although average sales prices declined in fiscal 1996 versus
fiscal year 1995, improved product designs and lower manufacturing and material
costs enabled Hayes to maintain its gross profit margins.
Selling, general and administrative expenses, excluding restructuring
charges and amortization and write-off of intangibles, increased by
approximately $6.1 million in fiscal 1996 and rose as a percentage of revenue to
24.0% versus 20.7% in fiscal 1995. The primary factors in the increase were
higher marketing expenses resulting from Hayes' sponsorship of a NASCAR racing
team at a cost of $3.8 million, higher marketing expenses and recruiting and
relocation expenses due to the employment of a new management team as Hayes
emerged from Chapter 11, partially offset by lower administrative expenses.
Research and development expense declined $1.1 million in 1996 compared to
1995 due to management's curtailment of expenditures in the first half of 1996
as a result of the Chapter 11 filing.
Interest expense decreased 23.5% or approximately $1.5 million in fiscal
1996 as compared to fiscal 1995 as a result of the $35.0 million capital
investment made in Hayes, the sale of certain parcels of real estate, and a new
borrowing arrangement, all of which were part of the Plan by which Hayes emerged
from Chapter 11. The implementation of the Plan enabled Hayes to pay
pre-petition claims which generally accrued interest at 12%.
In fiscal 1996, Hayes recognized a gain of approximately $700,000 on the
sale of stock of a public company which it had previously received as settlement
of an intellectual property dispute. Hayes also recognized a gain of
approximately $8.2 million on the sale of certain parcels of real estate it had
previously acquired for development as a corporate campus.
Other income consists primarily of insert fees from third parties for the
inclusion of their software and related promotional materials in Hayes' products
and intellectual property license fees. Other income declined by approximately
$1.9 million or 45.2% in fiscal 1996 from approximately $4.2 million in fiscal
1995. The decline resulted from a reduction in license fees from Rockwell. In
July 1995, Hayes and Rockwell entered into an agreement in which, among other
things, Rockwell agreed to supply Hayes modem chips and Hayes agreed to waive
license fees from the date of the agreement through December 31, 1996 (the
"Rockwell Agreement").
The Hayes effective tax rate was 3.0% in 1996 compared to 6.1% in fiscal
1995. Hayes' effective tax rates have been significantly impacted by its losses,
nondeductible Chapter 11 expenses and the recognition of valuation allowances on
its deferred tax assets.
Hayes reported a net loss of $13.2 million for fiscal 1996 and a net loss
of $14.4 million for fiscal 1995. On a per share basis, net loss was $(2.52) for
fiscal 1996 and $(2.56) for fiscal 1995, respectively.
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<PAGE> 107
Fiscal 1995 Compared to Fiscal 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 CHANGE
------------- ------------- -------
<S> <C> <C> <C>
Net Revenues:
Modem Products................................ $ 243,315 $ 260,303 $16,988
Access Systems................................ 2,962 8,852 5,890
-------- -------- -------
$ 246,277 $ 269,155 $22,878
======== ======== =======
</TABLE>
Net revenues were 9.3% higher in fiscal 1995 than in fiscal 1994. Modem
Products business sales increased 7.0% to approximately $260.3 million in fiscal
1995. Hayes experienced strong growth in modem sales in its Asia Pacific
operations and modest growth in its North American operations. Access Systems
business sales increased 198.9% in fiscal 1995 due to the introduction of the
Century product line.
Fiscal 1995 gross profit as a percentage of net sales increased to 23.9%
from 20.7% in fiscal 1994. In March 1994 Hayes lowered prices which resulted in
a significant increase in unit volumes. Hayes experienced a number of
operational and manufacturing problems which led to unfavorable manufacturing
variances and inventory charges. In October 1994, Hayes employed a new vice
president of operations. Under his leadership, Hayes made significant
improvements in its operations, which resulted in improved margins in fiscal
year 1995. In addition, Hayes continued to introduce improved product designs
with lower material and manufacturing costs.
Selling, general and administrative expenses, excluding amortization and
write-off of intangibles, decreased by approximately $9.6 million in fiscal 1995
to $55.6 million compared to $65.2 million in fiscal 1994. These expenses also
decreased as a percentage of revenue to 20.7% in fiscal 1995 from 26.5% in
fiscal 1994. As a result of Hayes' November 15, 1994 Chapter 11 filing,
management significantly curtailed operating expenses in the areas of sales and
marketing.
Research and development expense declined $5.4 million in 1995 compared to
1994. As a result of the Chapter 11 filing, management curtailed spending.
Interest increased 242.6% or by approximately $4.7 million to $6.6 million
in fiscal 1995 compared to $1.9 million in fiscal 1994 as a result of Hayes'
Chapter 11 filing. Hayes was required to recognize interest on its pre-petition
claims at 12% unless the claimant otherwise agreed.
Other income declined $0.7 million in fiscal 1995 as compared to fiscal
1994 due to the decline in licensing fees to Hayes resulting from the Rockwell
Agreement.
Hayes' effective tax rate was 6.1% and 5.7% for fiscal 1995 and 1994,
respectively. Hayes' tax rates have been significantly impacted by its losses,
nondeductible Chapter 11 expenses and the recognition of valuation allowances on
its deferred tax assets.
Hayes reported a net loss of $14.4 million for fiscal 1995 and a net loss
of $28.1 million for fiscal 1994. On a per share basis net loss was $(2.56) and
$(4.98) in fiscal 1995 and fiscal 1994, respectively.
97
<PAGE> 108
SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for the fiscal years ended as follows:
(in thousands)
<TABLE>
<CAPTION>
EARNINGS (LOSS)
PER
NET GROSS NET COMMON AND COMMON
SALES PROFIT INCOME (LOSS) SHARE EQUIVALENT
-------- ------- ------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the year ended September
30, 1995
First $ 69,806 $19,667 $ (746) $ (0.13)
Second 67,108 18,665 (3,474) $ (0.62)
Third 59,185 14,734 (3,487) $ (0.62)
Fourth 73,056 11,303 (6,676) $ (1.19)
-------- ------- ------- -------
Total $269,155 $64,369 $ (14,383) $ (2.56)
For the three months
ended December 31, 1995 $ 70,111 $18,346 $ (4,637) $ (0.82)
For the year ended December
31, 1996
First $ 76,968 $21,763 $ 5,515 $ 0.98
Second 68,617 19,013 (288) $ (0.06)
Third 55,849 7,827 (14,891) $ (2.93)
Fourth 56,018 12,931 (3,490) $ (0.70)
-------- ------- ------- -------
Total $257,452 $61,534 $ (13,154) $ (2.52)
For the nine months ended
September 30, 1997
First $ 39,176 $ 9,957 $ (5,359) $ (1.07)
Second 55,721 13,975 (2,466) $ (0.49)
Third 51,804 10,950 (6,697) $ (1.34)
-------- ------- ------- -------
Total $146,701 $34,882 $ (14,522) $ (2.91)
</TABLE>
Primary net income per share was approximately the same as fully diluted
net income per share in each period presented above. In addition, quarterly
financial information presented for the year ended September 30, 1995 has not
been reviewed by Hayes' independent public accountants in accordance with SAS
71.
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<PAGE> 109
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock and 3,000,000 shares of Preferred Stock. As of December 10, 1997
the Company had 12,559,933 shares of Common Stock issued and outstanding and
9,730 shares of Preferred Stock issued and outstanding, all of which are
designated as 6% Cumulative Convertible Preferred Stock. At the Effective Time,
the Company will amend its certificate of incorporation to increase the
authorized capital stock of the Company to 160,000,000 shares, consisting of
150,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, of
which 1,217,930 shares will be designated as Series A Preferred Stock and 45,000
shares are designated as 6% Cumulative Convertible Preferred Stock.
The Common Stock is listed for trading on NASDAQ/NMS under the symbol
"ACCB". The transfer agent and registrar for the Common Stock is Continental
Stock Transfer and Trust Company.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the vote of stockholders, including the
election of directors. The holders of Common Stock do not have cumulative voting
rights. Subject to any preferential rights held by holders of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared from time to time by the Company Board out of funds
legally available therefor. In the event of the liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of outstanding Preferred Stock, if any. Holders of Common Stock do
not have preemptive, conversion or redemption rights. All the issued and
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Company Board, without further approval or action by the stockholders,
is authorized to issue shares of Preferred Stock in one or more series and to
fix as to any such series the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms, if any, conversion rights,
voting rights and any other preference or special rights and qualifications.
Issuances of Preferred Stock may adversely affect the rights of holders of
Common Stock. Holders of Preferred Stock might, for example, be entitled to
preference in distributions to be made to stockholders upon the liquidation,
dissolution or winding up of the Company. In addition, holders of Preferred
Stock might enjoy voting rights that limit, qualify or adversely affect the
voting rights of holders of Common Stock. Such rights of the holders of one or
more series of Preferred Stock might include the right to vote as a class with
respect to the election of directors, major corporate transactions or otherwise,
or the right to vote together with the holders of Common Stock with respect to
any such matter. The holders of Preferred Stock might be entitled to cast
multiple votes per share. The issuance of Preferred Stock could have the effect
of delaying, deferring, or preventing a change in control of the Company without
further action by the stockholders. The Company has no present plans to issue
any shares of Preferred Stock, other than the Series A Preferred Stock and the
shares of 6% Convertible Stock issued and issuable under the Preferred Stock
Investment Agreement.
SERIES A PREFERRED STOCK
Voting Rights. The Series A Preferred Stock will be nonvoting, except with
respect to (i) a change in the rights, preferences or privileges of the Series A
Preferred Stock, (ii) a change in the number of authorized shares of Series A
Preferred Stock, (iii) the issuance of securities senior to or on parity with
the Series A Preferred Stock, (iv) the redemption of or payment of dividends
with respect to the Common Stock, (v) the incurrence or guarantee of
indebtedness by the Company or (vi) the approval of creation of a mortgage,
pledge or security interest in all or substantially all of the Company's assets.
The foregoing matters require the approval of a majority of the holders of
Series A Preferred Stock.
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<PAGE> 110
Conversion Rights. Each share of Series A Preferred Stock will be
convertible, at the option of the holder of such share, into one share of Common
Stock, subject to anti-dilution adjustment. The Series A Preferred Stock will
also be subject to automatic conversion into Common Stock upon the affirmative
vote of at least a majority of the Series A Preferred Stock.
Redemption. Upon 90 days prior written notice from the holders of more
than 50% of the Series A Preferred Stock delivered to the Company not earlier
than November 1, 1999, the Company will be required to redeem the Series A
Preferred Stock for a cash payment of $4.5159 per share plus accrued but unpaid
dividends (the "Redemption Price"). The Company will have the right, at its sole
option and discretion and upon 30 days prior written notice, to redeem all of
the Series A Preferred Stock for the Redemption Price on April 23, 2000. Less
than all of the Series A Preferred Stock may be redeemed on a pro rata basis
with the consent of a majority of the holders of the Series A Preferred Stock.
Dividends. Holders of Series A Preferred Stock will be entitled to
receive, as and when declared by the Company's Board, cumulative compounding
dividends at the dividend rate of 10% per year of the original issue price per
share of the Series A Preferred Stock. Dividends accumulated on the Series A
Preferred Stock are to be declared by the Company Board and paid in cash upon
the redemption of the Series A Preferred Stock or in shares of Common Stock upon
the conversion of the Series A Preferred Stock.
6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Voting Rights. The 6% Convertible Stock is nonvoting, except that 85% in
interest of the outstanding 6% Convertible Stock is necessary for (i) any
amendment to the Certificate of Designations relating to the 6% Convertible
Stock, (ii) any amendment to the Certificate of Incorporation or By-Laws of the
Company that may amend or change or adversely affect any of the rights,
preferences, or privileges of the 6% Convertible Stock, (iii) any waiver of a
default in payment of dividends on the 6% Convertible Stock, and (iv) any
reorganization or reclassification of the capital stock of the Company, any
consolidation or merger (other than the Merger) of the Company with or into any
other corporation or corporations, or any sale of all or substantially all of
the assets of the Company, that, in any such case, would have an adverse effect
on any of the rights, preferences, or privileges of the 6% Convertible Stock.
Holders of 6% Convertible Stock who are affiliates of the Company may not
participate in such vote and the shares of 6% Convertible Stock of such holders
are deemed not to be outstanding for purposes of such vote.
Conversion Rights. The 6% Convertible Stock is convertible at any time
into shares of Common Stock at a conversion price (the "Conversion Price") equal
to the lesser (i) $8.00 per share (the "Fixed Conversion Price") or (ii) 85% of
the average closing bid price of Common Stock for the five consecutive trading
days prior to the date of any conversion notice (the "Market Value"), subject to
adjustment under certain circumstances, including to protect against dilution.
If, however, the Company's Common Stock is trading at a price which would result
in a Conversion Price of less than $5.00 per share then the number of shares of
6% Convertible Stock which may be converted in any 30 day period is limited to
such number of shares of 6% Convertible Stock as have a liquidation preference
of not more than 10% of the amount paid for the 6% Convertible Stock ($1,000,000
prior to the second closing and $4,500,000 thereafter) except that if the Merger
is not consummated within the first six 30 day periods, then such 10% limitation
will be increased to 20% for all subsequent periods. If the Conversion Price is
below $5.00 per share, then (i) the first 81.25% of the 6% Convertible Stock for
which conversion notices are received from an investor during a 30 day period
will be convertible at a Conversion Price equal to 85% of the Market Value and
the remaining 18.75% will be convertible at a conversion price equal to 92.5% of
the Market Value and (ii) the Company may redeem the 6% Convertible Stock
submitted for conversion for cash equal to the liquidation preference divided by
85%. In addition, if the Conversion Price is below $5.00 for more than 5 trading
days in any 30 day period, then for the balance of such 30 day period and for
the next 30 day period, Market Value will be determined on the basis of the
lowest 5 consecutive trading day average closing price during the 15 trading
days preceding the conversion notice.
Redemption. The Company has the right to redeem the 6% Convertible Stock
in whole or in part, at any time, and from time to time, by paying an amount
equal to the liquidation preference per share divided by
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<PAGE> 111
85%. If the Company exercises such redemption option, then it is required to
issue to the investors warrants with a strike price equal to the higher of the
Fixed Conversion Price or the average closing bid price of the Common Stock
during the five trading day period which ends three days before the redemption
date. The number of warrants so issued will be equal to 50% of the liquidation
preference of the shares of 6% Convertible Stock which are redeemed, divided by
such strike price. All shares of 6% Convertible Stock which have not been
converted by the fourth anniversary of the Preferred Stock Investment Agreement
are required to then be converted, subject to extension of such date under
certain circumstances.
Dividends. The shares of 6% Convertible Stock are entitled to receive
cumulative dividends at the rate of 6% per annum, payable in cash, or in Common
Stock, or by adding the amount of any dividend to the liquidation preference. No
distribution, whether by way of dividend or otherwise, may be declared or paid
upon or set apart for any class of security of the Company which is junior to
the 6% Convertible Stock if, at such time, any dividends on the 6% Convertible
Stock have not been paid or declared and set apart for payment with respect to
all preceding periods.
ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and the By-laws of the Company (i) provide
for three classes of directors on the Company Board from which directors may
only be removed by Stockholders for cause; (ii) generally provide that only a
majority of the Company Board shall have the authority to fill vacancies on the
Company Board; (iii) restrict the right to amend certain provisions of the
Certificate of Incorporation and By-laws; (iv) restrict the right of
stockholders to call annual meetings; (v) establish an advance notice procedure
regarding the nomination of directors by stockholders and stockholder proposals
to be brought before an annual meeting; and (vi) authorize the Company Board to
issue preferred stock without further stockholder approval. These provisions are
designed to encourage any person who desires to take control of and/or acquire
the Company to enter into negotiations with the Company Board, thereby making
more difficult the acquisition of the Company by means of a tender offer, a
proxy contest or other non-negotiated means. In addition to encouraging any
person intending to attempt a takeover of the Company to negotiate with the
Company Board, these provisions also curtail such person's use of a dominant
equity interest to control any negotiations with the Company Board. Under such
circumstances, the Company Board may be better able to make and implement
reasoned business decisions and protect the interests of all of the Company's
stockholders.
Classified Board. The Certificate of Incorporation provides for the
Company Board to be divided into three classes serving staggered terms so that
directors' initial terms will expire at the 1997, 1998 or 1999 annual meeting of
stockholders, and that starting with the 1997 annual meeting of the Company's
stockholders, one class of directors will be elected each year for a three-year
term. See "MANAGEMENT OF THE COMPANY -- Directors and Executive Officers." The
classes will be as nearly equal in number as possible. The classification of
directors makes it more difficult for a significant stockholder to change the
composition of the Company Board in a relatively short period of time and,
accordingly, provides the Company Board and stockholders time to review any
nomination that a significant stockholder may make and to pursue alternative
courses of action which it believes are fair to all the stockholders of the
Company.
Removal of and Filling Vacancies on the Company Board. The Certificate of
Incorporation provides that, subject to any rights of the holders of any class
or series of the capital stock of the Company entitled to vote generally in the
election of directors, only a majority vote of the members of the Company Board
then in office, although less than a quorum, shall have the authority to fill
any vacancies on the Company Board, including vacancies created by an increase
in the authorized number of directors. Moreover, because the Certificate of
Incorporation provides for a classified board, Delaware law provides that the
stockholders may remove a member of the Company Board only for cause and the
Certificate of Incorporation requires the affirmative vote of the holders of at
least 80% of the voting power of all the then-outstanding shares of the voting
stock of the Company, voting together as a single class, to remove a member of
the Company Board. These provisions relating to removal and filling of vacancies
on the Company Board of the Company preclude stockholders from enlarging the
Company Board or removing incumbent directors and filling vacancies with their
own nominees.
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<PAGE> 112
Amendment of the Certificate of Incorporation and Company By-laws. The
Certificate of Incorporation contains provisions requiring the affirmative vote
of the holders of at least 80% of the voting power of the Common Stock entitled
to vote generally in the election of directors to amend certain provisions of
the Certificate of Incorporation and Company By-laws (including certain of the
provisions discussed above). These provisions make it more difficult for
stockholders to make changes in the Certificate of Incorporation or Company
By-laws, including changes designed to facilitate the exercise of control over
the Company.
Annual Meetings. The Company By-laws provide that annual meetings of
stockholders can be called only by the Chairman of the Board, the Vice Chairman
of the Board, the President or any Vice President, the Secretary or by the
Company Board. Stockholders are not permitted to call an annual meeting but may,
upon a written request by stockholders owning a majority in amount of the entire
capital stock of the Company issued and outstanding and entitled to vote,
require that any of the foregoing call an annual meeting of stockholders. These
provisions prohibit a significant stockholder from authorizing stockholder
action without a meeting at which all stockholders would be entitled to
participate.
Nominations of Directors and Stockholder Proposals. The Company By-laws
establish an advance notice procedure with regard to the nomination other than
by, or at the direction of, the Company Board of candidates for election as
directors (the "Nomination Procedure") and with regard to stockholder proposals
to be brought before an annual meeting of stockholders (the "Business
Procedure"). The Nomination Procedure provides that only persons who are
nominated by, or at the direction of, the Company Board, or by a stockholder of
the Company entitled to vote for the election of directors who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, are eligible for election as directors of the
Company. The Business Procedure provides that to be properly brought before an
annual meeting, business must be specified in the notice of the annual meeting
given by or at the direction of the Company Board or brought before the meeting
by, or at the direction of, the Company Board or by a stockholder who has given
timely written notice to the Secretary of the Company of such stockholder's
intention to bring such business before such meeting. To be timely, notice for
nominations or stockholder proposals must be received by the Company not less
than 60 days prior to the annual meeting; provided, however, that in the event
that less than 70 days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by a stockholder, to be
timely, must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. In addition
to the foregoing requirements, the proxy rules under the Exchange Act set forth
certain requirements, including stockholder eligibility, timing and attendance
requirements, which must be satisfied in order for a stockholder proposal to be
included in the Company's proxy statement and form of proxy. These requirements
under the Exchange Act may differ from those set forth under the Nomination
Procedure or the Business Procedure.
Under the Nomination Procedure, notice to the Company from a stockholder
who proposes to nominate a person at an annual meeting for election as a
director must contain certain information about that person so nominated,
including age, business and residence addresses, principal occupation, the class
and number of shares of Common Stock beneficially owned, and such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee, and certain information about
the stockholder proposing to nominate that person. Under the Business Procedure,
notice relating to a stockholder proposal must contain certain information about
such proposal and about the stockholder who proposes to bring the proposal
before the meeting, including the class and number of shares of Common Stock
beneficially owned by such stockholder. If the officer of the Company presiding
at the meeting determines that a person was not nominated in accordance with the
Nomination Procedure, or that other business was not brought before the meeting
in accordance with the Business Procedure, such person is not eligible for
election as a director, or such business is not to be conducted as such meeting,
as the case may be.
The purpose of the Nomination Procedure is, by requiring advance notice of
nomination by stockholders, to afford the Company Board a meaningful opportunity
to consider the qualifications of the proposed nominees and, to the extent
deemed necessary or desirable by the Company Board, to inform stockholders about
such qualifications. The purpose of the Business Procedure is, by requiring
advance notice of stockholder proposals, to provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed
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necessary or desirable by the Company Board, to provide the Company Board with a
meaningful opportunity to inform stockholders, prior to such meetings, of any
proposal to be introduced at such meetings, together with any recommendation as
to the Company Board's position or belief as to action to be taken with respect
to such proposal, so as to enable stockholders better to determine whether they
desire to attend such meeting or grant a proxy to the Company Board as to the
disposition of any such proposal. Although the Company By-laws do not give the
Company Board any power to approve or disapprove stockholder nominations for the
election of directors or any other proposal submitted by stockholders, the
Company By-laws may have the effect of precluding a nomination for the election
of directors or precluding the conducting of business at a particular
stockholder meeting if the proper procedures are not followed, and may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Issuance of Preferred Stock. The Certificate of Incorporation authorizes
the Company Board to issue preferred stock, without further stockholder
approval, which could have dividend, redemption, liquidation, conversion, voting
or other rights that could adversely affect the voting power and other rights of
holders of Common Stock. The ability of the Company Board to issue preferred
stock could have the effect of delaying, deferring, or preventing a change in
control of the Company without further action by the stockholders.
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DESCRIPTION OF THE CAPITAL STOCK OF HAYES
All references in this Section to Hayes capital stock and to conversion
prices are before application of and adjustment for the Conversion Ratio and the
Merger.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Hayes consists of 100,000,000 shares of
$.01 par value per share common stock and 10,263,113 shares of preferred stock,
without par value, of which 10,000,000 shares are designated Hayes Series A
Preferred Stock and 263,113 shares are designated Hayes Series B Preferred
Stock. As of December 10, 1997, Hayes had 4,991,750 shares of common stock
outstanding, 4,900,000 of Series A Preferred Stock outstanding and 263,113
shares of Hayes Series B Preferred Stock. In addition, 4,900,000 shares of
authorized, unissued common stock have been reserved for issuance upon
conversion of the Hayes Series A Preferred Stock, 263,113 shares of authorized,
unissued common stock have been reserved for issuance upon conversion of the
Hayes Series B Preferred Stock, 1,800,000 shares of authorized, unissued common
stock have been reserved for issuance to employees of Hayes upon exercise of
stock options granted and to be granted pursuant to the Hayes Option Plan,
600,000 shares of common stock have been reserved for issuance under the certain
board warrants and additional shares of common stock have been reserved for
possible issuance under the Anti-dilution Warrant issued to ACMA; however ACMA
has agreed to terminate its Anti-dilution Warrant as a part of the Merger.
HAYES COMMON STOCK
The holders of Hayes Common Stock are entitled to one vote per share of
record on all matters submitted to the shareholders for vote and do not have
cumulative voting rights. Subject to any preferential rights of the holders of
Hayes preferred stock, the holders of the Hayes Common Stock are entitled to
receive ratably such dividends as are legally declared by Hayes and are entitled
to share ratably in all assets remaining after payment of liabilities and
payment of any liquidation preference of outstanding preferred stock in the
event of liquidation, dissolution or winding up of Hayes. Issuance of additional
shares of Hayes Common Stock is restricted by the By-Laws of Hayes and by the
Shareholders' Agreement.
PREFERRED STOCK
The holders of preferred stock have the voting and other rights that are
ascribed to each Series of preferred stock. Issuance of additional shares of any
Series of preferred stock or creation of a new Series of preferred stock is
restricted by the By-Laws of Hayes and by the Shareholders' Agreement.
HAYES SERIES A PREFERRED STOCK
The holders of Hayes Series A Preferred Stock are entitled to one vote per
share of record on all matters submitted to the shareholders for vote and do not
have cumulative voting rights. The voting rights of the holders of Hayes Series
A Preferred Stock are equal to those of the holders of common stock. The holders
of Hayes Series A Preferred Stock are entitled to receive ratably such dividends
as are legally declared by Hayes which dividends are preferential to those paid
on common stock. Each share of Hayes Series A Preferred Stock is convertible, at
the option of the holder thereof, into such number of fully paid and
nonassessable shares of common stock as is determined by dividing $7.14 by the
Hayes Series A Conversion Price in effect on the date the certificate is
surrendered for conversion. The "Hayes Series A Conversion Price" is currently
$7.14. There are anti-dilution protections in the Hayes Articles of
Incorporation for the Hayes Series A Preferred Stock. Each share of Hayes Series
A Preferred Stock shall automatically be converted immediately prior to the
consummation of an initial public offering of Hayes under the Securities Act. In
the event of any liquidation, dissolution or winding up of Hayes, the holders of
the Hayes Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of Hayes to
the holders of the common stock or any other shares of Hayes other than Hayes
Series A Preferred Stock, from the entire assets and funds of Hayes legally
available for distribution, the amount of $7.14 per share (as adjusted for any
stock dividends, combinations or splits with respect to such shares), plus
cumulative
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interest on such amount from the issue date of such share at a rate of eight
percent (8%) per annum, for each share of Hayes Series A Preferred Stock then
held by them.
HAYES SERIES B PREFERRED STOCK
The holders of Hayes Series B Preferred Stock are not entitled to vote. The
holders of Hayes Series B Preferred Stock are entitled to receive ratably
cumulative compounding dividends at the dividend rate of ten percent (10%) per
annum of the original issue price per share of Hayes Series B Preferred Stock.
Dividends shall accrue quarterly, provided, however, that in the event of
conversion of the Hayes Series B Preferred Stock, dividends shall be accrued
through the day immediately prior to such conversion. The dividends are
preferential such that no dividends may be paid on the common stock, Hayes
Series A Preferred Stock or Hayes Series C Preferred Stock unless all accrued
and unpaid dividends on the Hayes Series B Preferred Stock are paid. Each share
of Hayes Series B Preferred Stock is convertible, at the option of the holder
thereof, into such number of fully paid and nonassessable shares of common stock
as is determined by dividing $20.9036 by the Hayes Series B Conversion Price in
effect on the date the certificate is surrendered for conversion. The "Hayes
Series B Conversion Price" is currently $20.9036. Each share of Hayes Series B
Preferred Stock shall automatically be converted immediately prior to the
consummation of a qualified public offering of Hayes if certain conditions are
met. There are anti-dilution protections in the Hayes Articles of Incorporation
for the Hayes Series B Preferred Stock. In the event of any liquidation,
dissolution or winding up of Hayes, after the holders of the Hayes Series A
Preferred Stock have been paid, the holders of the Hayes Series B Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of Hayes to the holders of the common
stock or any other shares of Hayes other than Hayes Series B Preferred Stock,
from the entire assets and funds of Hayes legally available for distribution,
the amount of 100% of the original purchase price plus any accrued and unpaid
dividends.
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF THE COMPANY AND HAYES
If the Merger is consummated, holders of Hayes capital stock will become
holders of the Company's Securities and the rights of such holders will be
governed by the Company's Certificate of Incorporation and the Company's
By-laws. The rights of the Company's stockholders differ in certain respects
from the rights of Hayes Shareholders. Certain of the differences are summarized
below. This summary is qualified in its entirety by referenced to the full text
of such documents.
BUSINESS COMBINATIONS
Generally, under DGCL, the approval by the affirmative vote of the holders
of a majority of the outstanding stock (or, if the certificate of incorporation
provides for more or less than one vote per share, a majority of the votes of
the outstanding stock) of a corporation entitled to vote on the matter is
required for a merger or consolidation or sale, lease or exchange of all or
substantially all of the corporation's assets to be consummated.
The Company's Certificate of Incorporation does not contain provisions
regarding business combinations and does not impose requirements in addition to
or different from those imposed by the DGCL.
Under the GBCC, to approve a plan of merger, a majority of all votes
entitled to be cast on the plan must approve the plan; however, the articles or
by-laws may require a greater vote or may require a separate majority vote by
one or more voting groups of the corporation, in which case each such group must
approve the plan by a majority vote. Holders of non-voting shares are entitled
to vote on a plan of merger as members of a larger voting group including all
shares entitled to vote on the merger if the merger plan contains a provision
that, if contained in a proposed amendment to the articles of incorporation,
would require action by one or more separate voting groups on the proposed
amendment. The GBCC provides that unless the articles of incorporation or
by-laws require a greater vote, a majority of shareholders entitled to vote must
approve a corporation's sale, lease, exchange, or other disposal of all or
substantially all of its property.
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The Hayes By-Laws provide that the prior consent or approval of 70% of the
issued and outstanding shares of Hayes Common Stock and Hayes Series A Preferred
Stock shall be necessary for Hayes to take any action which results in a merger,
consolidation or reorganization with or into any other corporation or
corporations or a sale of all or substantially all of the assets of the
corporation.
AMENDMENTS TO CHARTERS
Under the DGCL, unless otherwise provided in the certificate of
incorporation, a proposed amendment to the certificate of incorporation requires
an affirmative vote of a majority of the outstanding stock entitled to vote
thereon. If any such amendment would adversely affect the rights of any holders
of shares of a class or series of stock, the vote of the holders of a majority
of all outstanding shares of the class or series, voting as a class, is also
necessary to authorize such amendment.
The Company's Certificate of Incorporation provides that no amendment to
the Company's Certificate of Incorporation shall amend, alter, change or repeal
the super majority voting provisions relating to the division of the Company
Board into classes; the number and removal of members of the Company Board; term
of office of members of the Company Board; and the filling of vacancies on the
Company Board unless the amendment, alteration, change or repeal shall have
received the affirmative vote of the holders of at least 80% of the outstanding
shares of Hayes Common Stock and Hayes Series A Preferred Stock entitled to vote
thereon. The Company's Certificate of Incorporation otherwise comports with the
DGCL.
The GBCC provides that unless the articles of incorporation require a
greater vote or a vote by voting groups, the amendment to be adopted must be
approved by a majority of the votes entitled to be cast on the amendment by each
voting group entitled to vote on the amendment. The holders of the outstanding
shares of a class are entitled to vote as a separate voting group on a proposed
amendment if the amendment would affect the rights of such holders even if the
articles of incorporation provide that the shares are nonvoting shares.
The Hayes By-Laws provide that the prior consent or approval of the holders
of at least seventy percent (70%) of the issued and outstanding shares of Hayes
Common Stock and Hayes Series A Preferred Stock shall be necessary for the
corporation to amend the Hayes Amended and Restated Articles of Incorporation
(the "Hayes Articles").
AMENDMENTS TO BY-LAWS
Under the DGCL, the power to adopt, alter and repeal the Company By-laws is
vested in the stockholders, except to the extent that the certificate of
incorporation vests it in the board of directors. The Company By-laws provide
that the Company By-laws, or any one of them, may be supplemented, amended or
repealed by the Board of Directors, or by the vote of a majority in interest of
the stockholders represented and entitled to vote thereon at any meeting at
which a quorum is present; provided, however, that the affirmative vote of the
holders of at least 80% of the voting power of the then-outstanding shares of
the Company voting stock, voting together as a single class, is required to
amend, alter or repeal the sections of the Company By-Laws which have the same
effect as those provisions of the Company's Certificate of Incorporation
governing (i) division of the Company Board into three classes serving staggered
three year terms; (ii) the number of directors; (iii) term of office of
directors; (iv) removal of directors and (v) the filling of vacancies on the
Company Board.
Under the GBCC, a corporation's shareholders may amend or repeal the
corporation's by-laws or adopt new by-laws even though the by-laws may also be
amended or repealed by its board of directors. A corporation's board of
directors may amend or repeal the corporation's by-laws or adopt new by-laws
unless the articles of incorporation provide otherwise or a particular by-law
adopted by the shareholders expressly provides that the board of directors may
not amend or repeal that by-law. A by-law limiting the authority of the board of
directors or establishing staggered terms for directors may only be adopted,
amended, or repealed by the shareholders.
The Hayes Articles provide that the Hayes By-Laws shall not be changed
without the approval of the holders of at least 70% of the outstanding Hayes
Common Stock and Hayes Series A Preferred Stock.
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REDEMPTION OF CAPITAL STOCK
Under the DGCL, subject to certain limitations, a corporation's stock may
be made subject to redemption by the corporation at its option, at the option of
the holders of such stock or upon the happening of a specified event. The DGCL
prohibits the purchase or redemption of stock when the capital of a corporation
is or would become impaired, but shares entitled to dividend or liquidation
preference may be purchased or redeemed out of capital if such shares are
retired and capital is reduced in accordance with legal requirements. The
Company's Certificate of Incorporation does not contain any provision relating
to the right to redeem outstanding shares of capital stock.
Under the GBCC a corporation's stock may be made subject to redemption at
the option of the corporation, the shareholder, or another person or upon the
occurrence of a specified event. At all times that shares of the corporation are
outstanding, however, the GBCC requires that one or more shares that together
have unlimited voting rights and one or more shares that together are entitled
to receive the net assets of the corporation upon dissolution must be
outstanding.
The Hayes Articles gives redemption rights to the holders of Hayes Series B
Preferred Stock upon 90 days prior written notice of 50% of such holders, and
Hayes has limited rights to redeem Hayes Series B Preferred Stock upon 30 days
prior written notice to the holders of such stock.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted. The
Company's Certificate of Incorporation and the Company's By-laws provide that
all elections and questions put to stockholders shall be decided by the vote of
a majority in interest of the stockholders present in person or represented by
proxy and entitled to vote at the meeting, except as otherwise permitted or
required by the DGCL, the Company's Certificate of Incorporation or the Company
By-Laws.
Under the GBCC, action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting if the action is taken by all the
shareholders entitled to vote on the action or, if so provided in the articles
of incorporation, by persons who would be entitled to vote at a meeting those
shares having voting power to cast not less than the minimum number of votes
that would be necessary to authorize or take the action at a meeting at which
all shareholders entitled to vote were present and voted upon such action were
present and voted.
The Hayes Articles and the Hayes By-Laws provide that any action required
or permitted to be taken at a shareholders' meeting may be taken without a
meeting if written consent, setting forth the action so taken, is signed by
persons who would be entitled to vote at a meeting those shares having voting
power to cast not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that an Annual Meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the by-laws. The Company By-laws provide that
an Annual Meeting may be called by the Chairman of the Board, the Vice Chairman
of the Board, the President, any Vice President or by the Company Board and
shall be called by any of the foregoing at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Company issued and outstanding and entitled to vote.
Under the GBCC, an annual meeting of shareholders may be called by the
board of directors, the person or persons authorized to do so by the articles of
incorporation or by-laws, or the holders of at least twenty-five percent (25%),
or such greater or lesser percentage as may be provided in the articles of
incorporation or
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by-laws, of all the votes entitled to be cast on any issue proposed to be
considered at the proposed annual meeting. The Hayes By-Laws provide that annual
meetings of the shareholders may be called at any time by the Chief Executive
Officer or the Board of Directors or upon the written request of any holder or
holders of not less than 10% of the outstanding capital stock of Hayes.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
However, if the certificate of incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
certificate of incorporation. The Company's Certificate of Incorporation
provides that the number of directors shall be fixed from time to time pursuant
to a resolution adopted by a majority of the entire Company Board.
The DGCL permits the certificate of incorporation of a corporation or the
by-laws to provide that directors be divided into one, two or three classes. The
term of office of one class or directors shall expire each year with the terms
of office of no two classes expiring the same year. The Company Board consists
of five individuals divided into three classes with each director serving a
three year term (after the initial term). The Company's Certificate of
Incorporation divides the Company Board into three classes with each director
serving a three year term.
The GBCC allows the articles of incorporation or by-laws of a corporation
to specify or fix the number of directors, or may authorize the shareholders or
the board of directors to fix or change the number of directors, or may
establish a variable range for the size of the board of directors. The Hayes
By-Laws fixes the number of Directors at seven.
The GBCC provides that the terms of directors shall expire at the next
annual shareholders' meeting following their election unless their terms are
staggered. The articles of incorporation or a by-law adopted by the shareholders
may provide for staggering the terms of the directors by dividing the total
number of directors into two or three evenly divided groups. The initial term of
the first group shall expire at the first annual shareholders' meeting after
their election; the initial term of the second group shall expire at the second
annual shareholders' meeting after their election; and the initial term of the
third group, if any, shall expire at the third annual shareholders' meeting
after their election. At each annual shareholders' meeting held thereafter,
directors shall be chosen for a term of two years or three years, as the case
may be, to succeed those whose terms expire.
The Hayes By-Laws provide that the Directors shall be elected at each
annual meeting and shall serve for a term of one year. The Hayes Shareholders,
however, have entered into a Shareholders' Agreement which provides certain
shareholders with the right to designate members of the Hayes Board.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the votes which all stockholders would be
entitled to cast at any annual election of directors or class of directors to
amend or repeal, or to adopt any provision inconsistent with certain provisions
of the Company's Certificate of Incorporation. The provisions of the Company's
Certificate of Incorporation subject to the 80% vote requirement include the
provisions which divide the Company Board into three classes serving staggered
three year terms, establish the term of office of directors and the standards
for removal of directors and the filling of vacancies on the Company Board. The
Company's Certificate of Incorporation also authorizes the Company Board to
issue preferred stock, without further stockholder approval, which could have
dividend, redemption, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of holders of Company stock.
In addition, the Company's By-laws contain certain antitakeover provisions which
establish an advance notice procedure regarding the nomination of directors by
stockholders and stockholder proposals to be brought before an annual meeting
and provisions which restrict the right of stockholders to call Annual Meetings.
The Hayes Articles require the affirmative vote of the holders of at least
70% of the issued and outstanding shares of Hayes Common Stock and Hayes Series
A Preferred Stock for Hayes to amend the Hayes Articles or By-Laws, take any
action which results in the merger, consolidation or reorganization with
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or into any other corporation or corporations, or take any action which results
in the voluntary dissolution or liquidation of Hayes.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify any director, officer, employee
or agent against expense (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation to procure a judgment in
its favor -- a "derivative action") if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, had
no reasonable cause to believe that his or her conduct was unlawful.
The Company's Certificate of Incorporation provides, among other things,
that the Company shall indemnify any person who is or was a director or officer
of the Company who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company), by reason of the fact that he (i) is or was a director or
officer of the Company, or (ii) is or was serving at the request of the Company
as director, officer, employee, agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
Under the GBCC, a corporation may indemnify an individual who is a party to
a proceeding because he or she is or was a director against liability incurred
in the proceeding if such individual conducted himself or herself in good faith
and reasonably believed that such conduct was in the best interests of the
corporation or that such conduct was at least not opposed to the best interests
of the corporation and, in the case of any criminal proceeding, that the
individual had no reasonable cause to believe such conduct was unlawful. The
termination of a proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent is not, of itself,
determinative that the director did not meet the requisite standard of conduct.
A corporation may not indemnify a director in connection with a proceeding by or
in the right of the corporation, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the director has met the
relevant standard of conduct under the GBCC, or in connection with any
proceeding with respect to conduct for which he or she was adjudged liable on
the basis that personal benefit was improperly received by him or her.
Hayes Articles provide that each person who is or was a director or officer
of Hayes, and each person who is or was a director or officer of Hayes who at
the request of Hayes is serving or has served as an officer or director of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall be indemnified in such capacity by Hayes against those
expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement which are allowed to be paid or reimbursed by Hayes under the
GBCC and which are actually and reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which such person may be involved
by reason of his being or having been a director or officer of Hayes or of such
other enterprises; provided, however, that except with respect to proceedings by
an officer or director to enforce his rights to indemnification hereunder, Hayes
shall indemnify any such director or officer in connection with a successful
proceeding (or part thereof) so initiated by such person in his capacity as a
director or officer of Hayes only if such proceeding (or part thereof) was
authorized by the Hayes Board.
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LEGAL MATTERS
The law firm of Morrison Cohen Singer & Weinstein, LLP, New York, New York,
has acted as counsel to the Company in connection with this offering and will
render an opinion as to the legality of the securities being offered hereby. The
law firm of Womble Carlyle Sandridge & Rice PLLC, Atlanta, Georgia, has acted as
counsel to Hayes in connection with the Merger and will render an opinion as to
the tax treatment of the Merger.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
as of July 31, 1997 and 1996 and for each of the three years in the period ended
July 31, 1997 included in this Proxy Statement/Prospectus and the related
Financial Statement Schedule have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Hayes and its subsidiaries as of
December 31, 1995 and 1996 and for the years ended September 30, 1994 and 1995
the three months ended December 31, 1995 and the year ended December 31, 1996
included in this Proxy Statement/Prospectus have been audited by Coopers &
Lybrand L.L.P., independent accountants, as stated in their report appearing
herein and have been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
ITEM 2
RATIFICATION OF PREFERRED STOCK INVESTMENT AGREEMENT
On November 12, 1997 the Company and several investors entered into a
Preferred Stock Investment Agreement pursuant to which the Company agreed to
sell to the Investors up to 45,000 shares of the Company's 6% Convertible Stock
with a liquidation preference of $1,000 per share, at a purchase price of $1,000
per share. On November 12, 1997 10,000 shares of 6% Convertible Stock were sold
for $10,000,000. The Preferred Stock Investment Agreement provides that the
remaining 35,000 shares of 6% Convertible Stock will be purchased at a purchase
price of $1,000 per share ($35,000,000 in the aggregate) immediately following
closing of the Merger, provided that no material adverse change occurs in the
interim and provided further that the Company is not obligated to sell and the
investors are not obligated to purchase shares of 6% Convertible Stock to the
extent that (i) the purchase price paid for all shares of 6% Convertible Stock
would exceed 19.99% of the aggregate market capitalization of the Company based
on the end of day market capitalization of the Company on the consummation date
of the Merger, after taking into effect (x) shares of capital stock of the
Company to be issued in the Merger and (y) shares of Common Stock that would be
issuable if all shares of 6% Preferred Stock were converted on such date, and
(ii) the number of shares of Common Stock issuable on the closing date if all
shares of Preferred Stock were then converted would represent 20% or more of the
number of outstanding shares of Common Stock outstanding on the trading day
immediately preceding the closing date unless stockholder approval has been
obtained. In connection with the Preferred Stock Investment Agreement, the
Company and the investors entered into a Registration Rights Agreement.
The 6% Convertible Stock is convertible at any time into shares of Common
Stock at a conversion price (the "Conversion Price") equal to the lesser (i)
$8.00 per share (the "Fixed Conversion Price") or (ii) 85% of the average
closing bid price of Common Stock for the five consecutive trading days prior to
the date of any conversion notice (the "Market Value"), subject to adjustment
under certain circumstances, including to protect against dilution. If, however,
the Company's Common Stock is trading at a price which would result in a
Conversion Price of less than $5.00 per share then the number of shares of 6%
Convertible Stock which may be converted in any 30 day period is limited to such
number of shares of 6% Convertible Stock as have a liquidation preference of not
more than 10% of the amount paid for the 6% Convertible Stock ($1,000,000 prior
to the second closing and $4,500,000 thereafter) except that if the Merger is
not consummated within
110
<PAGE> 121
the first six 30 day periods, then such 10% limitation will be increased to 20%
for all subsequent periods. If the Conversion Price is below $5.00 per share,
then (i) the first 81.25% of 6% Convertible Stock for which conversion notices
are received from an investor during a 30 day period will be convertible at a
Conversion Price equal to 85% of the Market Value and the remaining 18.75% will
be convertible at a conversion price equal to 92.5% of the Market Value, and
(iii) the Company may redeem the Preferred Stock submitted for conversion for
cash equal to the liquidation preference divided by 85%. In addition, if the
Conversion Price is below $5.00 for more than 5 trading days in any 30 day
period, then for the balance of such 30 day period and for the next 30 day
period, Market Value will be determined on the basis of the lowest 5 consecutive
trading day average closing price during the 15 trading days preceding the
conversion notice. The Company may, at its option reduce the amount of 6%
Convertible Stock which may be converted in any 30 day period, in which event
the amount convertible in subsequent periods will be increased, the Fixed
Conversion Price will be reduced and the discount from Market Value will be
increased.
The Company has the right to redeem the 6% Convertible Stock in whole or in
part, at any time, and from time to time, by paying an amount equal to the
liquidation preference per share divided by 85%. If the Company exercises such
redemption option, then it is required to issue to the investors warrants with a
strike price equal to the higher of the Fixed Conversion Price or the average
closing bid price of the Common Stock during the five trading day period which
ends three days before the redemption date. The number of warrants so issued
will be equal to 50% of the liquidation preference of the shares of 6%
Convertible Stock which are redeemed, divided by such strike price.
The Company has the right to redeem the 6% Convertible Stock in whole or in
part, at any time, and from time to time, by paying an amount equal to the
liquidation preference per share divided by 85%. If the Company exercises such
redemption option, then it is required to issue to the investors warrants with a
strike price equal to the higher of the Fixed Conversion Price or the average
closing bid price of the Common Stock during the five trading day period which
ends three days before the redemption date. The number of warrants so issued
will be equal to 50% of the liquidation preference of the shares of 6%
Convertible Stock which are redeemed, divided by such strike price. All shares
of 6% Convertible Stock which have not been converted by the fourth anniversary
of the Preferred Stock Investment Agreement are required to then be converted,
subject to extension of such date under certain circumstances.
The Registration Rights Agreement entered into in connection with the
Preferred Stock Investment Agreement requires the Company to promptly register
and cause to be listed the common shares underlying the 6% Convertible Stock
purchased and underlying any warrants which are issued and to maintain such
registration statement and listing. If (i) the Company fails to effect such
registration and listing within the applicable time periods or (ii) an
investor's ability to sell registered shares is suspended for various reasons,
including failure of the Company to maintain the effectiveness of such
registration statement or listing for more than a specified number of days or
(iii) the Company fails to comply with a conversion notice and such failure
continues for more than a specified number of days, then the Company is required
to make payments to the investors in an amount equal to 2% per month of the
liquidation preference for each month (or portion thereof) during which such
event continues and, under certain circumstances, the Company may be required to
(i) purchase the 6% Convertible Stock for an amount equal to the liquidation
preference divided by 85%, and issue warrants and (ii) purchase shares of Common
Stock issued upon conversion of 6% Convertible Stock and exercise of warrants
for a purchase price equal to the closing bid price as of the time of issuance
of such underlying shares.
The shares of 6% Convertible Stock are entitled to receive cumulative
dividends at the rate of 6% per annum, payable in cash, or in Common Stock, or
by adding the amount of any dividend to the liquidation preference. No
distribution, whether by way of dividend or otherwise, may be declared or paid
upon or set apart for any class of security of the Company which is junior to
the 6% Convertible Stock if, at such time, any dividends on the 6% Convertible
Stock have not been paid or declared and set apart for payment with respect to
all preceding periods.
The Board of Directors of the Company unanimously approved the Preferred
Stock Investment Agreement and on November 12, 1997 the Company (i) entered into
such Agreement, (ii) received $10,000,000 upon the sale of 10,000 shares of 6%
Convertible Stock and (iii) agreed to sell up to 35,000
111
<PAGE> 122
additional shares of 6% Convertible Stock for up to $35,000,000 following
closing of the Merger. The Preferred Stock Investment Agreement provides that
the Company is not obligated to sell shares of 6% Convertible Stock convertible
into 20% or more of the Company's outstanding Common Stock on the date of sale,
both with respect to the initial sale and the subsequent sale, unless
stockholder approval has been obtained. If all 10,000 purchased shares of 6%
Convertible Stock had been converted on the date of purchase, 2,321,263 shares
of Common Stock would have been issuable, representing 18.6% of the Company's
outstanding Common Stock (excluding such 2,321,263 shares). As of December 10,
1997, 64,640 shares of Common Stock (approximately one-half of 1% of the
Company's outstanding Common Stock) have been issued pursuant to conversions of
the 6% Convertible Stock. The Board of Directors believes that it is in the best
interest of the Company to sell the maximum number of shares of 6% Convertible
Stock provided for in the Preferred Stock Investment Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE PREFERRED STOCK INVESTMENT AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
ITEM 3
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JULY 31, 1998
The Board of Directors of the Company has selected Deloitte & Touche LLP,
certified public accountants, to be the Company's independent auditors for the
fiscal year ending July 31, 1998. If the stockholders do not ratify this
selection at the Annual Meeting, the Board of Directors may reevaluate the
selection of Deloitte & Touche LLP, but it would have the right to and would
consider retaining Deloitte & Touche LLP in any event. Representatives of
Deloitte & Touche LLP and of Cooopers & Lybrand L.L.P., Hayes' independent
auditors, are expected to be present at the Annual Meeting to respond to
appropriate stockholders' questions and to make a statement if such
representatives desire to do so.
Deloitte & Touche LLP served as the Company's independent auditors for the
fiscal year ended July 31, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
OTHER MATTERS
At the time of preparation of this Proxy Statement/Prospectus, the Company
Board knows of no other matters to be presented for action at the Annual
Meeting. As stated in the accompanying proxy card, if any other business should
come before the Annual Meeting, proxies have discretionary authority to vote
their shares according to their best judgment, including, without limitation, a
motion to adjourn or postpone the Annual Meeting to another time and/or place
for the purpose of soliciting additional proxies in order to approve the Merger
or otherwise.
The Company anticipates that the 1998 Annual Meeting will be held in May,
1998. Therefore, proposals of stockholders of the Company intended to be
presented at the 1998 Annual Meeting of the Company must be received by the
Company not later than February 1, 1998 to be considered for inclusion in the
Company's proxy statement and form of proxy relating to that meeting.
112
<PAGE> 123
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ACCESS BEYOND, INC. AND SUBSIDIARIES AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report..................................................... F-2
Consolidated Statements of Operations for each of the years ended July 31,
1997, 1996 and 1995.......................................................... F-3
Consolidated Balance Sheets as of July 31, 1997 and 1996...................... F-4
Consolidated Statements of Cash Flows for each of the three years ended July
31, 1997, 1996 and 1995...................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three years
ended July 31, 1997, 1996 and 1995........................................... F-6
Notes to Consolidated Financial Statements for the years ended July 31, 1997,
1996, and 1995............................................................... F-7-19
HAYES
Consolidated Financial Statements of Hayes:
Independent Accountant's Report............................................... F-20
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30,
1997 (unaudited)............................................................. F-21
Consolidated Statements of Operations for the years ended September 30, 1994
and 1995, the three months ended December 31, 1995, the year ended December
31, 1996, and the nine months ended September 30, 1996 and 1997
(unaudited).................................................................. F-22
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
September 30, 1994 and 1995, the three months ended December 31, 1995, the
year ended December 31, 1996 and the nine months ended September 30, 1997
(unaudited).................................................................. F-23
Consolidated Statements of Cash Flows for the years ended September 30, 1994
and 1995, the three months ended December 31, 1995, the year ended December
31, 1996, and the nine months ended September 30, 1996 and 1997
(unaudited).................................................................. F-24
Notes to Consolidated Financial Statements.................................... F-25-38
</TABLE>
F-1
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Access Beyond, Inc.
Gaithersburg, Maryland
We have audited the accompanying consolidated balance sheets of Access
Beyond, Inc. and subsidiaries (the successor company to Penril DataComm
Networks, Inc.) as of July 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended July 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Access Beyond, Inc. and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997 in conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Washington, D.C.
August 29, 1997 (November 12, 1997 as to Note 11)
F-2
<PAGE> 125
ACCESS BEYOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
NET REVENUES FROM CONTINUING OPERATIONS..................... $ 18,000 $ 39,435 $52,611
COSTS AND EXPENSES
Cost of revenues.......................................... 11,999 22,409 29,394
Selling, general and administrative....................... 12,887 18,611 18,765
Product development and engineering....................... 6,164 7,389 7,438
Merger related expenses................................... 4,077 500 --
Write-down of assets...................................... 864 -- --
Provision for restructuring costs......................... 238 9,718 --
Amortization of cost over net assets acquired............. -- 734 834
-------- -------- -------
36,229 59,361 56,431
OPERATING LOSS FROM CONTINUING OPERATIONS................... (18,229) (19,926) (3,820)
OTHER INCOME (EXPENSE)
Interest income........................................... 380 -- --
Interest expense.......................................... (200) (698) (1,228)
Other: settlement of lawsuit.............................. 3,547 -- --
Other income (expenses), net.............................. 612 (44) (144)
-------- -------- -------
4,339 (742) (1,372)
LOSS FROM CONTINUING OPERATIONS
Before Income Taxes......................................... (13,890) (20,668) (5,192)
Benefit For Income Taxes.................................. -- -- 578
-------- -------- -------
LOSS FROM CONTINUING OPERATIONS............................. (13,890) (20,668) (4,614)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
net of income taxes....................................... -- 404 (1,661)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
net of income taxes....................................... (3,735) (640) (1,400)
-------- -------- -------
NET LOSS.................................................... $(17,625) $(20,904) $(7,675)
======== ======== =======
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Continuing operations..................................... $ (1.16) $ (2.14) $ (0.61)
Discontinued operations................................... -- 0.04 (0.22)
Loss on disposal of discontinued operations............... (0.31) (0.07) (0.19)
-------- -------- -------
$ (1.47) $ (2.17) $ (1.02)
======== ======== =======
Shares used in per share calculation........................ 11,956 9,650 7,559
======== ======== =======
</TABLE>
THE CONSOLIDATED FINANCIAL STATEMENTS OF ACCESS BEYOND, INC. INCLUDE THE
FINANCIAL INFORMATION OF PENRIL DATACOMM NETWORKS, INC. FOR THE PERIODS PRIOR TO
NOVEMBER 18, 1996 WHEN ACCESS BEYOND, INC. WAS SPUN-OFF FROM PENRIL DATACOMM
NETWORKS, INC. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 126
ACCESS BEYOND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 578 $ 4,237
Accounts receivable, less allowance for doubtful accounts of $215 in
1997 and $554 in 1996................................................ 3,050 7,044
Inventories............................................................ 5,678 9,684
Deferred income taxes.................................................. -- 1,700
Net assets of discontinued operations.................................. -- 7,337
Other current assets................................................... 167 249
-------- --------
TOTAL CURRENT ASSETS................................................... 9,473 30,251
Property and equipment, net............................................ 3,484 2,457
Other assets........................................................... 949 1,072
-------- --------
TOTAL ASSETS........................................................... $ 13,906 $ 33,780
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.................................................. $ -- $ 4,000
Current portion of capital lease obligations........................... 287 272
Accounts payable....................................................... 3,458 6,076
Accrued compensation and commissions................................... 630 1,347
Other accrued expenses................................................. 1,467 1,758
-------- --------
TOTAL CURRENT LIABILITIES.............................................. 5,842 13,453
Long-Term portion of capital lease obligations......................... 456 633
Other Noncurrent Liabilities........................................... 297 1,479
-------- --------
TOTAL LIABILITIES...................................................... 6,595 15,565
-------- --------
Commitments and Contingencies (See Note 7)............................. -- --
SHAREHOLDERS' EQUITY
Serial preferred stock, $.01 par value; authorized, 100,000 shares;
issued, none...................................................... -- --
Common stock, $.01 par value; authorized, 30,000,000 shares; issued
and outstanding, 12,495,291 shares in 1997 and 10,849,647 shares
in 1996........................................................... 125 109
Additional paid-in capital........................................... 46,431 39,837
Accumulated deficit.................................................... (39,206) (21,581)
Accumulated foreign currency translation adjustment.................. (39) (150)
-------- --------
TOTAL SHAREHOLDERS' EQUITY............................................. 7,311 18,215
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 13,906 $ 33,780
======== ========
</TABLE>
THE CONSOLIDATED FINANCIAL STATEMENTS OF ACCESS BEYOND, INC. INCLUDE THE
FINANCIAL INFORMATION OF PENRIL DATACOMM NETWORKS, INC. FOR THE PERIODS PRIOR TO
NOVEMBER 18, 1996 WHEN ACCESS BEYOND, INC. WAS SPUN-OFF FROM PENRIL DATACOMM
NETWORKS, INC. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 127
ACCESS BEYOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES
loss from operations...................................... $(13,890) $(20,668) $(4,614)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,269... 3,452 4,418
Benefit from deferred taxes............................ -- -- (578)
Provision for restructuring costs...................... 238 9,718 --
Other.................................................. 20 (93) 25
(Increase) decrease in assets:
Accounts receivable.................................... 1,406 6,477 2,508
Inventories............................................ 559 (472) 1,122
Other current assets................................... 19 529 (287)
Increase (decrease) in liabilities:
Accounts payable....................................... (1,093) (2,080) 1,792
Other liabilities...................................... (793) (731) (291)
-------- -------- -------
Net cash provided by (used in) continuing operating
activities................................................ (12,265) (3,868) 4,095
CASH FLOWS FROM DISCONTINUED OPERATIONS
Proceeds from the sale of discontinued operations......... 5,411 -- --
Loss from discontinued operations......................... (3,735) (236) (3,061)
Non-cash charges and changes in working capital........... (1,809) (2,832) 285
Provision for loss on disposal of discontinued
operations............................................. 3,735 640 1,400
-------- -------- -------
Net cash provided by (used in) discontinued operations...... 3,602 (2,428) (1,376)
Net cash used in provided by (used in) operations........... (8,663) (6,296) 2,719
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchased technology..................... (352) (800) (1,049)
Expenditures for property, equipment and other............ (714) (747) (417)
-------- -------- -------
Net cash used in investing activities....................... (1,066) (1,547) (1,466)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit....................... -- (1,095) 1,870
Payments on long-term debt................................ (282) (5,210) (3,300)
Issuance of common stock.................................. 6,241 17,486 74
Other..................................................... 111 (93) 94
-------- -------- -------
Net cash provided by (used in) financing activities......... 6,070 11,088 (1,262)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR...... 4,237 992 1,001
-------- -------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR............ $ 578 $ 4,237 $ 992
======== ======== =======
SUPPLEMENTAL INFORMATION
Cash payments for income taxes............................ $ -- $ 20 $ 113
======== ======== =======
Cash payments for interest................................ $ 200 $ 783 $ 1,103
======== ======== =======
</TABLE>
THE CONSOLIDATED FINANCIAL STATEMENTS OF ACCESS BEYOND, INC. INCLUDE THE
FINANCIAL INFORMATION OF PENRIL DATACOMM NETWORKS, INC. FOR THE PERIODS PRIOR TO
NOVEMBER 18, 1996 WHEN ACCESS BEYOND, INC. WAS SPUN-OFF FROM PENRIL DATACOMM
NETWORKS, INC. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 128
ACCESS BEYOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------ PAID-IN UNEARNED EARNINGS CURRENCY
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) ADJUSTMENT
---------- ------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AUGUST 1, 1994............ 7,442,368 $ 74 $ 21,720 $(16) $ 6,998 $(196)
Net loss........................ (7,675)
Issuance of common stock --.....
Upon exercise of stock
options.................... 33,067 1 73
Upon exercise of warrants.... 80,000 1 194
For acquisition of patent
rights....................... 50,000 1 118
Shares retired in connection
with options, warrants, and
awards....................... (62,620) (1) (194) 16
Deferred tax benefit from
exercise of options.......... -- 473
Foreign currency translation
adjustment................... -- 136
---------- ---- ------- ----- -------- ----
BALANCE JULY 31, 1995............. 7,542,815 76 22,384 -- (677) (60)
Net loss........................ (20,904)
Issuance of common stock --
Upon sale in private
placements................. 2,607,267 26 14,718
Upon exercise of stock
options.................... 687,284 7 2,735
Upon exercise of warrants.... 25,000 -- --
Shares retired in connection
with options, warrants and
awards....................... (12,719) -- --
Foreign currency translation
adjustment................... -- (90)
---------- ---- ------- ----- -------- ----
BALANCE JULY 31, 1996............. 10,849,647 109 39,837 -- (21,581) (150)
Net loss........................ -- (17,625)
Issuance of common stock --
Upon exercise of stock
options.................... 1,124,951 11 6,124
Upon sale of stock........... 16,989 -- 115
For purchase of technology from
Paradyne..................... 503,704 5 1,695
For the effect of the merger of
Penril and Bay Networks, and
the spin-off of Access
Beyond....................... -- -- (1,340)
Foreign currency translation
adjustment................... 111
---------- ---- ------- ----- -------- ----
BALANCE JULY 31, 1997............. 12,495,291 $125 $ 46,431 $ -- $ (39,206) $(39)
========== ==== ======= ===== ======== ====
</TABLE>
THE CONSOLIDATED FINANCIAL STATEMENTS OF ACCESS BEYOND, INC. INCLUDE THE
FINANCIAL INFORMATION OF PENRIL DATACOMM NETWORKS, INC. FOR THE PERIODS PRIOR TO
NOVEMBER 18, 1996 WHEN ACCESS BEYOND, INC. WAS SPUN-OFF FROM PENRIL DATACOMM
NETWORKS, INC. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 129
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EFFECTS OF THE SPIN-OFF AND MERGER TRANSACTIONS: Access Beyond, Inc.
("Access Beyond" or "the Company") was incorporated on July 23, 1996, and filed
a Form S-1 Registration Statement with the Securities and Exchange Commission
which became effective October 17, 1996. On November 18, 1996 Penril DataComm
Networks, Inc. ("Penril") distributed a dividend to its stockholders of record,
one share of common stock of Access Beyond for each share of Penril common stock
held. Penril transferred all of the assets and liabilities of Penril's remote
access business to Access Beyond before becoming a wholly owned subsidiary of
Bay Networks, Inc.("Bay") on November 18, 1996. As the successor company to
Penril, Access Beyond retains the historical financial information of Penril
through November 18, 1996, when Penril was merged into Bay. For accounting
purposes, the disposition of the modem business, as a result of the merger
agreement with Bay, has been accounted for as a reduction of paid in capital.
On November 18, 1996 Penril transferred all of its remote access business
assets and liabilities to Access Beyond as part of its spin-off of Access
Beyond. Assets and liabilities related to the modem business remained with
Penril and Penril became a wholly-owned subsidiary of Bay as part of the Merger
Agreement with Bay. Revenues from the modems prior to the sale of the modem
business to Bay were $4.2 million in fiscal 1997. Under the terms of the Merger
Agreement with Bay, assets and liabilities related to the modem business that
were acquired by Bay included the following at the date of the closing.
<TABLE>
<CAPTION>
NOVEMBER 18,
1996
-----------------------
(IN THOUSANDS OF
DOLLARS)
<S> <C>
ASSETS:
Accounts receivable, net................................ $ 2,542
Inventory, net.......................................... 2,740
Deferred tax asset...................................... 1,700
Other assets............................................ 761
------
Total Assets.............................................. 7,743
======
LIABILITIES:
Line of credit.......................................... $ 4,000
Accounts payable........................................ 1,525
Other liabilities....................................... 887
------
Total Liabilities......................................... 6,412
------
Net assets related to the modem business.................. $ 1,331
======
</TABLE>
As a result of the merger with Bay, the Company paid performance and
severance payments to certain employees. In addition, the Company incurred
investment banking, legal and consulting fees. The total merger related expenses
were approximately $4.1 million.
BUSINESS: The company is in the business of developing and marketing
products which enable local remote or mobile users to access network resources
(remote access business).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers cash on hand, deposits in
banks, and highly liquid investments with an original maturity of three months
or less as cash and cash equivalents.
F-7
<PAGE> 130
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair value
due to the short maturities of such instruments. Capital lease obligations are
carried at amounts approximating fair values based on current rates offered to
the Company for debt with similar collateral and guarantees, if any, and
maturities.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market. The inventories include the cost of material and,
when applicable, labor and manufacturing overhead. During the fourth quarter of
fiscal 1997 as a result of the introduction of the new AB2400/4400 product line,
the Company reviewed its reserve for obsolescence of VCS and CSX product
inventory. Based on this review, the Company recorded a charge of $864,000. The
following table shows the detail in the inventory account for the years ending
July 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Raw Materials and component parts........................... $ 3,433 $ 5,823
Work in process............................................. 42 541
Finished goods.............................................. 2,203 3,320
------ ------
Total inventories........................................... $ 5,678 $ 9,684
====== ======
</TABLE>
PROPERTY, EQUIPMENT, AND DEPRECIATION: Additions to property and equipment
are recorded at cost. The Company provides depreciation for financial reporting
purposes using primarily the straight-line method over the estimated useful
lives of the assets which range from 3 to 10 years. Leasehold improvements are
amortized over the term of the related lease or their estimated useful lives,
whichever is shorter. The following table shows the detail in property,
equipment and depreciation for the years ending July 31:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1996
------------ -------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Machinery, and equipment............................ 3-5 years $ 7,385 $ 10,875
Purchased software and technology................... 3 years 6,544 5,486
Leasehold improvements.............................. 3-5 years 949 879
-------- --------
Total property and equipment, at cost............... 14,878 17,240
Less accumulated depreciation and amortization...... (11,394) (14,783)
-------- --------
Total property and equipment, net................... $ 3,484 $ 2,457
======== ========
</TABLE>
REVENUE RECOGNITION: Revenues are recognized at the time of shipment of
the product or performance of product-related services. Revenues from the
license of product technology is recorded upon delivery of the technology
specification and the fulfilment of the other material obligations.
ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS: During fiscal 1996, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of", which requires the Company to review long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As a result of events
occurring in the fourth quarter of fiscal 1996, the Company decided to
restructure and refocus its
F-8
<PAGE> 131
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
remaining business. Due to these events, the Company determined that the Excess
of Costs over Net Assets Acquired would not be recoverable, and a charge of
$4,952,000 was taken in the fourth quarter of fiscal 1996 against the carrying
value of this asset.
INCOME TAXES: Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future.
A valuation allowance is established to reduce deferred tax assets to the amount
expected to be realized.
EARNINGS PER SHARE: Earnings per share for the three years ended July 31,
1997 are calculated based on the weighted average common shares outstanding.
SOFTWARE DEVELOPMENT COSTS: Certain acquired software development costs are
being amortized over their estimated economic life, principally five years,
commencing when each product is available for general release. Internal software
development are expensed as incurred, except those costs applicable to third
party contracts.
STOCK-BASED COMPENSATION: Effective August 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, pro forma net income
and earnings per share information has been presented in Note 7 as required
under SFAS 123.
RELATED PARTY TRANSACTIONS: As described in Note 5, the Company entered
into a consulting agreement with Henry Epstein, the former CEO of Penril.
In November 1996, John Howard was appointed as a member of the Board of
Directors of the Company. Mr. Howard is the brother of Ronald A. Howard,
President and CEO of the Company.
CONCENTRATION OF RISK: Material and components for the Company's products
are purchased from outside suppliers. While most components are available from
several suppliers, a few are provided from sole-source vendors. The Company
believes that in most cases alternative sources could be obtained within a
reasonable time period; however, an interruption in the supply of such
components could have a temporary adverse effect on the Company's operations.
NEW ACCOUNTING PRONOUNCEMENTS: During fiscal 1997, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 128,
129, 130, and 131. These statements establish standards for computing and
presenting earnings per share, disclosing information about an entity's capital
structure, reporting and displaying comprehensive income and its components in
financial statements, and reporting information about operating segments in
annual financial statements, respectively. Each of these statements are
effective for financial statements for periods beginning after December 15,
1997. The effect of adopting these statements in fiscal 1998 is not deemed to be
material.
RECLASSIFICATIONS: Certain reclassifications have been made to prior period
consolidated financial statements to conform to the July 31, 1995 presentation.
2. RESTRUCTURING
In the fourth quarter of fiscal 1996, Penril took actions to strategically
restructure its business to improve Penril's financial performance. The
restructuring included a plan to focus Penril's business operations on the
remote access server and remote connectivity markets ("Remote Access") and away
from the data transmission markets. As a result of this plan Penril recorded a
charge of $9,718,000 in the fourth quarter of
F-9
<PAGE> 132
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
fiscal 1996 and the Company recorded a charge of $238,000 in the fourth quarter
of fiscal 1997. These charges were for the following costs.
a. The excess of costs over the fair value of net assets acquired
through the Datability, Inc. acquisition in fiscal 1993, was related to
data transmission techniques and, due to the restructuring plan, has no net
realizable value. Accordingly the remaining book value of $4,952,000 was
written off in fiscal 1996.
b. A charge of $2,339,000 was taken for the write-off of inventory and
fixed assets related to the data transmission business. In fiscal 1997 an
additional charge of $238,000 was taken for the write-off of inventory
related to the data transmission business, and substantially all inventory
related to the data transmission business was disposed of.
c. A charge of $1,012,000 was taken for contractual obligations and
settlement costs incurred for leased facilities in Carlstadt, New Jersey,
Hong Kong and Malaysia. Under the restructuring plan the Hong Kong and
Malaysia facilities were vacated at the end of fiscal 1996, and
substantially all of the leased space in the Carlstadt, New Jersey facility
was vacated. As of July 31, 1997 a provision of $300,000 remained for the
future contractual obligations and settlement costs associated with the
Carlstadt, New Jersey facility.
d. A charge of $979,000 was taken for computer software related to the
data transmission business that was capitalized in accordance with FAS86,
which had no realizable value under the restructuring plan. In fiscal 1997
the remaining book value of this computer software was written off.
e. A charge of $436,000 was taken for severance costs associated with
employees terminated in connection with the restructuring plan. All costs
associated with these terminations were paid in fiscal 1997.
3. DISCONTINUED OPERATIONS
In fiscal 1995, the Board of Directors decided to sell Technipower, Inc.
("TPI"), a subsidiary manufacturing uninterruptible power supplies and power
regulating equipment. In October 1996, the Company completed the sale of TPI
business for $1,591,000 in cash and a $2,750,000 note. As of July 31, 1997, a
balance of $980,000 remained unpaid on the note which was due July 31, 1997. The
Company reserved the unpaid balance of this note with a charge of $980,000 to
loss on disposal of discontinued operations.
In fiscal 1996, the Board of Directors decided to sell Electro-Metrics,
Inc. ("EMI"), a subsidiary manufacturing test equipment and systems for analysis
of electromagnetic interference and communications security including
applications in satellite communications. In June 1997, the Company completed
the sale of the EMI business to EMI Holding Corp. (the "Borrower"), for
$2,000,000 in cash, $1,500,000 in subordinated term notes, and $500,000 in
warrants. The subordinated term notes include a $1,000,000 note with payments of
principal and interest to be made in seven (7) quarterly installments of $50,000
each, beginning on June 30, 1997, and one final installment together with
accrued interest being due on June 30, 1999. Interest on the $1,000,000 note is
at 3% above the highest interest rate being charged to the Borrower by the
Borrower's principal bank lender ("Bank Rate"). The remaining subordinated term
note of $500,000 accrues interest at 2% above the Bank Rate, accruing from June
30, 1997 and payable in monthly installments beginning on July 1, 1999. The
principal shall be paid in one (1) installment on June 30, 2002. The warrants
are exercisable on June 30, 2002, wherein the Borrower issues to the Company
shares of preferred stock of the Borrower equal to 19.678% of the shares of the
Borrower outstanding immediately after the exercise of these warrants.
F-10
<PAGE> 133
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
In accordance with the Securities and Exchange Commissions Staff Accounting
Bulletin No. 81, "Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity", a provision was charged to Loss from Disposal of
Discontinued Operations for the outstanding balance of the subordinated term
notes and warrants at July 31, 1997 of $1,950,000. The Company fully expects to
collect these notes and warrants, however the repayments will be recorded as
income when received due to the highly leveraged structure of the Borrower. As a
result, the Company recorded a loss on the disposition of the EMI business of
approximately $2.8 million.
The following table sets forth the selected financial data of both
discontinued operations for the three years ended July 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues...................................... $ 4,743 $10,469 $ 8,960
------- ------- -------
Income (loss) from operations, net of income
taxes....................................... -- 404 (1,661)
------- ------- -------
Loss on disposal, net of income taxes......... (3,735) (640) (1,400)
------- ------- -------
Total loss from discontinued operations....... $(3,735) $ (236) $(3,061)
======= ======= =======
Depreciation and amortization................. $ 153 $ 431 $ 415
------- ------- -------
Capital expenditures.......................... $ 114 $ 275 $ 245
======= ======= =======
</TABLE>
The Company disposed of both TPI and EMI operations through the sale of the
subsidiary companies net assets. Therefore at July 31, 1997 there were no
identifiable assets or income tax benefits for either discontinued operation.
4. FINANCING
BANK FINANCING: On November 18, 1996, pursuant to the Spin-off and Merger
transactions, Bay assumed the $4,000,000 outstanding line of credit which the
Company had prior to the transaction. As of July 31, 1997, the Company had no
line of credit with its principal bank.
5. LONG-TERM OBLIGATIONS
The accompanying Consolidated Statements of Operations include net rental
expense for the fiscal years 1997, 1996, and 1995 of $1,103,000, $1,673,000 and
$1,941,000 respectively. At July 31, 1997, the aggregate future minimum rental
commitments under all noncancelable operating lease agreements are as follows:
<TABLE>
<CAPTION>
GROSS RENTAL NET
RENTAL FROM RENTAL
FOR THE YEARS ENDING JULY 31, COMMITMENTS SUBLEASES COMMITMENTS
---------------------------------- ----------- --------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
1998.............................. $ 1,841 $ 1,011 $ 830
1999.............................. 1,678 87 1,591
2000.............................. 855 -- 855
2001.............................. 671 -- 671
2002.............................. 106 -- 106
------ ------ ------
$ 5,151 $ 1,098 $ 4,053
====== ====== ======
</TABLE>
F-11
<PAGE> 134
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
As described more fully in Note 7, the Company entered into an agreement
with Hibbing Electronics Corporation ("Hibbing") in March 1997 which allows
Hibbing to use certain of the Company's leased manufacturing equipment. Capital
lease obligations at July 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Capital leases.......................................... $743 $905
less current portion.................................. (287) (272)
----- -----
Long-term capital lease obligations..................... $456 $633
===== =====
</TABLE>
On November 18, 1996, the Company entered into a noncancelable four (4)
year consulting agreement with Henry Epstein/d.b.a. Ideonics, former CEO and
chairman of the board of Penril, which has a minimum commitment of $137,500 per
year.
6. INCOME TAXES
In November 1996, as a result of the merger of Penril DataComm Networks,
Inc. with Bay Networks, Inc., all federal net operating losses and general
business and other tax credits of Penril DataComm Networks, Inc., of
approximately $15.2 million and $1.2 respectively remained with Penril after the
Spin-off of the Company.
The following table sets forth the differences between the tax provision
(benefit) from continuing operations calculated at the statutory federal income
tax rate and the actual tax benefit for the fiscal years ended July 31, 1996 and
1995 for Penril:
<TABLE>
<CAPTION>
AS OF JULY 31,
-------------------
1996 1995
------- -------
(AMOUNTS IN
THOUSANDS OF
DOLLARS)
<S> <C> <C>
Tax provision at federal statutory rate.................. $(7,027) $(1,724)
Amortization of non-deductible intangibles............... 1,931 283
State & foreign taxes, net of federal benefit............ (1,137) (218)
Change in valuation allowance............................ 6,093 1,134
Other.................................................... 140 (53)
------- -------
Income tax benefit....................................... $ -- $ (578)
======= =======
</TABLE>
F-12
<PAGE> 135
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
The primary components of the temporary differences which give rise to
Penril's net deferred tax asset at July 31, 1996 are shown below:
<TABLE>
<CAPTION>
AS OF JULY 31,
1996
--------------
<S> <C>
Deferred tax assets:
Reserves and other contingencies.............................. $ 1,500
Depreciation and amortization................................. 65
Restructuring Reserve......................................... 1,859
Net operating loss............................................ 6,780
General Business and other tax credits........................ 1,248
Loss on discontinued operations............................... 546
Valuation reserve............................................. (9,837)
-------
Total deferred tax assets..................................... 2,161
Deferred tax liabilities
Amortization of technologies.................................. (461)
-------
Net deferred tax assets......................................... $ 1,700
=======
</TABLE>
Access Beyond, Inc., will file its first tax return for the period from
November 18, 1996 until the end of the fiscal year ended July 31, 1997. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying value of assets and liabilities for financial reporting purposes and
the amounts reported for income tax purposes. Significant components of the
Company's deferred income tax liabilities and assets are shown in the following
table.
<TABLE>
<CAPTION>
JULY 31,
1997
-------------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
Deferred Tax Assets:
Reserves and other contingencies.............................. $ 721
Note receivable reserves...................................... 1,137
Net operating losses.......................................... 5,247
Excess tax depreciation over book............................. 65
-------
Net deferred tax assets......................................... 7,170
Valuation Allowance............................................. (7,170)
-------
Net Deferred Tax Assets Reported................................ $ --
=======
</TABLE>
No income tax provision or benefit was recorded in fiscal 1997.
The reconciliation of the effective income tax rates to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
JULY 31,
1997
--------
<S> <C>
Statutory federal rate.............................................. -34.0%
State income taxes, net of federal income tax benefit............... -1.6%
Transaction Merger.................................................. -13.7%
Miscellaneous....................................................... 2.5%
Change in valuation allowance....................................... 46.8%
-----
Effective tax rates................................................. 0.0%
=====
</TABLE>
F-13
<PAGE> 136
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
At July 31, 1997 the Company had a net operating loss carryforward
(including EMI and TPI) of approximately $13.8 million which expires in 2012.
The Company has made no income tax payments for the year ended July 31, 1997.
7. COMMITMENTS AND CONTINGENCIES
PENDING TRANSACTION: On July 29, 1997, the Company entered into an
Agreement and Plan of Reorganization (the "Merger Agreement") with Hayes
Microcomputer Products, Inc. Under the terms of the Merger Agreement with Hayes
Microcomputer Products (the "Hayes Merger"), Hayes will become a wholly owned
subsidiary of the Company and the shareholders of Hayes at the time the Merger
becomes effective will own approximately 79% of the outstanding equity
securities of the Company. The Company will amend its certificate of
incorporation to (i) change its name to Hayes Communications Inc., (ii) increase
the number of authorized shares of capital stock, and (iii) create Series A
Preferred Stock and the Board of Directors of the Company will be increased to
seven members, five of whom will be designated by the Hayes shareholders. The
transaction is subject to regulatory and the Company's stockholders' approval
and certain conditions to closing as set forth in the Hayes Agreement. At the
time of the consummation of the merger, the Company is responsible for payment
of the investment banking fees of approximately $1.0 million and for change of a
control payment of $437,500 to Ronald Howard (president of the Company).
POSSIBLE LOSS OF HAWK TECHNOLOGY: On May 2, 1997, the Company and Paradyne
Corporation, A Delaware corporation ("Paradyne"), entered into the 2290 Remote
Access Gateway ("Hawk") Technology Transfer Agreement (the "Technology
Agreement") pursuant to which Paradyne (i) transferred to the Company technology
relating to certain open remote dial access cards (in the form of a
comprehensive set of specifications, technical information, hardware and
software)(the "Hawk Technology"), (ii) sold to the Company certain inventory,
tools and equipment used in the application of the Hawk Technology to develop
and manufacture products, ("Hawk Products") which include the Hawk Technology,
(iii) licensed to the Company certain intellectual property in connection with
the Hawk Technology, and (iv) agreed to provide the Company with technical,
engineering, manufacturing and marketing support, for an aggregate purchase
price of 503,704 shares of the Common Stock (the "Paradyne Shares"), and
$425,000 in cash. The shares of Common Stock were valued at the fair value at
date of issuance, approximately $1.7 million. The Company and Paradyne also
entered into a Stock Purchase Agreement, dated as of May 2, 1997 (the "Purchase
Agreement"), pursuant to which the Company sold and issued the Paradyne Shares
to Paradyne. Pursuant to the Purchase Agreement, the Company is required to
register the Paradyne Shares for Paradyne under the Securities Act within one
hundred twenty (120) days after the closing, with the right to extend such date
by 60 days, under certain circumstances.
Paradyne's transfer of Hawk Technology, license of Intellectual Property
and, to a certain extent, the inventory of Hawk Product are subject to an
"Unwind" provision in the Technology Agreement. Paradyne may elect to rescind
the Technology Agreement if the Company (a) fails to timely register the
Paradyne Shares or (b) fails to use its best efforts to maintain the
effectiveness of the registration statement, and does not cure such failure
within 30 days after Paradyne gives written notice. Such election would result
in the termination of the license of the Intellectual Property, the transfer of
the Hawk Technology and unsold Hawk Products to Paradyne, and the return to the
Company of the value of the consideration paid, subject to certain adjustments.
HIBBING AGREEMENT: In March 1997, the Company entered into an agreement
with Hibbing Electronics Corporation in which Hibbing manufactures and sells
printed circuit card products to the Company. Under the Agreement, Hibbing has
the right to use the lower level of the Company's Gaithersburg, Maryland
facility as well as certain equipment needed for the manufacturing process.
Hibbing pays the Company 50% of the monthly rent and utilities associated with
the facility and pays the current installment amounts on the
F-14
<PAGE> 137
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
manufacturing equipment that Hibbing uses and that the Company leases. This
agreement expires August 31, 1998 at which time Hibbing shall have the option to
purchase all of the equipment covered under the agreement and the Company will
assign all right, title, and interest in the covered leases and equipment to
Hibbing in exchange for Hibbing's agreement to pay and perform the Company's
obligations under those leases.
LEGAL PROCEEDINGS: The Company initiated a lawsuit in December 1994
against Network Systems Corporation ("NSC") for breach of contract, fraudulent
inducement and defamation. The suit is seeking specific performance,
compensatory damages of $2,000,000 and punitive damages of $5,000,000. The
litigation arises out of a contract in which the Company agreed to develop
certain computer hardware and software to NSC's specifications. NSC subsequently
brought a counterclaim alleging negligent misrepresentation, fraud and breach of
contract by the Company. NSC is seeking recision of the contract, restitution of
monies paid by NSC to the Company, compensatory damages of $5,000,000 and
punitive damages in an unspecified amount. As of July 31, 1997, the Company was
in discussions with NSC.
In 1993 the Company initiated a lawsuit against Standard Microsystems Corp.
("SMC") for breach of contract including failure to transfer technology, unfair
competition and false representations. In September 1996, the Company and SMC
agreed to drop the charges of false representation and settle the contractual
dispute. In October 1996, the Company received from SMC, in settlement of the
litigation, $3,500,000 cash, net of legal payments.
Digital Equipment Corporation ("DEC") has claimed, through a series of
written communications, that the Company has violated DEC patents related to DEC
LAT technology. In August 1997, the Company and DEC entered into an license
agreement including a specific release whereby the Company acquired a non-
exclusive license to develop, manufacture, and market specified products which
are compatible with Digital's LAT technology.
The Company is involved in other routine litigation.
Management believes none of the litigation will have a material adverse
effect on the Company's financial position or results of operations.
8. SHAREHOLDERS' EQUITY
COMMON STOCK: In the first quarter of fiscal 1997, as part of the Spin-off
and Merger with Bay described in Note 1, Penril issued 1,124,951 shares of its
common stock in connection with the accelerated vesting of Penril's outstanding
employee stock options and non-employee stock options. Penril received
approximately $6,135,000 from the exercise of those options. Also prior to the
Spin-off and Merger with Bay, Penril issued 16,989 shares of its common stock to
Ronald Howard for $115,000. Subsequently, Penril issued 11,991,587 shares of the
Company's common stock in a stock dividend which is described more fully in Note
1, and completed the Spin-off and Merger with Bay. The Company's common stock
began trading on
F-15
<PAGE> 138
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
the NASDAQ on November 18, 1996. A summary of stock option transactions for
Penril during the three years ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
1995 INCENTIVE
1986 INCENTIVE PLAN DIRECTORS' PLAN PLAN
------------------- ------------------ -----------------
AVERAGE AVERAGE AVERAGE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF PER OF PER OF PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding August 1, 1994........ 1,037,419 $4.15 204,000 $3.64 -- $
Granted......................... 348,000 $3.12 18,000 $3.25 -- --
Exercised....................... (33,067) $2.23 -- -- -- --
Canceled........................ (233,617) $4.15 -- -- -- --
Outstanding July 31, 1995......... 1,118,735 $3.89 222,000 $3.61 -- --
Granted......................... 494,000 $7.34 18,000 $5.69 70,000 $6.77
Exercised....................... (539,284) $4.02 (148,000) $3.87 -- --
Canceled........................ (110,500) $4.32 -- -- -- --
Outstanding July 31, 1996......... 962,951 $5.54 92,000 $3.59 70,000 $6.77
Exercised....................... (962,951) $5.54 (92,000) $3.59 (70,000) $6.77
Outstanding July 31, 1997......... -- -- -- -- -- --
</TABLE>
EMPLOYEE STOCK OPTIONS AND STOCK AWARDS: On November 18, 1996, the Company
adopted the 1996 Long Term Incentive Plan (the "1996 Plan"). Under the 1996
Plan, which will terminate on November 18, 2006, awards may be granted to key
employees of the Company and its subsidiaries in one or more of the following
forms: (i) Incentive Stock Options; (ii) Non-qualified Stock Options; and (iii)
a combination of the foregoing. The option price per share of any option granted
under the 1996 Plan is the fair market value of a share of Common Stock on the
date the option is granted. No option will be exercisable more than ten years
from the date of grant and vest over three years. An aggregate of 2,000,000
shares of the Company's common stock were reserved for issuance at July 31, 1997
NON-EMPLOYEE DIRECTOR STOCK OPTIONS: On November 18, 1996, the Company
adopted the 1996 Non-Employee Directors' Stock Option Plan ("Directors Plan").
Under the Directors Plan an option to purchase 25,000 shares is automatically
granted to each non-employee director on the first day of his initial term. In
addition, options to purchase 5,000 shares are automatically granted to each
non-employee director on the fifth business day after the Annual Report on Form
10-K is filed with the Securities and Exchange Commission. The option price per
share of any option granted under the Directors Plan is the fair market value of
a share of Common Stock on the date the option is granted. No option will be
exercisable more than ten years from the date of grant and vest over three
years. An aggregate of 250,000 shares were reserved for issuance under the
Directors Plan at July 31, 1997.
A summary of the stock option transactions for the Company for the year
ended July 31, 1997 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 LONG TERM
INCENTIVE PLAN DIRECTORS' PLAN
----------------------- ---------------------
NUMBER AVERAGE NUMBER AVERAGE
OF PRICE OF PRICE
SHARES PER SHARE SHARES PER SHARE
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Granted.................................. 1,469,000 $6.08 100,000 $7.74
Canceled................................. (100,000) $6.63 -- --
Outstanding at July 31, 1997............. 1,369,000 $6.04 100,000 $7.74
</TABLE>
F-16
<PAGE> 139
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
CHANGE OF CONTROL PROVISION: In the case of a "change in control" of the
Company, an option holder will generally have the right, commencing at least
five days prior to the "change in control" and subject to any other limitation
on the exercise of the option in effect on the date of exercise, to immediately
exercise any options in full to the extent not previously exercised, without
regard to any vesting limitations.
SFAS NO. 123: For the purposes of following pro forma disclosures required
by SFAS No. 123, the estimated fair value of the options is expensed in the year
that the options are granted using the Black-Scholes option valuation model. The
Black-Scholes model was developed for use in estimating the fair value of traded
options that have no vesting restriction and are fully transferable. In
addition, option valuation models, such as Black-Scholes model, require the
input of highly subjective assumptions including the expected stock price
volatility which are subject to change from time to time. For this reason, and
because SFAS No. 123 fair value-based method of accounting has not been applied
to options granted prior to August 1, 1995, the resulting pro forma compensation
costs are not necessarily indicative of costs to be expected in future years.
In preparing the pro forma information, the following assumptions were
made: risk-free weighted average interest rate was 5.5%; volatility factors of
the expected market price of the Company's common stock of 61.12% in fiscal 1997
and 86.2% for Penril's common stock in fiscal 1996, and option lives of less
than 12 months for both years. The following pro forma information has been
prepared as if the Company had accounted for its employee stock options using
the fair value-based method of accounting established by SFAS No. 123.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY
31,
-----------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
Net loss from continuing operations:
As reported........................................ $(13,890) $(20,668)
Pro forma.......................................... $(16,138) $(21,954)
Loss per share from continuing operations:
As reported........................................ $ (1.16) $ (2.14)
Pro forma.......................................... $ (1.35) $ (2.28)
</TABLE>
SERIAL PREFERRED STOCK: The Company's Serial Preferred Stock may be issued
in one or more series. The shares of any series may be convertible into Common
Stock, may have priority over Common Stock in the payment of dividends and in
the distribution of assets in the event of liquidation or dissolution of the
Company, and may have preferential or other voting rights, all as determined by
the Board of Directors at the time it approves the series.
WARRANTS: In March, 1987, Henry D. Epstein joined Penril as President and
Chief Executive Officer and was issued Class A warrants to purchase 400,000
shares of Penril's Common Stock at $2.23 per share and Class B warrants to
purchase 80,000 shares of Penril's Common Stock at $2.34 per share. Mr. Epstein
exercised 220,000 Class A warrants in January 1993, 80,000 Class A warrants in
January 1994 and 100,000 Class A warrants in February 1994. In February 1995,
Mr. Epstein exercised all 80,000 Class B warrants. All exercises were
accomplished by delivery of shares previously held.
In October 1992, Penril issued a warrant to purchase 166,000 shares of
common stock at $4.50 per share, the fair market value on the date of issuance,
to Coast Federal Savings Bank ("Coast") in settlement of a law suit brought
against the Company. In addition, Penril issued Class E warrants to purchase
25,000 shares of common stock at $3.625 per share, the fair market value on the
date of issuance, to Mr. Henry Epstein in consideration for Mr. Epstein, in his
capacity as a stockholder of Penril, assisting Penril in settling the
F-17
<PAGE> 140
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
litigation with Coast. The Coast warrant expired June 7, 1995. The Class E
warrants were exercised subsequent to July 31, 1995.
9. RETIREMENT AND SAVINGS PLAN
On November 18, 1996, the Company adopted the Penril Retirement and Savings
Plan as part of the Spin-off and Merger transaction with Bay described in Note
1. The Company's Retirement and Savings Plan ("401(k) Plan") is a defined
contribution plan including provisions of section 401(k) of the Internal Revenue
Code. Employees of the Company who have completed 90 days of service
("Participants") are eligible to participate in the 401(k) Plan. The 401(k) Plan
permits, but does not require, the Company to match employee contributions. In
addition, the Company may make discretionary contributions to the 401(k) Plan
which will be allocated to each Participant based on the ratio of such
Participant's eligible compensation to the total of all Participants' eligible
compensation. Amounts contributed by the Company vest as to 30% after 1 year of
eligible service, 60% after 2 years of eligible service and 100% after 3 years
of eligible service. Participants may elect to direct the investment of their
contributions in accordance with the provisions of the 401(k) Plan. The Company
made matching contributions of $46,000 in fiscal 1997 and Penril made matching
contributions of $61,000 and $45,000 during fiscal 1996 and 1995, respectively.
There were no additional Company contributions in any year. The Company provides
no post-employment or post-retirement benefits.
10. GEOGRAPHIC AREA INFORMATION
The Company's foreign operations for fiscal 1997 consisted principally of
sales and marketing activities through its Access Beyond, Ltd subsidiary located
in the United Kingdom. Certain information, including the effect of intercompany
transactions, relating to the Company's operations on a geographic basis for the
year ending July 31, 1997, and Penril's operations on a geographical basis for
the years ending July 31, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
REVENUES
U.S. Revenue
Domestic.................................................. $ 10,724 $ 19,350 $26,190
Exports:
Europe.................................................... 1,993 8,808 9,326
Pacific Rim............................................... 1,465 3,868 6,402
Central and South America................................. 973 2,393 3,487
Other International....................................... 1,191 2,235 4,403
-------- -------- -------
Total Exports.......................................... 5,622 17,304 23,618
-------- -------- -------
Total U.S. Revenue.......................................... 16,346 36,654 49,808
======== ======== =======
Revenue from foreign subsidiaries........................... 3,537 7,392 6,839
Adjustments and eliminations................................ (1,883) (4,611) (4,036)
-------- -------- -------
Total Revenues......................................... $ 18,000 $ 39,435 $52,611
======== ======== =======
Income (loss) from continuing operations before taxes
U.S......................................................... $(13,726) $(20,267) $(5,143)
Foreign..................................................... (457) (531) 688
Eliminations................................................ 293 130 (737)
-------- -------- -------
Total loss from continuing operations.................. $(13,890) $(20,668) $(5,192)
======== ======== =======
</TABLE>
F-18
<PAGE> 141
ACCESS BEYOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Identifiable Assets
U.S......................................................... $ 12,785 $ 31,325 $40,946
Foreign subsidiaries........................................ 1,121 2,455 3,441
-------- -------- -------
Total Identifiable Assets.............................. $ 13,906 $ 33,780 $44,387
======== ======== =======
</TABLE>
11. SUBSEQUENT EVENTS
On September 15, 1997, the Company received a commitment from a third party
lending institution approving a working capital facility of $3,000,000 with
borrowing based on qualified accounts receivable. Interest will be one half
percentage point ( 1/2%) above the Reference Rate publicly announced by Norwest
Bank. A fee of 1% of the total line and term loan commitment will be due and
payable at closing and at each annual anniversary date thereafter. The facility
will be for a two year period. In the event of the Hayes Merger, the Company may
prepay the line of credit by providing the lender with sixty days written
notice, and payment of the service charge (a monthly charge equal to the greater
of $2,000 or 1/3% of the average daily outstanding balance on all loans) times
the remaining months of the two year term. In all other cases the prepayment
penalty will be equal to 3% of the total line commitment in the first year and
2% of the line commitment in all subsequent years thereafter.
On November 12, 1997, the Company and several investors entered into a
Preferred Stock Investment Agreement pursuant to which the Company agreed to
sell to the investors up to 45,000 shares of the Company's 6% Cumulative
Convertible Preferred Stock with a liquidation preference of $1,000 per share,
at a purchase price of $1,000 per share. On November 12, 1997, 10,000 shares of
6% Cumulative Convertible Preferred Stock were sold for $10,000,000 and the
Company received net proceeds from the issuance of $9,600,000. The Preferred
Stock Investment Agreement provides that the remaining up to 35,000 shares will
be purchased for up to $35,000,000 upon the closing of the Hayes Merger,
provided that no material adverse change occurs in the interim.
The 6% Cumulative Convertible Preferred Stock was sold pursuant to an
exemption from registration under the Securities Act.
F-19
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hayes Microcomputer Products, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Hayes
Microcomputer Products, Inc. and subsidiaries as of December 31, 1995 and 1996
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended September 30, 1994 and 1995, the
three months ended December 31, 1995, and the year ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hayes
Microcomputer Products, Inc. and subsidiaries as of December 31, 1995 and 1996
and the results of their operations and their cash flows for the years ended
September 30, 1994 and 1995, the three months ended December 31, 1995, and the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
Atlanta, Georgia
April 30, 1997, except for
Note 18, as to which the date
is November 12, 1997.
F-20
<PAGE> 143
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $2,435 $5,687 $ 6,497
Restricted cash............................................ 3,501 594 2
Accounts receivable, less allowance for doubtful accounts
and product returns of $5,424 in 1995, $8,115 in 1996
and $5,916 in 1997...................................... 27,489 16,060 40,624
Receivables from related parties........................... 6,828 8,219
Inventories................................................ 38,304 25,422 26,763
Refundable income taxes.................................... 1,344 16
Prepaid expenses and other current assets.................. 2,187 4,437 4,031
------- ------- --------
Total current assets............................... 75,260 59,044 86,136
Property and equipment, net.................................. 6,207 7,387 8,549
Computer software costs, net................................. 813 307 401
Land held for sale........................................... 6,139 328
Intangibles and other long-term assets....................... 3,277 2,149 6,862
------- ------- --------
Total assets....................................... $91,696 $69,215 $ 101,948
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current debt............................................... $11,134 $13,973 $ 31,729
Accounts payable........................................... 4,307 10,414 28,376
Amounts due to related parties............................. 6,918 13,147
Accrued liabilities........................................ 34,549 23,221 26,311
Income taxes payable....................................... 864 1,017
------- ------- --------
Total current liabilities.......................... 49,990 55,390 100,580
Long-term debt, less current................................. 6,881 4,502
Liabilities subject to compromise............................ 44,581
Other long-term liabilities.................................. 137 1,203 1,014
------- ------- --------
Total liabilities.................................. 94,708 63,474 106,096
Commitments and contingencies
Redeemable preferred stock, Series B, no par value,
authorized 263,113 shares; issued and outstanding 263,113
at June 30, 1997........................................... 5,455
Stockholders' equity (deficit):
Common stock, $.01 par value; authorized 100,000,000
shares; issued and outstanding 17,328,479 shares at
December 31, 1995 and 4,991,750 shares at December 31,
1996 and June 30, 1997.................................. 173 50 47
Preferred stock, Series A, no par value, authorized
10,000,000 shares; issued and outstanding 4,900,000
shares at December 31, 1996 and June 30, 1997........... 35,000 35,000
Paid-in capital............................................ 496
Accumulated deficit........................................ (4,299) (30,312) (44,834)
Foreign currency translation adjustment.................... 308 1,003 184
Unrealized gain on marketable securities................... 310
------- ------- --------
Total stockholders' equity (deficit).................... (3,012) 5,741 (9,603)
------- ------- --------
Total liabilities and stockholders' equity......... $91,696 $69,215 $ 101,948
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 144
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------- ------------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales....................... $ 246,277 $ 269,155 $ 70,111 $257,452 $ 201,434 $ 146,701
Cost of sales................... 195,188 204,787 51,765 195,918 152,831 111,819
-------- -------- -------- -------- -------- --------
Gross profit............... 51,089 64,368 18,346 61,534 48,603 34,882
-------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing........... 41,278 33,364 8,867 42,757 32,244 28,308
General and administrative.... 23,908 22,223 5,100 18,970 15,079 13,058
Research and development...... 16,153 10,713 2,281 9,640 7,047 8,992
Amortization and write-off of
intangibles................ 6,463 5,907
Restructuring charges......... 3,600 4,100
-------- -------- -------- -------- -------- --------
Total operating expenses... 87,802 72,207 16,248 74,967 58,470 50,358
-------- -------- -------- -------- -------- --------
Operating (loss) income......... (36,713) (7,839) 2,098 (13,433) (9,867) (15,476)
Interest expense, net........... (1,928) (6,605) (1,807) (5,056) (4,105) (3,541)
Gain on sale of investment...... 666 2,157
Gain on sale of land............ 8,153 8,153
Gain on patent infringement
settlement.................... 3,993
Other income (expense), net..... 4,893 4,155 (24) 2,279 1,916 2,491
-------- -------- -------- -------- -------- --------
(Loss) income before
reorganization expense
and income tax expense
(benefit)................ (29,755) (10,289) 267 (7,391) (3,903) (14,369)
Reorganization expense.......... 5,026 4,301 5,378 5,378
-------- -------- -------- -------- -------- --------
Loss before income tax
expense (benefit)........ (29,755) (15,315) (4,034) (12,769) (9,281) (14,369)
Income tax expense (benefit).... (1,689) (932) 603 385 383 153
-------- -------- -------- -------- -------- --------
Net loss................... $ (28,066) $ (14,383) $ (4,637) $(13,154) $ (9,664) $ (14,522)
-------- -------- -------- -------- -------- --------
Net loss per share.............. $ (4.98) $ (2.56) $ (0.82) $ (2.52) $ (1.82) $ (2.91)
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 145
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN UNREALIZED TOTAL
COMMON STOCK PREFERRED STOCK ACCUMULATED CURRENCY GAIN ON STOCKHOLDERS'
----------------- ---------------- PAID-IN EARNINGS TRANSLATION MARKETABLE EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT SECURITIES (DEFICIT)
------- -------- ------- ------- -------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30,
1993.................. 17,418 $ 174 $ 998 $ 42,787 $ 166 $ 44,125
Stock repurchased from
profit sharing...... (90) (1) (502) (503)
Net loss.............. (28,066) (28,066)
Foreign currency
translation......... 340 340
------- ---- ----- --------- -----
Balance September 30,
1994.................. 17,328 $ 173 496 14,721 506 15,896
Net loss.............. (14,383) (14,383)
Foreign currency
translation......... (96) (96)
Unrealized gain on
securities held for
sale................ $ 266 266
------- ---- ----- --------- ----- --------
Balance September 30,
1995.................. 17,328 173 496 338 410 266 1,683
Net loss.............. (4,637) (4,637)
Foreign currency
translation......... (102) (102)
Unrealized gain on
securities held for
sale................ 44 44
------- ---- ----- --------- ----- --------
Balance December 30,
1995.................. 17,328 173 496 (4,299) 308 310 (3,012)
Net loss.............. (13,154) (13,154)
Stock repurchased and
retired............. (1,737) (17) (602) (12,859) (13,478)
Preferred stock
issued.............. 4,900 $35,000 35,000
Reverse split of
common stock........ (10,599) (106) 106
Foreign currency
translation......... 695 695
Unrealized gain on
securities held for
sale................ (310) (310)
------- ---- ----- -------- ----- --------- ----- --------
Balance December 31,
1996.................. 4,992 50 4,900 35,000 (30,312) 1,003 5,741
Net loss
(unaudited)......... (14,522) (14,522)
Repurchase of stock
(unaudited)......... (3) (3)
Foreign currency
translation
(unaudited)......... (819) (819)
------- ---- ----- -------- ----- --------- ----- --------
Balance September 30,
1997 (unaudited)...... 4,992 $ 47 4,900 $35,000 $ $ (44,834) $ 184 $ $ (9,603)
======= ==== ===== ======== ===== ========= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 146
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------- ------------- ------------ ------------ NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income................. $ (28,066) $ (14,383) $ (4,637) $(13,154) $ (9,664) $ (14,522)
-------- -------- -------- -------- -------- --------
Adjustments to reconcile net
(loss) income to net cash (used
in) provided by operating
activities:
Depreciation and amortization... 5,795 5,989 1,301 4,799 3,739 4,799
Amortization and write-off of
intangibles................... 6,463 5,543
Provision for doubtful accounts
receivable.................... (140) 2,390 (20) 345 259 (92)
Provision for inventory
write-downs................... 3,832 12,727 575 5,440 4,470 2,704
Deferred income taxes........... 3,034
Gain on sale of investment...... (666)
Gain on sale of land............ (8,153) (8,153) (2,157)
Changes in assets and
liabilities, net of effects of
acquisition:
Accounts receivable........... (2,114) (11,513) 6,079 4,256 2,150 (21,698)
Inventories................... (18,448) 3,541 (161) 7,442 3,011 929
Refundable income taxes....... (3,741) 3,011 1,328 1,328 16
Prepaid expenses and other
current assets.............. (415) 1,043 (14) (1,338) (811) (791)
Accounts payable.............. 25,448 (47,850) 1,057 6,107 4,343 9,770
Amounts due to related
parties..................... 6,496 4,816 6,229
Accrued liabilities........... 1,373 8,441 7,605 (10,464) (7,148) (4,446)
Income taxes payable.......... 153
Liabilities subject to
compromise.................. 33,275 3,147 (44,581) (44,581)
Other long-term liabilities... (753) (701) 3 1,066 1,192 (189)
-------- -------- -------- -------- -------- --------
Total adjustments........... 20,334 15,896 19,572 (27,923) (35,385) (4,773)
-------- -------- -------- -------- -------- --------
Net cash (used in) provided
by operating activities... (7,732) 1,513 14,935 (41,077) (45,049) (19,295)
-------- -------- -------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures.............. (4,915) (1,805) (453) (5,028) (2,673) (3,056)
Proceeds from sale of land........ 14,317 14,317
Payment for acquisition of
Cardinal, net of cash acquired
of $3,057....................... (38)
Proceeds from sale of
investment...................... 798 2,357
Proceeds from sale of property and
equipment....................... 759 73 782 255
Changes in other long-term
assets.......................... (3,167) 2,636 189 333 382 (88)
Changes in escrowed and restricted
funds........................... (3,036) (465) 2,907 3,131 592
-------- -------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities................ (8,082) (1,446) (656) 14,109 15,412 (233)
-------- -------- -------- -------- -------- --------
Cash flows from financing
activities:
Issuance of preferred stock....... 35,000 35,000 5,455
Payments on debt.................. (7,624) (28,685) (16,318) (17,915) (13,114) (4,281)
Proceeds from debt................ 26,256 26,266 22,057 21,637 15,311
Issuance of convertible notes..... 6,000 6,000 4,000
Repurchase of stock............... (504) (13,478) (13,485) (3)
Payment of debt issuance costs.... (618) (625) (2,139) (1,877) 675
-------- -------- -------- -------- -------- --------
Net cash provided by (used
in) financing
activities................ 18,128 (3,037) (16,943) 29,525 34,161 21,157
-------- -------- -------- -------- -------- --------
Effect of exchange rate changes on
cash.............................. 340 (96) (102) 695 395 (819)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................. 2,654 (3,066) (2,766) 3,252 4,919 810
Cash and cash equivalents at
beginning of period............... 5,613 8,267 5,201 2,435 2,435 5,687
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of
period............................ $ 8,267 $ 5,201 $ 2,435 $ 5,687 $ 7,354 $ 6,497
-------- -------- -------- -------- -------- --------
Supplemental information:
Interest paid..................... $ 896 $ 3,221 $ 1,203 $ 11,811 $ 8,917 $ 2,042
Income taxes paid................. 3 15 7 658 144 414
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 147
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
(IN THOUSANDS)
1. NATURE OF BUSINESS AND PLAN OF REORGANIZATION
Hayes Microcomputer Products, Inc. ("Hayes") along with its wholly owned
subsidiaries (collectively, the "Company"), is engaged in the development,
production and marketing of telecommunications equipment and software and sells
primarily to personal computer and peripheral distributors and resellers.
Reorganization
On November 15, 1994, Hayes filed a petition for relief under Chapter 11 of
the United States Bankruptcy Code due to its inability to pay its debts on a
current basis. Under Chapter 11, certain claims against the debtor in existence
prior to the filing of the petition for relief under the federal bankruptcy laws
were stayed while the Debtor continued business as a debtor-in-possession
("DIP"). These claims were reflected in the consolidated December 31, 1995
balance sheet as liabilities subject to compromise.
Hayes filed amended and restated plans of reorganization, the most recent
dated February 9, 1996 (the "Plan"). The Plan was confirmed by the U.S.
Bankruptcy Court on March 8, 1996 and became effective on April 16, 1996. From
November 1994 through April 1996, the Company operated as the DIP. The Plan
provided for the payment in full of all prepetition creditors on the effective
date, plus interest on such creditors' claims, except where such creditors have
agreed to accept payments over a period of time. Funding of the plan was
provided through three major sources. First, pursuant to an agreement and plan
of merger dated April 12, 1996 (the "Agreement") and entered into by and between
Rinzai Limited ("ACMA"), Kaifa Technology (H.K.) Limited, Rolling Profit
Holdings, Ltd., Lao Hotel (H.K.), Limited, Saliendra Pte Ltd., and S.P. Quek
Investments Pte. Ltd. (collectively, the "Investors"), certain subsidiaries were
created by the investors which collectively contributed $35.0 million and merged
with Hayes. The Investors received preferred stock representing a 49 percent
voting interest in the Company. Second, the Company entered into an agreement
with The CIT Group/Credit Finance, Inc. ("CIT") to borrow up to a total of $64.5
million through three separate debt instruments collateralized by the Company's
intellectual property, certain equipment, and accounts receivable and inventory
balances. Third, pursuant to the Plan, the Company sold certain parcels of real
property classified as land held for sale on the accompanying consolidated
balance sheets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Hayes
Microcomputer Products Inc. and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
The Company's investments in 20 to 50 percent owned companies in which it has
the ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. Accordingly, the Company's
share of the earnings of these companies and any realized gains and losses are
included in the consolidated statements of operations. Investments in other
companies are carried at cost. The cost of securities sold is based on the
specific identification method.
Effective October 1, 1995, the Company changed its year end from September
30 to December 31. Certain reclassifications have been made to prior period
financial statements in order to conform to the 1996 presentation.
Interim Financial Statements
The interim financial data as of and for the nine months ended September
30, 1996 and 1997 is unaudited; however, in the opinion of the Company's
management, the interim data includes all adjustments,
F-25
<PAGE> 148
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consisting only of normal recurring adjustments necessary for a fair statement
of results for the interim period. The interim period results of operations are
not necessarily indicative of results for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these
estimates.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Restricted cash at December 31, 1996 and at September 30, 1997 is based on a
Bankruptcy Court mandate to escrow funds. Restricted cash at December 31, 1995
is based on the Company's previous debt facility requirements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include labor and related manufacturing overhead. Market with respect to raw
materials is replacement cost and for work in process and finished goods is net
realizable value. Inventories are presented net of the reserve for obsolescence.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated for financial reporting purposes using
the straight-line method based on the estimated useful life of the assets (three
to five years). Leasehold improvements are depreciated over the shorter of the
lease term or useful life.
Maintenance and repairs are charged to expense as incurred. Upon sale,
retirement or other disposition of these assets, the cost and the related
accumulated depreciation are removed from the respective accounts and any gain
or loss on the disposition is included in the consolidated statements of
operations
Computer Software Costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," the Company capitalizes costs incurred for the development of
computer software to be sold. Costs are capitalized upon the establishment of
technical feasibility of the product. Capitalized costs are being amortized
based on current and future projected revenues for each product with an annual
minimum equal to the straight-line amortization over the five year estimated
economic useful life of the product.
Intangibles and Other Long-Term Assets
The Company evaluates the recoverability of all long-lived assets including
related intangible assets and goodwill based upon a comparison of discounted
estimated future cash flows from the related operations with the then
corresponding carrying values of those assets. Realizability of non-related
goodwill is evaluated based on non-discounted future cash flow and operating
income.
Intangible assets consist principally of purchased software and goodwill
which is being amortized using the straight-line method over five years and ten
years, respectively. Accumulated amortization was $11.7 million, $12.2 million
and $12.5 million at December 31, 1995 and 1996 and at September 30, 1997,
respectively.
F-26
<PAGE> 149
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company's policy is to record revenue upon shipment of related goods to
customers. Sales to certain distributors are under terms which allow for those
distributors to receive price protection based on future price reductions. Some
sales made to distributors allow limited rights of return. The Company provides
an allowance for returns and price reductions based on historical experience.
Income Taxes
Income taxes have been provided using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under SFAS 109, deferred tax liabilities and assets are
determined based on temporary differences between the bases of certain assets
and liabilities for income tax and financial reporting purposes. The differences
are primarily attributable to reserves on inventory and accounts receivable.
Future tax benefits, such as net operating loss carryforwards, are recognized to
the extent that realization of such benefits is more likely than not. The effect
of a change in the valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset in future years would be included in income in that
period.
Advertising
All advertising costs are expensed when incurred. Advertising expenses were
approximately $11.1 million, $9.9 million, $3.4 million and $18.0 million for
the years ended September 30, 1994 and 1995, the three months ended December 31,
1995, and the year ended December 31, 1996, respectively.
Foreign Currency Translation
The financial statements of subsidiaries of the Company outside the United
States are measured using the local currency as the functional currency.
Translation adjustments result from the process of translating those
subsidiaries' financial statements from functional currency into U.S. dollars.
Translation adjustments are reported separately and accumulated in a separate
component of equity. Assets and liabilities of these subsidiaries are translated
at the rates of exchange at the balance sheet dates. Income and expense items
are translated at monthly weighted average rates.
Future Adoption of Recently Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), No. 130, "Reporting Comprehensive Income"
("SFAS 130"), No. 129, "Disclosure of Information About Capital Structure"
("SFAS 129"), and No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 131 specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS 129 provides increased disclosure about an entity's
capital structure, and SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. These standards are effective
for periods ending after December 15, 1997.
The Company believes that the impact of these standards, when adopted, will
not have a material impact on the Company's consolidated financial statements.
F-27
<PAGE> 150
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash Equivalents
The Company estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
Notes Payable
The Company estimates that the fair value of notes payable approximates
carrying value based upon its effective current borrowing rate for issuance of
debt with similar terms and remaining maturities.
Liabilities Subject to Compromise
The Company estimates that the fair value of prepetition liabilities
approximates carrying value based upon its effective borrowing rate for issuance
of debt with similar terms and remaining maturities.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials...................................... $18,781 $ 9,199 $ 8,359
Work in process.................................... 3,728 4,728 4,278
Finished goods..................................... 15,795 11,495 14,126
------- ------- -------
$38,304 $25,422 $ 26,763
======= ======= =======
</TABLE>
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $ 17,939 $ 19,735 $ 19,781
Data processing equipment........................ 14,164 15,069 15,830
Furniture and fixtures........................... 6,585 6,662 6,506
Leasehold improvements........................... 4,427 4,738 3,873
Construction in progress......................... 42 448 1,307
------- ------- -------
43,157 46,652 47,297
Less accumulated depreciation and amortization... (36,950) (39,265) (38,748)
------- ------- -------
$ 6,207 $ 7,387 $ 8,549
======= ======= =======
</TABLE>
F-28
<PAGE> 151
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C>
Accounts payable................................... $ 7,394 $ 8,444 $ 8,943
Payroll and benefits............................... 4,827 2,643 2,564
Vendor obligations................................. 777 2,348 2,348
Restructuring...................................... 2,058 4,879
Professional fees.................................. 7,571 333 577
Interest........................................... 6,383
Promotional and marketing.......................... 2,901 1,497 1,456
Other.............................................. 4,696 5,898 5,544
------- ------- -------
$34,549 $23,221 $26,311
======= ======= =======
</TABLE>
The liability for restructuring at September 30, 1997 includes liabilities
assumed in the Cardinal transaction and accordingly are not included in the
Company's statement of operations.
5. WRITE-OFF OF INTANGIBLES
In accordance with the Company's policy, management assessed the value of
the goodwill that was recorded as a result of the July 1989 acquisition of
Practical Peripherals, Inc., a computer products manufacturer with operations in
Thousand Oaks, California. As a result of changes in events and circumstances
related to the business, management determined that the goodwill should be
reduced significantly given the expected value that would be derived from these
intangible assets in the future. The Company recorded a charge to write-off
goodwill totaling $5.5 million in the year ended September 30, 1995.
6. RESTRUCTURING
In September 1996, the Company announced the closure of its Thousand Oaks,
California operations. During the year ended December 31, 1996, the Company
recorded a restructuring charge of $3.6 million related to exiting these
operations. The restructuring charge consists of the following items:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Lease obligation............................................... $1,700
Employee severance............................................. 965
Equipment disposals............................................ 705
Other.......................................................... 230
------
$3,600
======
</TABLE>
At December 31, 1996, the remaining restructuring reserve totaled $3.3
million of which $2.1 million is included in accrued liabilities and $1.2
million is included in other long-term liabilities. In addition, cost of sales
for the year ended December 31, 1996 includes $2.4 million of additional
inventory obsolescence charges associated with the termination of products
produced at the Thousand Oaks facility and the resulting disposal of excess
inventory. At September 30, 1997, the remaining restructuring reserve totaled
$1.2 million of which $373,000 is included in accrued liabilities and $814,000
is included in other long-term liabilities.
F-29
<PAGE> 152
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
GECC DIP financing............................... $ 11,134
CIT line of credit............................... $ 6,035 $ 20,141
CIT term loan "A," due April 1, 2002............. 1,802 1,248
CIT term loan "B," due April 1, 2002............. 6,667 4,842
Convertible notes from Investors................. 6,000 10,000
Other............................................ 350 --
--------- --------- ---------
11,134 20,854 36,231
Less current maturities.......................... (11,134) (13,973) (31,729)
--------- --------- ---------
Total long-term debt............................. $ $ 6,881 $ 4,502
========= ========= =========
</TABLE>
Prior to April 16, 1996, the Company completed a $45.0 million court
approved DIP financing with General Electric Capital Corporation ("GECC") under
which amounts owed to NationsBank of Georgia, N.A. were paid in full. In
accordance with the Plan, this financing agreement was paid in full and replaced
by the CIT agreements.
On April 16, 1996, the Company entered into two term loans and a revolving
loan facility (the "Line of Credit") with CIT which provide for maximum
borrowings of $64.5 million. The Line of Credit provides for financing based on
eligible accounts receivable and inventory, as defined in the agreement, and
expires April 16, 2000 unless otherwise renewed. The term loans are based on
eligible equipment and intangibles. Based on the applicable calculations, the
total available borrowings under the term loans and the Line of Credit are
approximately $17.2 million as of December 31, 1996. The term loans and the Line
of Credit bear interest at prime plus 1.625 percent (9.875 percent at December
31, 1996). Dennis C. Hayes, Chairman of the Company, has provided to CIT a $5.0
million guarantee of the outstanding Line of Credit. The Line of Credit has
covenants requiring minimum levels of tangible net worth and net income, as
defined. If these minimum levels are not met, CIT may raise the interest rate to
prime plus 2.125 percent and can accelerate the existing loan amortization on
the term facilities. The Company did not meet the minimum levels at December 31,
1996 and at June 30, 1997 and September 30, 1997. The interest rate was raised
effective January 1, 1997 and the loan amortization on the term facilities was
accelerated effective July 1, 1997.
In April 1996, the Company entered into convertible subordinated promissory
notes (the "Convertible Notes") totaling $6.0 million with certain investors.
The Convertible Notes bear interest at prime plus 1.625 percent and are due on
December 31, 1997. The Convertible Notes have conversion features whereby they
may be converted into shares of the Company's Series A preferred stock if not
paid in full by the maturity date. The Company has reserved authorized shares of
Series A Preferred stock for the Convertible Notes totaling 840,000 shares.
The Company's weighted average interest rate on short-term borrowings was
approximately 9.3%, 9.9%, and 10.5% at December 31, 1995 and 1996 and at
September 30, 1997, respectively.
During March 1997, the Company issued additional Convertible Notes totaling
$4.0 million with certain investors. These Convertible Notes bear interest at
prime plus 1.625 percent and are due on December 31, 1997. The Convertible Notes
have conversion features whereby they may be converted into shares of the
Company's Series A preferred stock if not paid in full by the maturity date. The
Company has reserved 560,000 authorized shares of such stock.
F-30
<PAGE> 153
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of debt for the next five years are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year:
1997............................................ $ 13,973
1998............................................ 1,588
1999............................................ 1,588
2000............................................ 1,588
2001............................................ 1,588
Thereafter...................................... 529
-------
$ 20,854
=======
</TABLE>
8. INCOME TAXES
The differences between the federal statutory income tax rate and the
Company's effective tax rate were as follows for the years ended September 30,
1994 and 1995, the three months ended December 31, 1995, and the year ended
December 31, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Federal statutory rate........... (34.00)% (34.00)% (34.00)% (34.00)%
State income taxes, net of
federal benefit................ (4.00) (4.00) (4.00) (4.00)
Amortization and write-off of
intangibles.................... 13.74
Taxes on foreign income.......... (0.20) 3.20 14.95 3.00
Provision for valuation
allowance...................... 34.53 29.20 63.74 35.86
Equity in foreign subsidiaries
and foreign sales
corporation.................... 5.00 (0.41) (19.61) (3.43)
Other, net....................... (7.01) (13.82) (6.13) 5.59
---- ----- ----- -----
Total....................... (5.68)% (6.09)% 14.95% 3.02%
==== ===== ===== =====
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
(in thousands)
Current:
Federal........................ $(4,723) $(1,359)
Foreign........................ 427 $603 $385
State..........................
------- ------- ---- ----
(4,723) (932) 603 385
Deferred:
Federal........................ 2,967
Foreign........................ 67
State..........................
------- ------- ---- ----
3,034
------- ------- ---- ----
$(1,689) $ (932) $603 $385
======= ======= ==== ====
</TABLE>
F-31
<PAGE> 154
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred income taxes as of December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards.............................. $ 781 $ 12,183
Inventory obsolescence reserves............................... 6,358 2,915
Accrued employee benefits..................................... 828 519
Allowance for doubtful accounts and product returns........... 2,059 3,170
Reserves for warranty claims.................................. 854 856
Accrued advertising........................................... 468 568
Accrued reorganization expenses............................... 3,320 96
Other......................................................... 2,827 1,623
Valuation allowance........................................... (17,312) (21,892)
-------- --------
Total deferred tax assets.................................. 183 38
-------- --------
Deferred income tax liabilities:
Computer software costs....................................... (183) (38)
-------- --------
Total deferred tax liabilities............................. (183) (38)
-------- --------
Net deferred tax asset.......................................... $ $
======== ========
</TABLE>
Due to the Company's filing of a voluntary petition for bankruptcy in 1994,
subsequent emergence from bankruptcy proceedings in April 1996, and the results
of operations for the year ended December 31, 1996, the Company has recorded a
valuation allowance equal to the amount of its net deferred tax assets. The loss
carryforwards as of December 31, 1995 and 1996, are subject to annual
limitations and will expire in 2010 and 2011, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office, plant, and warehouse facilities and certain
vehicles and equipment under noncancelable operating leases. As of December 31,
1996, the approximate future minimum lease payments for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year:
1997........................................... $ 3,399
1998........................................... 3,055
1999........................................... 2,241
2000........................................... 461
2001........................................... 461
Thereafter..................................... 1,318
-------
$ 10,935
=======
</TABLE>
The above payments for noncancelable operating leases includes $1.7 million
associated with the Thousand Oaks facility which has been accrued as part of the
restructuring.
Rental expense was approximately $4.5 million, $3.7 million, $1.0 million,
and $3.9 million for the twelve months ended September 30, 1994 and 1995, the
three months ended December 31, 1995, and the twelve months ended December 31,
1996, respectively.
F-32
<PAGE> 155
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There are various litigation proceedings and claims arising in the ordinary
course of business. The Company believes it has meritorious defenses and is
vigorously defending these matters. The Company believes that the resolution of
such contingencies will not have a material adverse effect on the consolidated
financial position, results of operations, or cash flows of the Company.
During 1994, resultant of patent infringement suits, the Company completed
the negotiation of patent license agreements with certain customers and
suppliers. These agreements provide for royalties to be paid by the customers
and suppliers to the Company on both past and future sales. In settlement of
past sales, the Company recorded approximately $4.0 million as an unusual gain
in 1994.
The Company has employment agreements with a stockholder and certain
management personnel with terms from six months to five years.
The Company has an agreement with a supplier of modem chips, under which
the Company committed, under certain circumstances, to purchase a minimum number
of modem chips during 1996. The Company did not purchase the required number of
modem chips and has accrued a potential estimated penalty due the supplier. The
Company and supplier are in negotiations to resolve the matter.
10. PROFIT SHARING AND 401(k) PLANS
Prior to October 1, 1994, the Company maintained a separate defined
contribution profit-sharing plan (the "Profit-Sharing Plan") covering
substantially all of the Company's full-time employees.
On June 22, 1995, the Company authorized an amendment of the Profit Sharing
Plan to allow the Profit-Sharing Plan to be split into separate 401(k) and
profit-sharing components, whereby the profit-sharing component was frozen
retroactive to October 1, 1994 and all balances immediately vested. The 401(k)
component began functioning as a separate plan as of July 1, 1995, and provides
for eligibility for substantially all employees after six months of service and
vesting of matching contributions ratably over a five-year period. The Company
contributed $0.2 million, $0.1 million and $0.3 million for the year ended
September 30, 1995, the three months ended December 31, 1995 and the year ended
December 31, 1996, respectively.
The Company contributions to the Profit-Sharing Plan were determined at the
discretion of the board of directors. The Company made no contributions to the
Profit-Sharing Plan for the periods presented.
Terminated employees are required to sell their stock to the Profit-Sharing
Plan at the appraised value of the stock. Under the terms of the Profit-Sharing
Plan, the Company had the right to repurchase any shares acquired by the
Profit-Sharing Plan at their appraised value. The Company repurchased and
retired 76,053 shares for $1.7 million in 1996. There were no shares repurchased
in 1995.
As part of the Plan, the Profit-Sharing Plan was amended to provide for a
one-time election whereby all active participants could convert all or part of
their Hayes Microcomputer Products, Inc. stock to cash. In 1996, the Company
paid approximately $0.7 million to the Profit-Sharing plan to repurchase and
retire 32,197 shares of its common stock.
11. CAPITAL STRUCTURE
(a) Common and Preferred Stock
The Company's Restated Articles of Incorporation authorize the issuance of
up to 100,000,000 shares of one cent ($.01) par value common stock. In
accordance with the Plan, the Company effected a 3.078-to-one reverse stock
split which reduced the number of outstanding shares by 10,599,595 shares.
In fiscal 1996, the Company authorized a new class of no par value Series A
Preferred Stock consisting of 10,000,000 shares. The Board of Directors is
authorized to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges, and restrictions of such stock, including
dividend rights, preferences
F-33
<PAGE> 156
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the number of shares constituting any series or the designation of such
series, without further vote or action by the shareholders. During 1997, the
Company authorized a new class of no par value Series B Preferred Stock
consisting of 263,113 shares.
As of December 31, 1996, the Company had issued and outstanding 4,900,000
shares of Series A Preferred Stock. These preferred shares have no dividend
rights but do have preference and priority payment of any dividends on Common
Stock if declared by the Board of Directors. Any such dividends are
noncumulative. The preferred shares also have voting rights and are convertible
by a stated formula at the option of the shareholder and are automatically
converted upon an Initial Public Offering.
(b) Stock Redemption Agreements
In 1988, the Company entered into an agreement with a stockholder whereby
the Company could be required to purchase 1,628,884 shares of common stock at
the option of the stockholder at any time after January 1, 1999 through June
2008. In April 1996, in accordance with the Plan, the Company repurchased all of
the common shares held by a stockholder for $11.0 million and subsequently
retired these shares. In conjunction with this payment, the shareholder
agreement was terminated.
12. REDEEMABLE PREFERRED STOCKS
During April 1997, the Company completed an agreement with Vulcan Ventures,
Inc. to issue 263,113 shares of Series B Preferred Stock for $5.5 million which
includes $45,000 of issuance costs. The stockholders are entitled to receive
cumulative compounding dividends at the rate of 10% per annum of the original
issue price per share of Series B Preferred Stock. Series B dividends have
preference and priority payment over Series A Preferred Stock and Common Stock.
These preferred shares have no voting rights except as required under applicable
law or as expressly stated in the agreement relating to the Series B Preferred
Stock. The Company could be required to redeem these preferred shares by a
stated formula at the option of the more than 50% of the stockholders at any
time after November 1, 1999. The Series B Preferred Stock also is convertible
into shares of common stock by a stated formula if the Company's share are
publicly traded at a stated value per share or in the aggregate or if the Series
B stockholders obtain an affirmative majority vote.
13. STOCK-BASED COMPENSATION
In connection with the Plan, the Company authorized 600,000 warrants to
purchase shares for the fair value at the date of grant. The Company issued
400,000 warrants during April 1996 at an exercise price of $0.714 per share. The
warrants will become exercisable and fully vested on the date the Company files
a registration statement for an Initial Public Offering with the Securities and
Exchange Commission or closes a significant transaction, as defined in the
warrant agreement. The warrants expire five years after the date on which they
become exercisable. The warrants were issued to Directors and are valued and
presented as options in the information below.
In addition, one of the holders of the preferred stock received an
anti-dilution warrant enabling the holder to purchase sufficient quantity to
maintain a 20.2 percent ownership interest of the Company at a price of $14.28
per share.
The Hayes Microcomputer Products, Inc. Stock Option Plan (the "Stock Option
Plan") was adopted by the Company's stockholders in June 1996. No options were
granted prior to that date. Options granted under the Stock Option Plan may be
either (i) options intended to qualify as incentive stock options ("ISO's")
under Section 422 of the Internal Revenue Code or (ii) non-qualified stock
options. None of the options granted in 1996 were intended to qualify as ISO's.
The Stock Option Plan allows for three types of grants: Executive, Management,
and Performance Grants. The Stock Option Plan, as amended in October 1996,
F-34
<PAGE> 157
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allows for a total of 800,000 shares to be granted for Executive and Management
Grants and 1,000,000 shares to be granted for Performance Grants.
An explanation of each type of grant and a description of the options
awarded under each type of grant are as follows:
Executive Grant
During 1996, the Company granted 310,000 options to purchase shares as
Executive Grants at an exercise price of $0.714 per share. The options will
become exercisable on the first to occur of (i) the date on which the company
files a registration statement for an Initial Public Offering with the
Securities and Exchange Commission, or (ii) the date of a significant corporate
transaction, as defined, such as a merger, consolidation or sale. The options
expire five years after the date on which they become exercisable.
Management Grant
During 1996, the Company granted 282,500 options to purchase shares as
Management Grants at exercise prices ranging from $0.714 to $1 per share. The
options will become exercisable on the first to occur of (i) the date on which
the Company files a registration statement for an Initial Public Offering with
the Securities and Exchange Commission, or (ii) the date of a significant
corporate transaction, as defined, such as a merger, consolidation or sale. The
options expire ten years after the date of grant. Upon the date the options
first become exercisable, the amount vested at that time will be determined
based on a five-year ratable vesting schedule beginning at the date of grant.
Performance Grant
During 1996, the Company granted 600,000 options to purchase shares as
Performance Grants at an exercise price of $1 per share. The options begin
vesting on the date the Company completes an Initial Public Offering with the
Securities and Exchange Commission. Vesting will be determined based on the
attainment of specified average share prices as defined in the Stock Option
Plan. The average share prices range from $24.19 to $60.47. The number of
shares, if any, that may be vested will be based solely upon events occurring in
the first five years after the date of grant. The options expire ten years after
the date of grant.
Options historically have been granted based on an amount greater than or
equal to the fair value of the shares at the date of grant. Since no quoted
market price was available, the best estimate of the fair value of the stock was
determined by the Board of Directors.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996: dividend yield of 0%, expected volatility of 0%, risk-free
interest rate of 6.38%, and an expected term of 5.3 years.
The Company did not grant stock options prior to April 1996 and as of
December 31, 1996 no options are exercisable. A summary of the Company's stock
option plan activity and related information for the year ended December 31,
1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options granted................................... 1,592,500 $0.835
Options canceled.................................. (71,500) $0.714
---------
Options outstanding at December 31, 1996.......... 1,521,000 $0.841
=========
Weighted average fair value of options granted
during the year at the share's fair value....... $ 0.23
</TABLE>
F-35
<PAGE> 158
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF OPTIONS AVERAGE
OUTSTANDING AT REMAINING
DECEMBER 31, CONTRACTUAL
EXERCISE PRICES 1996 LIFE
----------------------------------------------- -------------- -----------
<S> <C> <C>
$0.714......................................... 844,500 7.5 years
$1.000......................................... 676,500 6.7 years
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. For the fiscal year ended December 31, 1996, no
compensation expense was recognized for its stock option plans, since certain
events have not occurred. Had compensation expense for the Company's stock-based
compensation plans been determined under the provisions consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss for the year ended December 31, 1996,
would have been the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
NET LOSS LOSS PER SHARE
-------- --------------
<S> <C> <C>
As reported...................................... $(13,154) $(2.52)
Pro forma........................................ $(13,246) $(2.54)
</TABLE>
14. GEOGRAPHIC SEGMENTS
The Company operates in several geographic areas worldwide. Revenues can be
grouped into three primary geographic segments: Domestic including immaterial
Canadian amounts, Europe and Asia. Selected financial data by primary geographic
area for the periods ended September 30, 1994 and 1995 and December 31, 1995 and
1996 follow:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1994
--------------------------------------------------------------
(IN THOUSANDS)
ADJUSTMENTS
AND
DOMESTIC EUROPE ASIA ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $219,962 $19,591 $12,464 $ (5,740) $246,277
Operating profit (loss)......... (35,822) (1,674) 650 133 (36,713)
Identifiable assets............. 128,617 10,678 2,393 (16,724) 124,964
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------------------------
(IN THOUSANDS)
ADJUSTMENTS
AND
DOMESTIC EUROPE ASIA ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $228,983 $22,893 $18,315 $ (1,036) $269,155
Operating profit (loss)......... (7,098) (1,492) 751 (7,839)
Identifiable assets............. 99,919 8,656 7,687 (15,298) 100,964
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1995
--------------------------------------------------------------
(IN THOUSANDS)
ADJUSTMENTS
AND
DOMESTIC EUROPE ASIA ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $ 54,409 $ 8,102 $ 7,600 $ 70,111
Operating profit (loss)......... (445) 852 1,691 2,098
Identifiable assets............. 82,944 10,675 6,309 $ (8,232) 91,696
</TABLE>
F-36
<PAGE> 159
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
(IN THOUSANDS)
ADJUSTMENTS
AND
DOMESTIC EUROPE ASIA ELIMINATIONS CONSOLIDATED
----------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers................... $ 202,001 $24,516 $38,800 $ (7,865) $257,452
Operating profit (loss)....... (10,118) (2,536) (856) 77 (13,433)
Identifiable assets........... 69,943 8,824 7,966 (17,518) 69,215
</TABLE>
Operating profit (loss) is calculated as total revenue less total operating
expenses. In calculating operating profit, none of the following items have been
added or deducted: net interest expense, net miscellaneous income,
reorganization items, or income taxes. Identifiable assets are those assets of
the Company that are identified with the operations in each geographic area,
including goodwill.
The Company generates significant sales outside the United States and is
subject to risks generally associated with international operations. The foreign
operations of the Company accounted for approximately 13%, 15%, 22% and 25% of
the Company's net sales for the years ended September 30, 1994 and 1995, the
three months ended December 31, 1995, and the year ended December 31, 1996,
respectively. Accordingly, the Company's financial results from international
operations may be affected by the economic, political, and regulatory climates
prevailing in the respective foreign countries and by fluctuations in currency
exchange rates.
15. ACQUISITION OF CARDINAL TECHNOLOGIES, INC.
During April 1997, the Company acquired 100% of the outstanding common
stock of Cardinal Technologies, Inc. ("Cardinal"), a private manufacturer of
modems and ISDN adapters, for $2.5 million. The acquisition has been accounted
for utilizing the purchase method of accounting. The estimated fair values
assigned to the assets and liabilities acquired were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Total consideration paid (including acquisition costs of
$595)........................................................ $ 3,095
Fair value of tangible and identifiable assets acquired........ (15,350)
Fair value of liabilities assumed.............................. 17,055
--------
Estimated goodwill........................................ $ 4,800
========
</TABLE>
The results of operations of Cardinal from the beginning of the period
through the acquisition date are not significant to the Company's consolidated
results of operations.
16. SIGNIFICANT RISKS AND UNCERTAINTIES
The communications industry is highly competitive and competition is
expected to intensify. There are numerous companies competing in various
segments of the market in which the Company does business. Competitors include
organizations significantly larger and with more development, marketing and
financial resources than the Company. The Company's success is dependent on its
ability to develop and market products that are innovative, cost-competitive and
meet customer expectations.
The markets for the Company's products are characterized by rapid
technological developments resulting in short product life cycles. The market
for modems is primarily dependent upon the market for personal computers. From
diminished product demand, production overcapacity, and resultant accelerated
erosion of average selling prices, the Company's business could be materially
and adversely affected by industry-wide
F-37
<PAGE> 160
HAYES MICROCOMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fluctuations in the personal computer marketplace in the future. The Company's
ten largest customers account for approximately 62%, 57%, 56% and 73% of net
sales for the years ended September 30, 1994 and 1995, the three months ended
December 31, 1995, and the year ended December 31, 1996, respectively.
The Company's accounts receivable are concentrated with a limited number of
customers. The amounts owed by the largest ten customers represented
approximately 48% and 55% of the total accounts receivable balances as of
December 31, 1995 and 1996, respectively.
17. RELATED PARTY TRANSACTIONS
As of December 31, 1996, the Company has the following related party
transactions:
The Company has a split-dollar life insurance policy on a shareholder of
the Company with the Company as the beneficiary. The split-dollar agreement is
included in other long-term assets in the amount of $1.1 million and $0.6
million as of December 31, 1995 and 1996, respectively. The cash surrender
value, included in prepaids and other current assets, is $0.3 million as of
December 31, 1995 and 1996, respectively.
A shareholder of the Company has a revolving credit arrangement with the
Company stating a maximum draw of $0.3 million. The balance outstanding,
included in prepaids and other current assets, is $0.2 million as of December
31, 1995 and 1996, respectively.
The Company has manufacturing subcontractor agreements with two of its
stockholders. During 1996, and as of September 30, 1997 the Company purchased
$44.8 million, and $33.4 million, respectively, of finished goods from such
manufacturers.
The Company believes that these transactions were all negotiated at arms
length.
18. SUBSEQUENT EVENTS (UNAUDITED)
On July 29, 1997, the Company signed a definitive merger agreement with
Access Beyond, Inc., a provider of remote access connectivity products. Under
the terms of the agreement, the merged company will be renamed Hayes Corporation
Access Beyond will issue approximately 45.0 million shares of common stock for
100% of the outstanding stock of Hayes. Subsequent to the merger, Access Beyond
shareholders will own approximately 21% of the combined company. The combination
will be accounted for using the purchase method and is subject to the completion
of due diligence and regulatory approvals.
On July 16, 1997, the Company signed a letter of commitment with a
potential investor, whereby the Company would receive approximately $30.0
million in exchange for shares of Hayes Preferred Stock. However, as a result of
Access Beyond's agreement, on November 12, 1997, to sell $45.0 million of 6%
Preferred Stock, Hayes terminated the letter of commitment.
On October 9, 1997, Hayes received the final decree bringing its Chapter 11
case to a close.
F-38
<PAGE> 161
EXHIBIT B
December 9, 1997
Board of Directors
Access Beyond, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of common stock, $0.01 per value per share
("Company Common Stock"), of Access Beyond, Inc. (the "Company") of the
Conversion Ratio (as defined below) provided for in the Agreement and Plan of
Reorganization dated as of July 29, 1997, as amended by the First and Second
Amendments thereto (as so amended, the "Agreement") by and between the
Company and Hayes Microcomputer Products, Inc. ("Hayes"). Pursuant to the
Agreement, a wholly owned subsidiary of the Company will be merged (the
"Merger") with and into Hayes, with Hayes to become a wholly owned subsidiary of
the Company.
Pursuant to the Agreement, each share of common stock, $0.01 par value
per share ("Hayes Common Stock"), of Hayes will be converted into the right to
receive, subject to certain exceptions, that number of shares of Company Common
Stock equal to the Conversion Ratio; each share of Hayes Series A Preferred
Stock, no par value, will be converted into the right to receive, subject to
certain exceptions, that number of shares of Company Common Stock equal to the
product of the Conversion Ratio and the number of shares of Hayes Common Stock
into which such share is convertible immediately prior to consummation of the
Merger; and each share of Hayes Series B Preferred Stock, no par value, will be
converted into the right to receive, subject to certain exceptions, that number
of shares of Series A Preferred Stock of Access Beyond ("Access Beyond Series A
Stock") equal to the product of the Conversion Ratio and the number of shares of
Hayes Common Stock into which such share is convertible immediately prior to
consummation of the Merger. "Conversion Ratio" as set forth in the Agreement
means the quotient of (i) the product of (a) 3.76 and (b) the number of shares
of Company Common Stock and Company preferred stock issued, excluding the
placement of 6% Cumulative Convertible Preferred Stock (the "6% Convertible
Preferred Stock") and shares of Common Stock issuable upon conversion of the 6%
Convertible Preferred Stock, and outstanding immediately prior to consummation
of the Merger and (ii) the number of shares of Hayes Common Stock and Hayes
preferred stock issued and outstanding immediately prior to consummation of
the Merger.
As reflected in the Company's financial statements for the fiscal year
ended July 31, 1997, the Company's operating performance has not met
management's expectations as the Company reported an operating loss of $13.4
million and total sales of $18.0 million. For the quarter ended October 31,
1997, management of the Company estimates an operating loss of approximately
$2.2 million on sales of approximately $3.9 million. On November 12, 1997,
Access Beyond completed the first stage of a two-stage private placement of the
6% Convertible Preferred Stock. The initial stage was for $10 million of 6%
Convertible Preferred Stock. The funding of the second installment of the
private placement of 6% Convertible Preferred Stock of up to an additional $35
million on
<PAGE> 162
substantially similar terms is subject to, among other things, the completion of
the Merger and the absence of any material adverse change with respect to the
Company and Hayes. Management of Access Beyond has indicated to us that in the
absence of the Merger, the Company would need to raise addition capital to
implement its long-term business plans. Management has indicated to us that it
believes that, in the absence of the Merger, additional financing may not be
obtained during the period relevant to addressing the Company's liquidity needs,
or in the unlikely event that additional financing could be obtained, that it
may not be obtained on terms as attractive as the terms of the private placement
of the 6% Convertible Preferred Stock. For the purposes of our opinion, we have
assumed that either (i) the contemplated additional $35 million private
placement of 6% Convertible Preferred Stock will be completed on the terms set
forth in the Preferred Stock Investment Agreement dated as of November 12, 1997
between the Company and the investors listed therein (the "Preferred Stock
Investment Agreement") or (ii) alternative sources of sufficient liquidity will
be available to Hayes Corporation, on a timely basis, that would not materially
dilute the interests of the holders of Company Common Stock as compared to the
dilution that is anticipated to result from the contemplated additional private
placement pursuant to the Preferred Stock Investment Agreement. We were not
authorized by the Company to solicit, nor have we solicited, third-party
indications of interest with respect to any potential financing.
In arriving at our opinion, we have reviewed the Agreement, the terms
of the Access Beyond Series A Stock and the Preferred Stock Investment
Agreement. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company and Hayes including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of the Company for the period
beginning November 1, 1997 and ending December 31, 1998 prepared by the
management of the Company and certain financial projections for Hayes for the
period beginning November 1, 1997 and ending December 31, 2001, prepared by the
management of Hayes. We have also reviewed pro forma financial statements of the
combined entity, prepared jointly by management of Hayes and the Company,
including synergies and cost savings anticipated as a result of the Merger. In
addition, we have compared certain financial and securities data of the Company
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of Company Common
Stock, reviewed prices and premiums paid in other certain business combinations
and conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion. The Company's board of
directors requested that we not solicit, nor did we solicit, the interest of any
party with respect to any transaction with the Company.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Hayes or their respective representatives, or that was otherwise reviewed by us.
With respect to the financial projections (including projections as to the
Company's liquidity) supplied to us, we have assumed that they have been
reasonably prepared and are based on the best currently available estimates and
judgments of the management of the Company and Hayes as to the future operating
and financial performance of the Company and Hayes, respectively. We have not
assumed any responsibility for making an independent evaluation of any
2
<PAGE> 163
assets or liabilities or for making any independent verification of any of the
information reviewed by us. DLJ did not participate or advise the Company in the
private placement of the 6% Convertible Preferred Stock and has not made any
assessment as to the fairness of the terms of the 6% Convertible Preferred Stock
or the private placement thereof. We have relied as to all legal matters on
advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood, that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. Our opinion does not address the
relative merits of the Merger and any other business strategies being considered
by the Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute recommendation to any
stockholder as to how such stockholder should vote on any matter relating to the
transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that, as of the date hereof, the Conversion Ratio is fair to
the holders of Company Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:________________________________
Martin C. Murrer
Managing Director
3
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL permits the indemnification of the directors and
officers of the Company. The By-laws of the Company do not contain any
provisions on indemnification.
The Certificate of Incorporation provides for the indemnification of
directors and officers and employees of the Company, and persons who serve or
served at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred with respect to any action, suit
or proceeding, if such person acted in good faith and in a manner he reasonably
believed to being or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The indemnification provisions set forth in the
Certificate of Incorporation do not preclude the indemnification of, and
advancement of expenses to, any other person to whom the Company has the power
or obligation to indemnify under the provisions of the DGCL, or otherwise. The
right to indemnification conferred in the Certificate of Incorporation is a
contract right and shall include the right to have paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition. The Company maintains insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Company against any such
expense, liability or loss, whether or not the Company would have the power or
the obligation to indemnify such person against such expense, liability or loss
under state law or under the terms of the Certificate of Incorporation. Each
director of the Company entered into a Director Indemnification Agreement with
the Company. The Director Indemnification Agreements provide that, subject to
certain exclusions, the Company will indemnify each director against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding to which such
director is or is threatened to be made a party by reason of his or her position
as an officer or director of the Company or who serves or served at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the extent of the
highest and most advantageous of the indemnification provisions set forth in the
Certificate of Incorporation, the Company's By-laws, the DGCL, the laws of the
jurisdiction under which the Company exists, the terms of any liability
insurance or any other benefits available to such director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
*2.1 Form of Distribution Agreement between Access Beyond, Inc. (the "Company") and
Penril DataComm Networks, Inc. ("Penril") (filed as Exhibit 2.1 to the Company's
registration statement on Form S-1, as amended (Commission File Number 333-10741).
*2.2 Plan and Agreement of Merger dated as of June 16, 1996, as amended August 5, 1996,
among Penril, Bay Networks, Inc. ("Bay") and Beta Acquisition Corp. (filed as
Exhibit 2.2 to the Company's registration statement on Form S-1, as amended
(Commission File Number 333-10741).
*2.3.1 Agreement and Plan of Reorganization between Access Beyond, Inc. (the "Company")
and Hayes Microcomputer Products, Inc. ("Hayes") dated July 29, 1997 (the "Merger
Agreement") (filed as Exhibit 10.1 to the Company's Form 8-K filed August 7,
1997).
*2.3.2 First Amendment to the Merger Agreement, dated as of November 7, 1997.
*2.3.3 Second Amendment to the Merger Agreement, dated as of November 21, 1997.
*2.4 Form of draft of Certificate of Merger.
</TABLE>
II-1
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
*3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the
Company's registration statement on Form S-1, as amended (Commission File Number
333-1074)).
**3.2 Revised Form of Amended and Restated Certificate of Incorporation of the Company.
*3.3 By-Laws of the Company (filed as Exhibit 3.2 to the Company's registration
statement on Form S-1, as amended (Commission File Number 333-10741)).
*4.1.1 Voting Agreement dated July 29, 1997 between the Company and Chestnut Capital
Limited Partnership.
*4.1.2 Voting Agreement dated July 29, 1997 between the Company and Rinzai Limited.
*4.1.3 Voting Agreement dated July 29, 1997 between the Company and Vulcan Ventures
Incorporated.
*4.2.1 Affiliate Agreement dated July 29, 1997 between the Company and Kaifa Technology
(H.K.) Limited.
*4.2.2 Affiliate Agreement dated July 29, 1997 between the Company and Rinzai Limited.
*4.2.3 Affiliate Agreement dated July 29, 1997 between the Company and Chestnut Limited
Partnership.
*4.2.4 Affiliate Agreement dated July 29, 1997 between the Company and S.P. Quek
Investments Pte Ltd.
*4.2.5 Affiliate Agreement dated July 29, 1997 between the Company and Dennis Hayes.
*4.3.1 Market Standoff Agreement dated July 29, 1997 between the Company and Kaifa
Technology (H.K.) Limited.
*4.3.2 Market Standoff Agreement dated July 29, 1997 between the Company and Rinzai
Limited.
*4.3.3 Market Standoff Agreement dated July 29, 1997 between the Company and S.P. Quek
Investments Pte Ltd.
*4.3.4 Market Standoff Agreement dated July 29, 1997 between the Company and Rollig
Profits Holdings Limited.
*4.3.5 Market Standoff Agreement dated July 29, 1997 between the Company and Saliendra
Pte Ltd.
*4.3.6 Market Standoff Agreement dated July 29, 1997 between the Company and Lao Hotel
(H.K.) Limited.
*4.3.7 Market Standoff Agreement dated July 29, 1997 between the Company and Dennis
Hayes.
*4.4 Preferred Stock Investment Agreement dated as of November 10, 1997 between the
Company and certain investors (filed as Exhibit 4.1 to the Company's Form 8-K
filed November 17, 1997).
*4.5 Registration Rights Agreement dated as of November 10, 1997 between the Company
and certain investors (filed as Exhibit 4.2 to the Company's Form 8-K filed
November 17, 1997).
**4.6.1 Specimen Common Stock Certificate for Hayes Corporation
**4.6.2 Specimen Series A Stock Certificate for Hayes Corporation
*5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP.
**8.1 Opinion of Womble Carlyle Sandridge & Rice, PLLC re tax matters.
*10.1 Technology License Agreement, dated as of November 16, 1996 between Penril and the
Company (filed as Exhibit 10.1 to the Company's registration statement on Form
S-1, as amended (Commission File Number 333-10741)).
*10.2 Development and License Agreement dated as of June 16, 1996 between Bay and
Penril, on behalf of the Company (filed as Exhibit 10.2 to the Company's
registration statement on Form S-1, as amended (Commission File Number
333-10741)).
*10.3 Indemnification Agreement dated as of November 16, 1996 between Penril and the
Company (filed as Exhibit 10.3 to the Company's registration statement on Form
S-1, as amended (Commission File Number 333-10741)).
</TABLE>
II-2
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
*10.4 Transitional Services Agreement dated as of November 16, 1996 between the Company
and Penril (filed as Exhibit 10.7 to the Company's registration statement on Form
S-1, as amended (Commission File Number 333-10741)).
*10.5.1 Lease Agreement between Penril and Real Estate Income Partners dated as of March
31, 1989, as amended on May 14, 1990 and November 15, 1996 (filed as Exhibit
10.8.1 to the Company's Form 10-K filed October 16, 1997).
*10.5.2 Assignment and Assumption of Lease between Penril and the Company dated as of
November 18, 1996 (filed as Exhibit 10.8.2 to the Company's Form 10-K filed
October 16, 1997).
+*10.6 The Company's Amended and Restated 1996 Long-Term Incentive Plan (filed as Exhibit
10.9 to the Company's Form 10-K filed October 16, 1997).
+*10.7 Form of Option Agreement for the grant of non-qualified options under the Amended
and Restated 1996 Long-Term Incentive Plan (filed as Exhibit 10.10 to the
Company's Form 10-K filed October 16, 1997).
+*10.8 The Company's Amended and Restated 1996 Non-Employee Directors' Stock Option Plan.
(filed as Exhibit 10.11 to the Company's Form 10-K filed October 16, 1997).
+*10.9 Form of Option Agreement for the grant of options under the Amended and Restated
1996 Non-Employee Directors' Stock Option Plan (filed as Exhibit 10.12 to the
Company's Form 10-K filed October 16, 1997).
*10.10 2290 Remote Access Gateway ("Hawk") Technology Transfer Agreement dated as of May
2, 1997 between the Company and Paradyne Corporation (filed as Exhibit 10.13 to
the Company's Form 10-K filed October 16, 1997).
*10.11 Stock Purchase Agreement dated as of May 2, 1997 between the Company and Paradyne
Corporation, and First Amendment thereto dated September, 1997 (filed as Exhibit
10.14 to the Company's Form 10-K filed October 16, 1997).
+*10.12 Employment Agreement dated as of November 18, 1996 between the Company and Ronald
A. Howard (filed as Exhibit 10.15 to the Company's Form 10-K filed October 16,
1997).
*10.13 Manufacturing Agreement dated as of March 1, 1997 between the Company and Hibbing
Electronics Corporation (filed as Exhibit 10.16 to the Company's Form 10-K filed
October 16, 1997).
+*10.14 Form of Employment Agreement between the Company and Ronald Howard.
+*10.15 Form of Employment Agreement between the Company and Dennis Hayes.
*10.16 Agreement between the Company and EMI Holding Corp., dated November 13, 1996,
relating to the sale of Electro-Metrics, Inc., as amended on January 6, 1997,
February 26, 1997 and April 17, 1997 (filed as Exhibit 10.17 to the Company's Form
10-K filed October 16, 1997).
+*10.17 Hayes Stock Option Plan.
+*10.18 First Amendment to Hayes Stock Option Plan.
+*10.19 Forms of Hayes Stock Option Agreements, as amended
*10.20 Loan and Security Agreement between the Company and Foothill Capital Corp. dated
October 2, 1997.
*21. List of Subsidiaries of the Company.
**23.1 Consent of Deloitte & Touche LLP (included in Part II of this Registration
Statement).
**23.2 Consent of Coopers & Lybrand LLP (included in Part II of this Registration
Statement).
*23.3 Consent of Donaldson, Lufkin & Jenrette Securities Corporation (included in Part
II of this Registration Statement).
*23.4 Consent of Morrison Cohen Singer & Weinstein, LLP (contained in its opinion filed
as Exhibit 5.1 hereto).
**23.5 Consent of Womble Carlyle Sandridge & Rice, PLLC (contained in its opinion filed
as Exhibit 8.1 hereto).
</TABLE>
II-3
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
*24. Powers of Attorney for the Company (included on the signature page hereto).
*27. Financial Data Schedule.
</TABLE>
- -------------
* Previously filed
** Filed herewith
+ Management contract, compensation plan or arrangement
(b) Financial Statement Schedules
Independent Auditor's Report on Schedule
Schedule II -- Valuation and Qualifying Accounts
All other schedules specified under Regulation S-X for the Company have
been omitted because they are either not applicable, not required or because the
information required is included in the consolidated financial statements or
notes thereto.
II-4
<PAGE> 168
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers of sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrants
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by the controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration when it became effective.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration
II-5
<PAGE> 169
form with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Gaithersburg, State of Maryland, on December 10, 1997.
ACCESS BEYOND, INC.
By: /s/ RONALD HOWARD
------------------------------------
Ronald Howard
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ ------------------
<C> <S> <C>
/s/ RONALD HOWARD President and Chief Executive December 10, 1997
- ------------------------------------- Officer (Principal Executive
Ronald Howard Officer) and Chairman of the Board
/s/ MARK FIELDS* Controller and Acting Chief December 10, 1997
- ------------------------------------- Financial Officer (Principal
Mark Fields Financial and Accounting Officer)
/s/ BARBARA PERRIER DREYER* Director December 10, 1997
- -------------------------------------
Barbara Perrier Dreyer
/s/ JOHN HOWARD* Director December 10, 1997
- -------------------------------------
John Howard
/s/ ARTHUR SAMBERG* Director December 10, 1997
- -------------------------------------
Arthur Samberg
/s/ PAUL SCHALLER* Director December 10, 1997
- -------------------------------------
Paul Schaller
</TABLE>
*By: /s/ RONALD HOWARD
---------------------------
(Ronald Howard, as
Attorney-in-Fact)
II-7
<PAGE> 171
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-37993) of our report dated April 30, 1997, except for Note 18 as
to which the date is November 12, 1997 on our audits of the consolidated
financial statements of Hayes Microcomputer Products, Inc. We also consent to
the references to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
December 10, 1997
II-8
<PAGE> 172
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-37993 of Access Beyond, Inc. on Form S-4 of our report dated August 29, 1997
(November 12, 1997 as to Note 11), appearing in the Proxy Statement/Prospectus,
which is part of this Registration Statement, and of our report dated August 29,
1997 (November 12, 1997 as to Note 11) relating to the financial statement
schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Proxy Statement/Prospectus.
/s/ DELOITTE & TOUCHE LLP
Washington, D.C.
December 10, 1997
II-9
<PAGE> 173
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We consent to the inclusion in this registration/proxy statement on Form
S-4 filed by Access Beyond, Inc. (the "Registrant") of our fairness opinion
relating to the "Conversion Ratio" provided for in the Agreement and Plan of
Reorganization dated as of July 29, 1997 by and between the Registrant and Hayes
Microcomputer Products, Inc.
/s/ Michael Kramer
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
New York, New York
October 14, 1997
II-10
<PAGE> 174
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Access Beyond, Inc.
Gaithersburg, Maryland
We have audited the consolidated financial statements of Access Beyond,
Inc. and subsidiaries (the successor company to Penril DataComm Networks, Inc.)
as of July 31, 1997 and 1996, and for each of the three years in the period
ended July 31, 1997, and have issued our report thereon dated August 29, 1997
(November 12, 1997 as to Note 11), included elsewhere herein. Our audits also
included the financial statement schedule of Access Beyond, Inc. listed in Item
21(b) of this Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/S/ DELOITTE & TOUCHE LLP
Washington, D.C.
August 29, 1997 (November 12, 1997 as to Note 11)
S-1
<PAGE> 175
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C COLUMN D
COLUMN B ----------------------- ------------- COLUMN E
---------- CHARGES TO RECOVERY WRITE-OFF ----------
BALANCE AT S, G & A OF BAD OF BAD DEBTS, BALANCE AT
AUGUST 1, EXPENSES DEBTS(A) OTHER (B) JULY 31,
---------- ---------- -------- ------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
APPLICABLE TO ACCOUNTS RECEIVABLE
Fiscal 1997.......................... $ 554 $462 $ 91 $ (893) $215
Fiscal 1996.......................... $1,067 $502 $ 20 $(1,035) $554
</TABLE>
- ---------------
(a) Included in fiscal 1997's recovery of bad debts was an exchange rate
adjustment of $8,000 and a transfer of bad debt reserves of $66,000 related
to the Spin-off and Merger transaction with Bay Networks, Inc.
(b) Included in fiscal 1997's write-off of bad debts was $250,000 of reserves
transfer to Bay Networks, Inc. related to the Spin-off and Merger
transaction with Bay Networks, Inc.
S-2
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ---------------------------------------------------------------------
<C> <S> <C>
*2.1 Form of Distribution Agreement between Access Beyond, Inc. (the
"Company") and Penril DataComm Networks, Inc. ("Penril") (filed as
Exhibit 2.1 to the Company's registration statement on Form S-1, as
amended (Commission File Number 333-10741).
*2.2 Plan and Agreement of Merger dated as of June 16, 1996, as amended
August 5, 1996, among Penril, Bay Networks, Inc. ("Bay") and Beta
Acquisition Corp. (filed as Exhibit 2.2 to the Company's registration
statement on Form S-1, as amended (Commission File Number 333-10741).
*2.3.1 Agreement and Plan of Reorganization between Access Beyond, Inc. (the
"Company") and Hayes Microcomputer Products, Inc. ("Hayes") dated
July 29, 1997 (the "Merger Agreement") (filed as Exhibit 10.1 to the
Company's Form 8-K filed August 7, 1997).
*2.3.2 First Amendment to the Merger Agreement, dated as of November 7,
1997.
*2.3.3 Second Amendment to the Merger Agreement, dated as of November 21,
1997.
*2.4 Form of draft of Certificate of Merger.
*3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's registration statement on Form S-1, as
amended (Commission File Number 333-1074)).
**3.2 Revised Form of Amended and Restated Certificate of Incorporation of
the Company.
*3.3 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
registration statement on Form S-1, as amended (Commission File
Number 333-10741)).
*4.1.1 Voting Agreement dated July 29, 1997 between the Company and Chestnut
Capital Limited Partnership.
*4.1.2 Voting Agreement dated July 29, 1997 between the Company and Rinzai
Limited.
*4.1.3 Voting Agreement dated July 29, 1997 between the Company and Vulcan
Ventures Incorporated.
*4.2.1 Affiliate Agreement dated July 29, 1997 between the Company and Kaifa
Technology (H.K.) Limited.
*4.2.2 Affiliate Agreement dated July 29, 1997 between the Company and
Rinzai Limited.
*4.2.3 Affiliate Agreement dated July 29, 1997 between the Company and
Chestnut Limited Partnership.
*4.2.4 Affiliate Agreement dated July 29, 1997 between the Company and S.P.
Quek Investments Pte Ltd.
*4.2.5 Affiliate Agreement dated July 29, 1997 between the Company and
Dennis Hayes.
*4.3.1 Market Standoff Agreement dated July 29, 1997 between the Company and
Kaifa Technology (H.K.) Limited.
*4.3.2 Market Standoff Agreement dated July 29, 1997 between the Company and
Rinzai Limited.
*4.3.3 Market Standoff Agreement dated July 29, 1997 between the Company and
S.P. Quek Investments Pte Ltd.
*4.3.4 Market Standoff Agreement dated July 29, 1997 between the Company and
Rollig Profits Holdings Limited.
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ---------------------------------------------------------------------
<C> <S> <C>
*4.3.5 Market Standoff Agreement dated July 29, 1997 between the Company and
Saliendra Pte Ltd.
*4.3.6 Market Standoff Agreement dated July 29, 1997 between the Company and
Lao Hotel (H.K.) Limited.
*4.3.7 Market Standoff Agreement dated July 29, 1997 between the Company and
Dennis Hayes.
*4.4 Preferred Stock Investment Agreement dated as of November 10, 1997
between the Company and certain investors (filed as Exhibit 4.1 to
the Company's Form 8-K filed November 17, 1997).
*4.5 Registration Rights Agreement dated as of November 10, 1997 between
the Company and certain investors (filed as Exhibit 4.2 to the
Company's Form 8-K filed November 17, 1997).
**4.6.1 Specimen Common Stock Certificate for Hayes Corporation
**4.6.2 Specimen Series A Stock Certificate for Hayes Corporation
*5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP.
**8.1 Opinion of Womble Carlyle Sandridge & Rice, PLLC re tax matters.
*10.1 Technology License Agreement, dated as of November 16, 1996 between
Penril and the Company (filed as Exhibit 10.1 to the Company's
registration statement on Form S-1, as amended (Commission File
Number 333-10741)).
*10.2 Development and License Agreement dated as of June 16, 1996 between
Bay and Penril, on behalf of the Company (filed as Exhibit 10.2 to
the Company's registration statement on Form S-1, as amended
(Commission File Number 333-10741)).
*10.3 Indemnification Agreement dated as of November 16, 1996 between
Penril and the Company (filed as Exhibit 10.3 to the Company's
registration statement on Form S-1, as amended (Commission File
Number 333-10741)).
*10.4 Transitional Services Agreement dated as of November 16, 1996 between
the Company and Penril (filed as Exhibit 10.7 to the Company's
registration statement on Form S-1, as amended (Commission File
Number 333-10741)).
*10.5.1 Lease Agreement between Penril and Real Estate Income Partners dated
as of March 31, 1989, as amended on May 14, 1990 and November 15,
1996 (filed as Exhibit 10.8.1 to the Company's Form 10-K filed
October 16, 1997).
*10.5.2 Assignment and Assumption of Lease between Penril and the Company
dated as of November 18, 1996 (filed as Exhibit 10.8.2 to the
Company's Form 10-K filed October 16, 1997).
+*10.6 The Company's Amended and Restated 1996 Long-Term Incentive Plan
(filed as Exhibit 10.9 to the Company's Form 10-K filed October 16,
1997).
+*10.7 Form of Option Agreement for the grant of non-qualified options under
the Amended and Restated 1996 Long-Term Incentive Plan (filed as
Exhibit 10.10 to the Company's Form 10-K filed October 16, 1997).
+*10.8 The Company's Amended and Restated 1996 Non-Employee Directors' Stock
Option Plan. (filed as Exhibit 10.11 to the Company's Form 10-K filed
October 16, 1997).
+*10.9 Form of Option Agreement for the grant of options under the Amended
and Restated 1996 Non-Employee Directors' Stock Option Plan (filed as
Exhibit 10.12 to the Company's Form 10-K filed October 16, 1997).
*10.10 2290 Remote Access Gateway ("Hawk") Technology Transfer Agreement
dated as of May 2, 1997 between the Company and Paradyne Corporation
(filed as Exhibit 10.13 to the Company's Form 10-K filed October 16,
1997).
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ---------------------------------------------------------------------
<C> <S> <C>
*10.11 Stock Purchase Agreement dated as of May 2, 1997 between the Company
and Paradyne Corporation, and First Amendment thereto dated
September, 1997 (filed as Exhibit 10.14 to the Company's Form 10-K
filed October 16, 1997).
+*10.12 Employment Agreement dated as of November 18, 1996 between the
Company and Ronald A. Howard (filed as Exhibit 10.15 to the Company's
Form 10-K filed October 16, 1997).
*10.13 Manufacturing Agreement dated as of March 1, 1997 between the Company
and Hibbing Electronics Corporation (filed as Exhibit 10.16 to the
Company's Form 10-K filed October 16, 1997).
+*10.14 Form of Employment Agreement between the Company and Ronald Howard.
+*10.15 Form of Employment Agreement between the Company and Dennis Hayes.
*10.16 Agreement between the Company and EMI Holding Corp., dated November
13, 1996, relating to the sale of Electro-Metrics, Inc., as amended
on January 6, 1997, February 26, 1997 and April 17, 1997 (filed as
Exhibit 10.17 to the Company's Form 10-K filed October 16, 1997).
+*10.17 Hayes Stock Option Plan.
+*10.18 First Amendment to Hayes Stock Option Plan.
+*10.19 Forms of Hayes Stock Option Agreements, as amended
*10.20 Loan and Security Agreement between the Company and Foothill Capital
Corp. dated October 2, 1997.
*21. List of Subsidiaries of the Company.
**23.1 Consent of Deloitte & Touche LLP (included in Part II of this
Registration Statement).
**23.2 Consent of Coopers & Lybrand LLP (included in Part II of this
Registration Statement).
*23.3 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
(included in Part II of this Registration Statement).
*23.4 Consent of Morrison Cohen Singer & Weinstein, LLP (contained in its
opinion filed as Exhibit 5.1 hereto).
**23.5 Consent of Womble Carlyle Sandridge & Rice, PLLC (contained in its
opinion filed as Exhibit 8.1 hereto).
*24. Powers of Attorney for the Company (included on the signature page
hereto).
*27. Financial Data Schedule.
</TABLE>
- -------------
* Previously filed
** Filed herewith
+ Management contract, compensation plan or arrangement
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACCESS BEYOND, INC.
(ORIGINALLY INCORPORATED ON JULY 23, 1996)
ARTICLE I
The name of the Corporation is Hayes Corporation.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware. The
name of its registered agent at that address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation has authority to issue is one hundred sixty million (160,000,000)
shares, consisting of two classes: one hundred fifty million (150,000,000)
shares of Common Stock, US $.01 par value per share, and ten million
(10,000,000) shares of Preferred Stock, US $.01 par value per share. One million
two hundred seventeen thousand nine hundred thirty (1,217,930) shares of the
Preferred Stock are designated as Series A Preferred Stock.
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
certificate of designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such wholly unissued series and any qualifications, limitations
or restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then
outstanding). The number of authorized shares of Preferred Stock may also be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote, unless a vote of any other holders is
required pursuant to a certificate or certificates establishing a series of
Preferred Stock.
<PAGE> 2
Except as otherwise expressly provided in Article V or in any
Certificate of Designation designating any series of Preferred Stock pursuant to
the foregoing provisions of this Article IV, any new series of Preferred Stock
may be designated, fixed and determined as provided herein by the Board of
Directors without approval of the holders of the Common Stock or the holders of
Preferred Stock, or any series thereof, and any such new series may have powers,
preferences and rights, including, without limitation, voting rights, dividend
rights, liquidation rights, redemption rights and conversion rights, senior to,
junior to or pari passu with the rights of the Common Stock, the Preferred
Stock, or any future class or series of Preferred Stock or Common Stock.
ARTICLE V
The rights, preferences, privileges and restrictions granted to and
imposed on the Series A Preferred Stock and the Common Stock are as follows:
1. DIVIDEND RIGHTS. The holders of Series A Preferred Stock shall be
entitled to receive, as and when declared by the Board, but only out of funds
legally available therefor, cumulative compounding dividends at the dividend
rate of ten percent (10%) per annum of US $4.5159. Dividends shall accrue
quarterly as if such dividends had commenced to accrue on April 24, 1997,
provided, however, that in the event of conversion of the Series A Preferred
Stock (as set forth in Section 3), dividends shall be accrued through the day
immediately prior to such conversion. Subject to the restrictions set forth in
this Section 1, dividends accumulated on the Series A Preferred Stock shall be
declared by the Board and paid on the Redemption Date provided that the
Redemption Request is provided as set forth in Section 7. Such dividends shall
be paid in cash upon redemption, or in additional shares of Common Stock upon
conversion of the Series A Preferred Stock as provided in Section 3 below.
Dividends accumulated on the Series A Preferred Stock shall be declared by the
Board and paid in cash every three (3) months to the extent permitted by law. No
dividends may be paid on the Common Stock unless all accrued and unpaid
dividends on the Series A Preferred Stock are paid.
2. VOTING RIGHTS.
(a) Common Stock. Each holder of shares of Common Stock shall
be entitled to one (1) vote for each share thereof held.
(b) Preferred Stock. Each holder of shares of Series A
Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which such shares of Series
A Preferred Stock could be converted pursuant to the provisions of
Section 3 below at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record
date is established, the date such vote is taken or any written consent
of shareholders is solicited.
(c) Vote Required. Subject to the foregoing provisions of this
Section 2, each holder of Preferred Stock shall have full voting rights
and powers equal to the voting
2
<PAGE> 3
rights and powers of the holders of Common Stock, and shall be entitled
to notice of any shareholders' meeting in accordance with the bylaws of
the Company (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common
Stock, with respect to any question upon which holders of Common Stock
have the right to vote, except as may be otherwise provided by
applicable law. Except as otherwise required by law or by the
provisions of Section 5 of this Article V, the holders of Preferred
Stock and the holders of Common Stock shall vote together and not as
separate classes.
3. CONVERSION RIGHTS. The holders of Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share at the office of the
Corporation or any transfer agent for such stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by
dividing US $4.5159 by the Series A Conversion Price determined as
hereinafter provided, in effect on the date the certificate is
surrendered for conversion. If any holder elects to convert his shares
of Series A Preferred Stock as provided above, all unpaid and accrued
dividends on the Series A Preferred Stock existing immediately prior to
the conversion of the Series A Preferred Stock will be converted into
such number of fully paid and nonassessable shares of Common Stock as
determined by dividing all unpaid and accrued dividends by the Series A
Conversion Price, determined as hereinafter provided. The "Series A
Conversion Price" shall initially be US $4.5159. Such initial Series A
Conversion Price shall be adjusted as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred
Stock shall automatically be converted (as set forth below) into such
number of fully paid and nonassessable shares of Common Stock as
determined by dividing US $4.5159 (adjusted for any stock splits, stock
dividends, stock combinations or similar events) plus the per share
amount of all unpaid and accrued dividends on the Series A Preferred
Stock existing immediately prior to the conversion of the Series A
Preferred Stock by the Series A Conversion Price, determined as
hereinafter provided, in effect (i) immediately prior to the
consummation of a Qualified Public Offering (as defined below) under
the Securities Act of 1933, as amended (the "Securities Act"); or (ii)
at such time as the Corporation has registered Common Stock pursuant to
an underwritten public offering under the Securities Act and (a) the
Corporation has listed or would be qualified to list its shares on the
NASDAQ National Market System; (b) the average market value of the
Common Stock equals or exceeds the lesser of US $7.129 per share or two
(2) times the then-current Series A Conversion Price (in either such
case as adjusted for stock splits, stock dividends, stock combinations
or similar events) determined by the median of the high and low sales
price each day for a consecutive twenty (20) day period; (c) the
aggregate market value of the shares of Common Stock held in the public
market equals or exceeds US $25,000,000, determined by the 20 trading
day average of the high and low sales price described in (b) above; and
(d) the holders of the Series A Preferred
3
<PAGE> 4
Stock have the unrestricted right at such time to sell in a registered
offering or pursuant to Rule 144 at least one-half of the number of
shares of Common Stock into which such Series A Preferred Stock would
be converted; or (iii) upon the affirmative vote of holders of at least
a majority of the Series A Preferred Stock (any such event described in
subsections (i), (ii) and (iii) above being referred to herein as a
"Series A Conversion Event"). All unpaid and accrued dividends on the
Series A Preferred Stock existing immediately prior to the Series A
Conversion Event shall automatically be converted into such number of
fully paid and nonassessable shares of Common Stock as determined by
dividing all unpaid and accrued dividends by the Series A Conversion
Price, determined as hereinafter provided, in effect immediately prior
to the Series A Conversion Event. As used herein, "Qualified Public
Offering" means an underwritten sale to the public of Common Stock
pursuant to an effective registration statement under the Securities
Act in connection with which (a) the gross proceeds to the Corporation
for the Common Stock actually sold to the public in such sale, prior to
deducting the amount of brokers' commissions and expense allowances
paid by the Corporation in connection with the original sale of such
Common Stock, is US $25,000,000 or more, and (b) the public offering
price per share (prior to underwriters' commissions and expenses)
equals or exceeds the lesser of (i) US $7.129 per share or (ii) two (2)
times the then-current Series A Conversion Price, in either such case
as adjusted for stock splits, stock dividends, stock combinations or
similar events. Immediately prior to the Qualified Public Offering, or
promptly upon the occurrence of another Series A Conversion Event, each
share of Series A Preferred Stock shall be automatically converted,
without cost, on the terms of this Section 3(b), into the number of
shares of Common Stock into which such share of Series A Preferred
Stock would be convertible under Section 3 immediately prior to such
Series A Conversion Event.
(c) Mechanics of Conversion.
(i) Before any holder of Series A Preferred
Stock shall be entitled to convert the same
into shares of Common Stock, such holder
shall surrender the certificate or
certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer
agent for such stock, and shall give written
notice to the Corporation at such office
that such holder elects to convert the same
and shall state therein the name or names in
which such holder wishes the certificate or
certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at
such office to such holder of Series A
Preferred Stock, a certificate or
certificates for the number of shares of
Common Stock to which such holder shall be
entitled as aforesaid. Such conversion shall
be deemed to have been made immediately
prior to the close of business on the date
of surrender of the shares of Series A
Preferred Stock to be converted, and the
person or persons entitled to receive the
shares of Common Stock issuable
4
<PAGE> 5
upon such conversion shall be treated for
all purposes as the record holder or holders
of such shares of Common Stock on such date.
(ii) If a conversion is in connection with an
underwritten offering of securities pursuant
to the Securities Act, the conversion may,
at the option of any holder tendering shares
of Series A Preferred Stock for conversion,
be conditioned upon the closing with the
underwriters of the sale of securities
pursuant to such offering, in which event
the person(s) entitled to receive the Common
Stock upon conversion of the Series A
Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock
until immediately prior to the closing of
such sale of securities.
(d) Adjustments to Conversion Price for Certain Diluting
Issues.
(i) Special Definitions. For purposes of this
Section 3(d), the following definitions
apply:
(A) "Options" shall mean rights,
options or warrants to subscribe
for, purchase or otherwise acquire
either Common Stock or Convertible
Securities (defined below).
(B) "Original Issue Date" shall mean,
with respect to the Series A
Preferred Stock, the date on which a
share of Series A Preferred Stock
was first issued.
(C) "Convertible Securities" shall mean
any evidences of indebtedness,
shares (other than Common Stock and
Series A Preferred Stock) or other
securities convertible into or
exchangeable for Common Stock.
(D) "Additional Shares of Common Stock"
shall mean all shares of Common
Stock issued (or, pursuant to
Section 3(d)(iii), deemed to be
issued) by the Corporation after the
Original Issue Date, other than
shares of Common Stock issued or
issuable:
(1) upon conversion of shares
of Series A Preferred Stock;
(2) up to 10,582,063 shares,
subject to adjustment for
all stock splits, stock
dividends, subdivisions and
combinations of shares of
Common Stock issued (or,
pursuant to Section
3(d)(iii), deemed to be
issued) to officers and
employees of the
Corporation
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<PAGE> 6
pursuant to the Corporation's stock
option, purchase or similar plans,
or other options or warrants as
approved by the Corporation's
Board of Directors;
(3) as a dividend or distribution on
Series A Preferred Stock; and
(4) upon exercise or conversion of, or
otherwise pursuant to, securities
of the Corporation outstanding as
of the Original Issue Date of the
Series A Preferred Stock (including
any securities assumed by the
Corporation on such date or
otherwise assumed or issued in
connection with the transactions
consummated by the Corporation on
such date).
(E) "Board" shall mean the Board of Directors of
the Corporation.
(ii) No Adjustment of Conversion Price. Any provision
herein to the contrary notwithstanding, no adjustment
in the Series A Conversion Price shall be made in
respect of the issuance of Additional Shares of
Common Stock unless the consideration per share
(determined pursuant to Section 3(d)(v) hereof) for
an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the
Series A Conversion Price in effect on the date of,
and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to
time after the Original Issue Date of the Series A
Preferred Stock shall issue any Options or
Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating
thereto without regard to any provisions contained
therein designed to protect against dilution) of
Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such
Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the
time of such issue or, provided that in any such case
in which Additional Shares of Common Stock are deemed
to be issued:
(A) no further adjustments in the Series A
Conversion Price shall be made upon the
subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise
of
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<PAGE> 7
such Options or conversion or
exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide,
with the passage of time or
otherwise, for any increase or
decrease in the consideration
payable to the Corporation, or
decrease or increase in the number
of shares of Common Stock issuable,
upon the exercise, conversion or
exchange thereof, the Series A
Conversion Price computed upon the
original issue thereof, and any
subsequent adjustments based
thereon, shall, upon any such
increase or decrease becoming
effective, be recomputed to reflect
such increase or decrease insofar
as it affects such Options or the
rights of conversion or exchange
under such Convertible Securities
(provided, however, that no such
adjustment of the Series A
Conversion Price shall affect the
Common Stock previously issued upon
conversion of the Series A
Preferred Stock);
(C) upon the expiration of any such
Options or any rights of conversion
or exchange under such Convertible
Securities which shall not have
been exercised, the Series A
Conversion Price computed upon
the original issue thereof (or
upon the occurrence of a record
date with respect thereto), and
any subsequent adjustments based
thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible
Securities or Options for
Common Stock, the only
Additional Shares of Common
Stock issued were the
shares of Common Stock, if
any, actually issued upon
the exercise of such
Options or the conversion
or exchange of such
Convertible Securities and
the consideration received
therefor was the
consideration actually
received by the Corporation
for the issue of all such
Options, whether or not
exercised, plus the
consideration actually
received by the Corporation
upon such exercise, or for
the issue of all such
Convertible Securities
which were actually
converted or exchanged,
plus the additional
consideration, if any,
actually received by the
Corporation upon such
conversion or exchange, and
(2) in the case of Options for
Convertible Securities,
only the Convertible
Securities, if any,
actually
7
<PAGE> 8
issued upon the exercise
thereof were issued at the
time of issue of such
Options, and the
consideration received by
the Corporation for the
Additional Shares of Common
Stock deemed to have been
then issued was the
consideration actually
received by the Corporation
for the issue of all such
Options, whether or not
exercised, plus the
consideration deemed to
have been received by the
Corporation (determined
pursuant to Section
3(d)(v)) upon the issue of
the Convertible Securities
with respect to which such
Options were actually
exercised;
(D) no readjustment pursuant to clause
(B) or (C) above shall have the
effect of increasing the Series A
Conversion Price to an amount which
exceeds the lower of (1) the Series
A Conversion Price on the original
adjustment date, or (2) the Series
A Conversion Price that would have
resulted from any issuance of
Additional Shares of Common Stock
between the original adjustment
date and such readjustment date;
and
(E) in the case of any Options which
expire by their terms not more than
thirty (30) days after the date of
issue thereof, no adjustment of the
Series A Conversion Price shall be
made until the expiration or
exercise of all such Options,
whereupon such adjustment shall be
made in the same manner provided in
clause (C) above.
(iv) Adjustment of Series A Conversion Price Upon
Issuance of Additional Shares of Common
Stock. In the event this corporation, at any
time after the Original Issue Date shall
issue Additional Shares of Common Stock
(including Additional Shares of Common Stock
deemed to be issued pursuant to Section
3(d)(iii)), without consideration or for a
consideration per share less than US $4.5159
per share but equal to or greater than US
$1.543 per share (in each case as adjusted
for any stock splits, stock dividends, stock
combinations or similar events) then and in
such event, the Series A Conversion Price
shall be reduced concurrently with such
issue, to a price equal to the lowest per
share consideration received by the
Corporation for any of the Additional Shares
of Common Stock. If such price per share of
Additional Shares is less than US $1.543
(adjusted for any stock splits, stock
dividends, stock combinations or similar
events) then and in such event, the Series A
Conversion Price shall first be reduced to
US $1.543 and then the Series A Conversion
Price shall
8
<PAGE> 9
be further reduced, concurrently with such
issue, to a price (calculated to the nearest
cent) determined by multiplying such Series
A Conversion Price by a fraction, (i) the
numerator of which shall be the number of
shares of Common Stock issuable upon
conversion of the shares of the Series A
Preferred Stock actually issued and
outstanding (or deemed issued pursuant to
Section 3(d)(iii)) immediately prior to such
issue plus the quotient obtained by dividing
(x) the aggregate consideration received by
the Corporation for the total number of
Additional Shares of Common Stock so issued
(or deemed issued pursuant to Section
3(d)(iii)) by (y) the Series A Conversion
Price in effect immediately prior to such
issuance, and (ii) the denominator of which
shall be the number of shares of Common
Stock issuable upon conversion of the shares
of the Series A Preferred Stock actually
issued and outstanding (or deemed issued
pursuant to Section 3(d)(iii)) immediately
prior to such issue plus the number of such
Additional Shares of Common Stock so issued
(or deemed issued pursuant to Section
3(d)(iii)).
(v) Determination of Consideration. For purposes
of this Section 3(d), the consideration
received by the Corporation for the issue of
any Additional Shares of Common Stock shall
be computed as follows:
(A) Cash and Property. Such
consideration shall:
(1) insofar as it consists of
cash, be computed at the
aggregate amount of cash
received by the
Corporation (without
deducting any discounts
or commissions paid by
the Corporation);
(2) insofar as it consists of
property other than cash,
be computed at the fair
value thereof at the time
of such issue, as
determined in good faith
by the Board; and
(3) in the event Additional
Shares of Common Stock
are issued together with
other shares or
securities or other
assets of the Corporation
for consideration which
covers both, be the
proportion of such
consideration so
received, computed as
provided in clauses (1)
and (2) above, as
determined in good faith
by the Board.
(B) Options and Convertible Securities.
The consideration per share received
by the Corporation for Additional
Shares of
9
<PAGE> 10
Common Stock deemed to have been
issued pursuant to Section
3(d)(iii), relating to Options and
Convertible Securities shall be
determined by dividing:
(1) the maximum amount, if any,
received or receivable by
the Corporation as
consideration for the issue
of such Options or
Convertible Securities,
plus the minimum aggregate
amount of additional
consideration (as set forth
in the instruments relating
thereto, without regard to
any provision contained
therein designed to protect
against dilution) payable
to the Corporation upon the
exercise of such Options or
the conversion or exchange
of such Convertible
Securities, or in the case
of Options for Convertible
Securities, the exercise of
such Options for
Convertible Securities and
the conversion or exchange
of such Convertible
Securities, by
(2) the maximum number of
shares of Common Stock (as
set forth in the
instruments relating
thereto, without regard to
any provision contained
therein designed to protect
against dilution) issuable
upon the exercise of such
Options or conversion or
exchange of such
Convertible Securities.
(e) Adjustments for Stock Dividends, Subdivisions, or
Split-ups of Common Stock. If the number of shares of Common Stock outstanding
at any time after the filing of this Restated Certificate of Incorporation is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, effective at the close
of business upon the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Series A Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of Series
A Preferred Stock shall be increased in proportion to such increase of
outstanding shares of Common Stock.
(f) Adjustments for Combinations of Common Stock. If the
number of shares of Common Stock outstanding at any time after the filing of
this Restated Certificate of Incorporation is decreased by a combination of the
outstanding shares of Common Stock, then, effective at the close of business
upon the record date of such combination, the Series A Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
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<PAGE> 11
(g) Adjustments for Other Distributions. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which they would have received had their
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the date of conversion, retained such securities receivable by
them as aforesaid during such period, subject to all other adjustments called
for during such period under this Section 3(g) with respect to the rights of the
holders of the Series A Preferred Stock.
(h) Adjustments for Reorganizations, Reclassifications, etc.
If the Common Stock issuable upon conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any other
class or classes of stock or other securities or property, whether by
reclassification, a merger or consolidation of this corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of this corporation (but only if the stockholders of this corporation
hold more than fifty percent (50%) of the outstanding voting equity securities
of the surviving corporation in such merger, consolidation or sale of assets
reorganization), or otherwise (other than a subdivision or combination of shares
provided for above or a merger or other transaction referred to in Section 4(c)
below) the Series A Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series A Preferred Stock shall be convertible into, in
lieu of the number of shares of Common Stock which the holders would otherwise
have been entitled to receive, a number of shares of such other class or classes
of stock or securities or other property equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock immediately before such event; and,
in any such case, appropriate adjustment (as determined by the Board) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the Series A Preferred Stock,
to the end that the provisions set forth herein (including provisions with
respect to changes in and other adjustments of the Series A Conversion Price)
shall thereafter be applicable, as nearly as may be reasonable, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of the Series A Preferred Stock. In the event of any conflict between this
Section 3(h) and Section 4(b), Section 4(b) shall be controlling.
(i) No Impairment. The corporation will not, except by a
properly approved amendment of its Certificate of Incorporation, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or
11
<PAGE> 12
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(j) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Series A Conversion Price pursuant to
this Section 3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, a certificate executed by
the Corporation's President/Chief Executive Officer or Treasurer/Chief Financial
Officer setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustments and readjustments, (B) the Conversion Price
at the time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series A Preferred Stock.
(k) Notices of Record Date. In the event that the Corporation
shall propose at any time: (a) to declare any special dividend or distribution
upon its Common Stock, whether in cash, property, stock or other securities,
whether or not out of earnings or earned surplus; (b) to offer to subscription
pro rata to the holders of any class or series of its stock any additional
shares of stock of any class or series or other rights; (c) to effect any
reclassification or recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or (d) to merge or consolidate with or into any
other corporation (other than a mere reincorporation transaction), or sell,
lease or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Corporation
shall send to the holders of Series A Preferred Stock:
(A) at least twenty (20) days' prior written
notice of the date on which a record shall
be taken for such dividend, distribution or
subscription rights (and specifying the date
on which the holders of Common Stock shall
be entitled thereto) or for determining
rights to vote, if any, in respect of the
matters referred to in (c) and (d) above;
and
(B) in the case of the matters referred to in
(c) and (d) above, at least twenty (20)
days' prior written notice of the date when
the same shall take place (and specifying
the date on which the holders of Common
Stock shall be entitled to exchange their
Common Stock for securities or other
property deliverable upon the occurrence of
such event).
(l) Issue Taxes. The corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Preferred Stock pursuant
hereto; provided, however, that the Corporation
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<PAGE> 13
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(m) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in its best efforts to
obtain the requisite stockholder approval of any necessary amendment to the
Certificate of Incorporation.
(n) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series A Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Series A Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board).
(o) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A Preferred Stock shall
be given in writing and it or any certificates or other documents delivered
hereunder shall be deemed effectively given or delivered (as the case may be)
upon personal delivery; when deposited with a recognized international courier,
five (5) days after deposit (or if earlier, upon delivery against a signed
receipt therefor); when transmitted by telecopy, which transmission is
confirmed, at the address appearing on the books of the Corporation.
4. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holder of each share
of the Series A Preferred Stock then outstanding shall be entitled to receive
out of the remaining assets of the Corporation available for distribution to
stockholders, and before any payment or declaration and setting apart for
payment of any amount shall be made in respect of Common Stock, an amount equal
to US $4.5159 (which amount shall be adjusted proportionately in the event the
shares of Series A Preferred Stock are subdivided into a greater number or
combined into a lesser number) plus an amount equal to any accrued but unpaid
dividends through the date of such liquidation, dissolution or winding up of the
Corporation (the "Series A Preferred Stock Liquidation Preference"). If, upon
any liquidation, dissolution or winding up of the Corporation, whether
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<PAGE> 14
voluntary or involuntary, the assets to be distributed to the holders of Series
A Preferred Stock shall be insufficient to permit the payment of the full Series
A Preferred Stock Liquidation Preference pursuant to this Section 4(a), then all
of the remaining assets of the Corporation to be distributed shall be
distributed ratably to the holders of Series A Preferred Stock.
(b) A merger, consolidation or reorganization of the
Corporation with or into any other corporation or corporations that results in
the transfer of fifty percent (50%) or more of the outstanding voting stock of
the Corporation (other than a transaction effected primarily for the purpose of
changing the domicile of the Corporation), a sale of all or substantially all of
the assets of the Corporation, or a transaction or series of related
transactions (other than a public offering of the Corporation's securities,
following which a majority of the Board is comprised of those persons who were
members of the Board prior to such offering) in which the Corporation issues
shares representing more than fifty percent (50%) of the voting power of the
Corporation immediately after giving effect to such transaction, shall be
treated as a liquidation, dissolution or winding up for purposes of this Section
4. Any securities to be delivered to the holders of the Series A Preferred Stock
and Common Stock pursuant to such event shall be valued as follows:
(i) Securities not subject to investment letter
or other similar restrictions on free
marketability:
(A) If traded on a securities exchange
or reported on a national inter
dealer quotation system, the value
shall be deemed to be the average of
the closing prices of the securities
on such exchange over the 30-day
period ending three (3) days prior
to the closing;
(B) If actively traded over the counter
and not reported on a national inter
dealer quotation system, the value
shall be deemed to be the average of
the closing bid prices over the
30-day period ending three (3) days
prior to the closing; and
(C) If there is no active public market,
the value shall be the fair market
value thereof, as determined in good
faith by the Board.
(ii) The method of valuation of securities
subject to investment letter or other
restrictions on free marketability shall be
to make an appropriate discount from the
market value determined as above in (i)(A),
(B) or (C) to reflect the approximate fair
market value thereof, as determined in good
faith by the Board.
(c) In the event of a transaction (or series of related
transactions) to be treated as a liquidation pursuant to this Section 4, the
Corporation shall give each holder of record of
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<PAGE> 15
Series A Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 4, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a majority
of the shares of Series A Preferred Stock.
5. RESTRICTIONS AND LIMITATIONS. So long as any of the Series A
Preferred Stock remain outstanding, this corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the total number of shares of Series A
Preferred Stock outstanding:
(i) alter or change the rights, preferences or privileges
of the Series A Preferred Stock;
(ii) increase the aggregate number of authorized shares of
Series A Preferred Stock (other than an increase
pursuant to a stock split) or decrease the aggregate
number of authorized shares of Series A Preferred
Stock below the number of shares of Series A
Preferred Stock then outstanding;
(iii) authorize or issue, or obligate itself to issue, any
other equity security senior to or on a parity with
the Series A Preferred Stock as to dividends or
assets in liquidation or create or reclassify any
obligation or security convertible into or
exchangeable for, or having any option rights to
purchase, any such equity security other than shares
of capital stock issuable upon conversion or exercise
of securities outstanding as of the Original Issue
Date of the Series A Preferred Stock;
(iv) take any action which results in the redemption of,
or payment of dividends or the distribution of cash
or any property with respect to, any shares of Common
Stock (other than pursuant to (x) Section 4(a); (y)
payments made to a stockholder who is not a
stockholder of the Corporation as of the Original
Issue Date of the Series A Preferred Stock in
connection with an acquisition or merger transaction
by the Corporation which is not deemed to be a
liquidation pursuant to Section 4(b) above; or (z)
redemptions of employee or director owned stock or
options);
(v) incur or guarantee any indebtedness other than (a) in
the ordinary course of business; (b) under the Loan
and Security Agreement dated December 21, 1995, by
and between Hayes Microcomputer Products, Inc., an
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<PAGE> 16
affiliate of the Corporation and The CIT Group/Credit
Finance, Inc., as amended thereafter, or any
replacement credit facility with a commercial lender
under which the Corporation or its subsidiaries
maintains its primary borrowing relationship; (c)
indebtedness existing as of the Original Issue Date
of the Series A Preferred Stock; (d) in an amount not
to exceed US $2,000,000 in the aggregate; or (e) in
connection with an acquisition or merger transaction
by the Corporation which is not deemed to be a
liquidation under Section 4(b) above; or
(vi) approve or create any mortgage, pledge or security
interest in all or substantially all of the assets or
property of the Corporation, except for such security
interests or liens arising under the Corporation's
borrowings permitted under Subsection 5(v) above.
6. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The corporation may, from time to time, take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series A Preferred Stock, but not below the number of shares of
such Series then outstanding.
7. REDEMPTION.
(a) Redemption Date. "Redemption Date" means April 23, 2000,
or such other date determined in accordance with Section 7(b) or 7(c) below.
(b) Stockholder Redemption Request. Subject to the limitations
set forth herein and in Section 7(f) below, on ninety (90) days prior written
notice from the holders of more than fifty percent (50%) of the Series A
Preferred Stock ("Redemption Request") delivered to the Corporation not earlier
than November 1, 1999, the Corporation shall redeem all of the shares of Series
A Preferred Stock held by each holder as of the date of such notice by paying in
cash therefor, US $4.5159 per share of Series A Preferred Stock (such amount to
be adjusted proportionately in the event the shares of Series A Preferred Stock
are subdivided into a greater number or combined into a lesser number and in the
event the Corporation at any time pays a dividend, or makes any other
distribution, to holders of Series A Preferred Stock payable in shares of Series
A Preferred Stock) plus all accrued but unpaid dividends on such shares (the
"Redemption Price") on such Redemption Date.
(c) Corporation Redemption Request. The corporation may, at
its sole option and discretion, at any time at which it has funds legally
available to do so, redeem all (or, if the holders of a majority of the
outstanding Series A Preferred Stock consent thereto, any part) of the Series A
Preferred Stock upon thirty (30) days prior written notice to the holders of the
Series A Preferred Stock, by paying the Redemption Price on the Redemption Date.
Any partial redemption hereunder shall be made pro rata among all holders of the
Series A Preferred Stock.
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<PAGE> 17
Notwithstanding the foregoing, any holder of Series A Preferred Stock may elect
to convert to Common Stock all or any part of the Series A Preferred Stock
shares which the Corporation has elected to redeem by providing written notice
of its conversion election to the Corporation within twenty (20) days after the
date of the Corporation's redemption notice. In such event, those shares of
Series A Preferred Stock shall convert to Common Stock at the Series A
Conversion Price as provided in, and subject to the terms and conditions of
Section 3.
(d) Surrender of Certificates. On or before the Redemption
Date, each holder of shares of Series A Preferred Stock being redeemed shall
surrender the certificate or certificates representing such shares to the
Corporation, at the Corporation's principal place of business. Upon such
surrender (but not earlier than the Redemption Date) the Redemption Price for
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. If a certificate is surrendered and
all the shares evidenced thereby are not being redeemed, the Corporation shall
cause certificates evidencing the shares not being redeemed to be issued in the
name of the registered owner of such shares and to be delivered to such person.
(e) Termination of Stock Rights. If the Corporation elects to
redeem the Series A Preferred Stock as provided above, or if a holder of Series
A Preferred Stock gives a Redemption Request and holds shares of Series A
Preferred Stock on the Redemption Date, and if on the Redemption Date the
Redemption Price is either paid or made available for payment through the
deposit arrangement specified in Section 7(f) below, then notwithstanding that
the certificates evidencing any of the shares of Series A Preferred Stock to be
redeemed shall not have been surrendered, all rights with respect to such shares
shall terminate as of the Redemption Date, except only the right of the holder
to receive the Redemption Price upon surrender of the certificate evidencing
such shares.
(f) Deposit of Redemption Price. On or prior to a Redemption
Date, the Corporation shall deposit with any bank or trust company in the United
States having a capital and surplus of at least US $50,000,000, as a trust fund,
a sum equal to the aggregate Redemption Price of all shares of Series A
Preferred Stock to be redeemed on the Redemption Date, with irrevocable
instructions and authority to the bank or trust company to pay, on or after the
Redemption Date or prior thereto, the Redemption Price to the respective holders
upon the surrender of their share certificates. From and after the date of such
deposit ("Redemption Deposit"), the shares so called for redemption shall be
redeemed. The deposit shall constitute full payment of the shares to their
holders, and from and after the Redemption Date the shares shall be deemed to be
no longer outstanding, and the holders thereof shall cease to be stockholders
with respect thereto and shall have no rights with respect thereto except the
rights to receive from the bank or trust company payment of the Redemption Price
of the shares, without interest, upon surrender of their certificates therefor.
Any funds so deposited and unclaimed at the end of one year from the Redemption
Date shall be released or repaid to the holders of the shares called for
redemption shall be entitled to receive payment of the Redemption Price with
respect to such shares only from the Corporation.
17
<PAGE> 18
(g) Insufficient Funds. If the funds of the Corporation
legally available therefor shall be insufficient to discharge the redemption
requirements under Section 7(b) in full due on any Redemption Date, funds to the
maximum extent legally available for such purpose shall be set aside on or
before the Redemption Date in accordance with Section 7(b). The maximum number
of full shares of Series A Preferred Stock that can be redeemed with such funds
shall be redeemed ratably from the holders of shares of Series A Preferred Stock
to be redeemed as of the Redemption Date. Thereafter, the Corporation shall
redeem shares of Series A Preferred Stock ratably from the holders thereof as
funds legally available therefor become available. Dividends shall continue to
accrue on shares of Series A Preferred Stock scheduled to be redeemed on a
Redemption Date but not yet redeemed until funds sufficient to redeem such
shares become legally available therefor and are paid or set aside in accordance
with this Section 7.
ARTICLE VI
The Board of Directors of the Corporation shall have the power to
adopt, amend or repeal Bylaws of the Corporation.
ARTICLE VII
The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by the
affirmative vote of a majority of the entire Board of Directors. The directors
shall be divided into three classes, designated as Class I, Class II and Class
III. Each class shall consist, as nearly as possible, of one-third of the total
number of directors, initially, with the directors of Class I elected for a term
of one year, the directors of Class II elected for a term of two years and the
directors of Class III elected for a term of three years. At each succeeding
annual meeting of stockholders following such classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a three-year term.
Subject to the rights of the holders of any class or series of
the capital stock of the Corporation entitled to vote generally in the election
of directors (hereinafter in this Article VII and in the first proviso of
Article VIII of this Certificate of Incorporation, such stock is referred to as
the "Voting Stock") then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires.
No decrease in the number of authorized directors constituting the entire Board
of Directors shall shorten the term of any incumbent director. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors
18
<PAGE> 19
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
Subject to the rights of the holders of any class or series of
the Voting Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the then-outstanding shares of the Voting Stock, voting together as a
single class (it being understood that, for all purposes of this Article VII,
and the provisions of the By-Laws of the Corporation which require the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the Voting Stock, voting together as a single
class, to alter, amend or repeal any provision of the By-Laws which is to the
same effect as the provisions of this Certificate of Incorporation enumerated in
the first proviso of Article VIII hereof, each share of the Voting Stock shall
have the number of votes granted to it pursuant to Article V of this Certificate
of Incorporation or any designation of the rights, powers and preferences of any
class or series of Preferred Stock made pursuant to said Article IV (a
"Preferred Stock Designation")).
Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article VII.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto (including the
resolutions of the Board of Directors pursuant to Article IV), and such
Directors so elected shall not be divided into classes pursuant to this Article
VII unless expressly provided by such terms.
ARTICLE VIII
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the
Corporation; provided, however, that notwithstanding any other
provisions of the Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or
no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock
required by law, this Certificate of
19
<PAGE> 20
Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the Voting
Stock, voting together as a single class, shall be required to
alter, amend or repeal (i) any provision of the By-laws which
is to the same effect as Article VII of this Certificate of
Incorporation, or (ii) this proviso of this Article VIII.
To authorize and cause to be executed mortgages and
liens upon the real property of the Corporation.
To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for
any proper purpose and to abolish any such reserve in the
manner in which it was created.
By a majority of the whole board, to designate one or
more committees, each committee to consist of one or more of
the directors of the Corporation.
When and as authorized by the stockholders in
accordance with this Certificate of Incorporation and
applicable statutes, to sell, lease or exchange all or
substantially all of the property and assets of the
Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such
consideration (which may consist, in whole or in part, of
money or property, including shares of stock in, and/or other
securities of, any other corporation or corporations) as the
Corporation's Board of Directors shall deem appropriate and in
the best interests of the Corporation.
ARTICLE IX
To the fullest extent permitted by law, no director of the Corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article IX, nor the adoption
of any provision of this Restated Certificate of Incorporation inconsistent with
this Article IX, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
20
<PAGE> 21
This Amended and Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been duly executed by the Corporation as of the ____ day of
_________, 1997.
ACCESS BEYOND, INC.
BY:____________________________
Name:____________________
Title:___________________
21
<PAGE> 1
EXHIBIT 4.6.1 TO S-4
COMMON STOCK COMMON STOCK
[LOGO] [LOGO]
HAYES
CORPORATION
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 420762108
THIS CERTIFIES THAT
SPECIMEN [HAYES CORPORATION LOGO] SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE ONE CENT ($.01) PER SHARE, OF
HAYES CORPORATION, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Restated Certificate of Incorporation and the amendments thereto, to all of
which provisions the holder, by acceptance hereof, assents. This certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[HAYES CORPORATION
CORPORATE
SEAL]
/s/ James A. Jones /s/ Dennis C. Hayes
James A. Jones, Secretary Dennis C. Hayes, Chairman
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New Jersey)
Transfer Agent and
Registrar
SPECIMEN
Authorized Officer
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT
TEN COM -as tenants in common ____________ Custodian ___________
TEN ENT -as tenants by the entireties (Cust) (Minor)
IT TEN -as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as
tenants in common Act______________________
(State)
Additional abbreviations may also be used though not in the above list.
TERMS
The express terms of the shares represented by this Certificate and other
classes and series of shares which the Corporation is authorized to issue are
contained in the Corporation's Restated Certificate of Incorporation. The
Corporation will mail to any stockholder, within five (5) days after receipt of
a written request therefor and without charge, information regarding the
designations, relative rights, preferences and qualifications, limitations or
restrictions of such preferences and/or rights of the shares of each class
authorized to be issued and the variations in the relative rights, preferences,
qualifications, limitations and restrictions between the shares of each series
of shares of the Corporation so far as the same have been fixed or determined.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ____________________ _______________________________________
In Presence of
_________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 4.6.2 TO S-4
SERIES A PREFERRED STOCK SERIES A PREFERRED STOCK
[LOGO] [LOGO]
HAYES
CORPORATION
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 420762205
This Certifies that
SPECIMEN [HAYES CORPORATION LOGO] SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A PREFERRED STOCK
PAR VALUE ONE CENT ($.01) PER SHARE OF
Hayes Corporation, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Restated Certificate of Incorporation and the amendments thereto, to all of
which provisions the holder, by acceptance hereof, assents. This certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[HAYES CORPORATION SEAL]
/s/ James A. Jones /s/ Dennis C. Hayes
James A. Jones, Secretary Dennis C. Hayes, Chairman
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New Jersey)
SPECIMEN
Transfer Agent
and Registrar
Authorized Officer
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT
TEN COM -as tenants in common ____________ Custodian ___________
TEN ENT -as tenants by the entireties (Cust) (Minor)
IT TEN -as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as
tenants in common Act______________________
(State)
Additional abbreviations may also be used though not in the above list.
TERMS
The express terms of the shares represented by this Certificate and other
classes and series of shares which the Corporation is authorized to issue are
contained in the Corporation's Restated Certificate of Incorporation. The
Corporation will mail to any stockholder, within five (5) days after receipt of
a written request therefor and without charge, information regarding the
designations, relative rights, preferences and qualifications, limitations or
restrictions of such preferences and/or rights of the shares of each class
authorized to be issued and the variations in the relative rights, preferences,
qualifications, limitations and restrictions between the shares of each series
of shares of the Corporation so far as the same have been fixed or determined.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ____________________ _______________________________________
In Presence of
_________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 8.1
December , 1997
Hayes Microcomputer Products, Inc. and its Shareholders
P. O. Box 105203
Atlanta, Georgia 30348
Access Beyond, Inc. and its Shareholders
1300 Quince Boulevard
Gaithersburg, Maryland 20828
Re: Material Federal Income Tax Consequences of the
Merger Provided for in the Agreement and Plan of
Reorganization by and among Access Beyond, Inc.
("Access Beyond"), H & A Merger Sub, Inc. (the
"Subsidiary") and Hayes Microcomputer Products, Inc.
("Hayes") dated as of July 29, 1997 (the "Agreement")
Ladies and Gentlemen:
We have acted as counsel to Hayes Microcomputer Products,
Inc., a Georgia corporation, in connection with a proposed transaction (the
"Merger") in which Hayes will become a wholly-owned subsidiary of Access Beyond,
Inc. and the shareholders of Hayes (except for any dissenting Hayes
shareholders) will become shareholders of Access Beyond. The Merger will be
affected pursuant to the Agreement and Plan of Reorganization, dated as of July
29, 1997 by and between Access Beyond, Inc. and Hayes Microcomputer Products,
Inc. In our capacity as counsel to Hayes, our opinion has been requested with
respect to certain material federal income tax consequences of the proposed
Merger. In rendering this opinion, we examined (i) the Internal Revenue Code for
1986, as amended (the "Code") and Treasury regulations, (ii) the legislative
history of applicable sections of the Code, and (iii) appropriate Internal
Revenue Service and court decisional authority. In addition, we relied upon
certain information made known to us as more fully described below. All
capitalized terms used herein without definition shall have the respective
meanings specified in the Agreement, and unless otherwise specified, all section
references herein are to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined
such documents as we have deemed appropriate, including:
<PAGE> 2
(1) the Agreement;
(2) the Registration Statement on Form S-4 filed by
Access Beyond under the Securities Act of 1933, on December 12, 1997; and
(3) such additional documents as we have considered
relevant.
In our examination of such documents, we have assumed, with
your consent, that all documents submitted to us as photocopies faithfully
reproduce the originals thereof, that such originals are authentic, that all
such documents have been or will be duly executed to the extent required, and
that all statements set forth in such documents are accurate. We have also
obtained such additional information and representations as we have deemed
relevant necessary to consultation with various officers and representatives of
Hayes and Access Beyond and through certificates provided by the management of
Hayes and the management of Access Beyond dated September 30, 1997, updated to
the date of Closing (the "Tax Certificates"). We assume those representations to
be not only statements of the signors best information, but also currently true
statements of fact and statements of fact that will be true as of the Effective
Time, and we rely thereon in rendering this opinion. We also assume that the
Merger will be consummated in accordance with the Agreement.
Pursuant to the terms of the Agreement, Hayes will become a
subsidiary of Access Beyond through the merger of Subsidiary, a Georgia
corporation formed solely for the purposes of effectuating the Merger and a
wholly-owned subsidiary of Access Beyond, Inc., a Delaware corporation, and
Hayes, pursuant to Georgia law with Hayes surviving the Merger. In the Merger,
each outstanding share of Hayes Common Stock is to be converted into a
predetermined number of shares of Access Beyond Common Stock, each outstanding
share of Hayes Series A Stock is to be converted into a predetermined number of
shares of Access Beyond Common Stock, each outstanding share of Hayes Series B
Stock is to be converted into a predetermined number of shares of Access Beyond
Series A Stock, and each outstanding share of Hayes Series C Stock, if any, is
to be converted into a predetermined number of shares of Access Beyond Common
Stock. Hayes shareholders are entitled to dissenters rights with respect to the
Merger.
With your consent, we also assume that the following
statements are true on the day hereof and will be true on the date the proposed
transaction is consummated:
1. At least 90% of the fair market value of its net assets and
at least 70% of the fair market value of the gross assets held by Hayes
immediately before the Merger during the Pre-Merger Period will be held by
Hayes immediately after the Merger. For the purpose of determining the
percentage of the net and gross assets held by Hayes immediately before the
Merger, the following assets will be treated as property held by Hayes
immediately prior but not subsequent to the Merger: (a) assets disposed of by
Hayes prior to the Merger and in contemplation thereof (including without
limitation any asset disposed of by Hayes, other than in the ordinary course of
business, during the period ending on the Effective Time of the Merger and
beginning with the commencement of negotiations (whether formal or informal)
between Hayes and Access Beyond regarding the merger (the "Pre-Merger Period")),
(b) assets used by Hayes to pay expenses or
<PAGE> 3
liabilities incurred in connection with the Merger, and (c) assets used to make
distributions (except for regular and normal dividends), redemption or other
payments in respect of Hayes stock or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of the
merger or related thereto.
2. Prior to the Merger, Access Beyond will be in Control of
Subsidiary. As used herein, "Control" shall mean ownership of stock possessing
at least 80% of the total combined voting power of all classes of stock entitled
to vote and at least 80% of the total combined voting power of all classes of
stock entitled to vote and at least 80% of the total number of shares of all
other classes of stock of the corporation. For purposes of determining Control,
a person shall not be considered to own voting stock if rights to vote such
stock (or to restrict or otherwise control the voting of such stock) are held by
a third party (including a voting trust) other than an agent of such person.
3. Access Beyond will acquire Control of Hayes in the
Merger solely in exchange for Access Beyond voting stock.
4. In the Merger, shares of Hayes stock representing Control
of Hayes will be exchanged solely for voting stock of Access Beyond; at the time
of the Merger, there will exist no rights of any kind (including without
limitation, warrants, options, convertible securities, contingent rights,
informal or unwritten rights) to acquire Hayes stock or to vote (or restrict or
otherwise control the vote of) Hayes stock, which, if exercised, could affect
Access Beyond's acquisition and retention of Control of Hayes. For purposes
hereof, shares of Hayes stock exchanged in the Merger for cash and other
property will be treated as Hayes stock outstanding on the date of the Merger
but not exchanged for voting stock of Access Beyond.
5. The Conversion Ratio as defined in paragraph 1.1.5 of the
Agreement is the result of arm's length bargaining. The fair market value of the
Access Beyond voting common stock to be received by shareholders of Hayes will
be approximately equal to the fair market value of the Hayes Common Stock and
Hayes Series A Preferred Stock to be surrendered in exchange therefor. The fair
market value of the Access Beyond Series A Stock to be received by shareholders
of Hayes will be approximately equal to the fair market value of the Hayes
Series B Stock to be surrendered in exchange therefor. The fair market value of
the substituted Access Beyond options to be received by the Hayes option
holders will be approximately equal to the fair market value of the Hayes
options to be assumed in exchange therefor. The fair market value of the
substituted Access Beyond warrants to be received by the Hayes warrant holders
will be approximately equal to the fair market value of the Hayes warrants to be
assumed in exchange therefor.
6. The Access Beyond stock to be exchanged for Hayes Common
Stock in the Merger will be newly issued Access Beyond stock.
7. Neither Access Beyond nor Hayes has a plan or intention to
cause Hayes to issue, after the Merger, additional shares of stock (or rights to
acquire shares of Hayes stock) that would result in Access Beyond losing Control
of Hayes.
<PAGE> 4
8. Neither Access Beyond nor Hayes has a plan or intention to
cause Access Beyond to reacquire any of its voting stock issued in the Merger.
Access Beyond has no plan or intention to make any extraordinary distribution
with respect to its voting stock issued in the Merger.
9. Neither Access Beyond nor Hayes has a plan or intention
to: (a) cause Hayes to sell, transfer or otherwise dispose of any of its assets
or any of the assets acquired from Subsidiary except for dispositions made in
the ordinary course of business or for the payment of expenses incurred by
Hayes in the Merger; (b) liquidate Hayes; (c) merge Hayes with or into another
corporation including Access Beyond or its affiliates; or (d) to sell,
distribute or otherwise dispose of the stock of Hayes.
10. In the Merger, Subsidiary will have no liabilities
assumed by Hayes and will not transfer to Hayes any assets subject to
liabilities.
11. Access Beyond and Hayes intend that, immediately following
the Merger, Hayes will continue its historic business or use a significant
portion of its historic business assets in a business.
12. Neither Access Beyond nor any Access Beyond subsidiary
owns, or has owned during the past five years, directly or indirectly, any
shares of Hayes stock, or the right to acquire or vote any such stock.
13. The transfer of cash, if any, to Hayes shareholders in
lieu of fractional shares of Access Beyond voting stock is solely for the
purpose of avoiding the expense and inconvenience to Access Beyond of accounting
for fractional shares and does not represent separately bargained-for
consideration.
14. Except with respect to payments of cash to Hayes
shareholders in lieu of fractional shares of Access Beyond voting stock and cash
paid for Hayes Dissenting Shares, if any, 100% of the Hayes stock outstanding
immediately prior to the Merger will be exchanged solely for Access Beyond
voting stock. In any event, the total consideration other than Access Beyond
voting stock received by Hayes Shareholders will be less than 20% of the total
fair market value of the Hayes stock outstanding immediately prior to the
Merger. Thus, except as set forth in the preceding sentences, Access Beyond
intends that no consideration other than Access Beyond voting stock be paid or
received (directly or indirectly, actually or constructively) for Hayes stock.
15. No shares of Subsidiary have been or will be used as
consideration or issued to shareholders of Hayes in the Merger.
16. Hayes and Access Beyond will each pay separately its
own expenses in connection with the Merger as contemplated by the Agreement.
17. There is no inter-corporate indebtedness existing between
Access Beyond and Hayes or between Subsidiary and Hayes that was issued,
acquired, or will be settled at a discount, and Access Beyond will assume no
liabilities of Hayes or any Hayes shareholder in connection with the Merger.
<PAGE> 5
18. None of the payments to be received by any shareholder of
Hayes that are designated as compensation are actually separate consideration
for, or allocable to, any of their shares of Hayes stock, and the compensation
to be paid to any shareholder of Hayes will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
19. Neither Access Beyond, Hayes nor Subsidiary are investment
companies as defined in Section 368(1)(2)(F) of the Code, and neither are
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
20. The Merger is to be carried out for a substantial business
purpose.
21. Hayes has made no transfer of any of its assets (including
any distribution of assets with respect to, or in redemption of, stock) in
contemplation of the Merger or during the Pre-Merger Period other than (a) in
the ordinary course of business, and (b) payments for expenses incurred in
connection with the Merger.
22. At the Effective Time of the Merger, there will be no
accrued but unpaid dividends on shares of Hayes stock.
23. At the Effective Time of the Merger, the fair market value
of the assets of Hayes will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which its assets are subject.
24. Hayes has no plan or intention, and is under no
obligation, to discontinue its business, to sell or otherwise dispose of any of
its assets or of any of the assets acquired from Subsidiary in the Merger except
for dispositions made in the ordinary course of business or the payment of
expenses incurred by Hayes pursuant to the Merger.
25. There is no plan or intention on the part of any Hayes
shareholder who owns 1% or more of Hayes stock or is an officer or director of
Hayes, and to the knowledge of the management of Hayes, there is no plan or
intention on the part of the remaining Hayes shareholders to engage in a sale,
exchange, transfer, distribution, pledge, disposition or any other transaction
which would result in a direct or indirect disposition (a "Sale") of shares of
Access Beyond voting stock to be issued to Hayes shareholders in the Merger,
which shares would have an aggregate fair market value, as of the Effective Time
of the Merger, in excess of 50% of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of Hayes stock. For purposes
hereof, shares of Hayes stock (or the portion thereof) (a) with respect to which
a Hayes shareholder receives consideration in the Merger other than Access
Beyond voting stock and/or (b) with respect to which a Sale by a Hayes
shareholder who owns 1% or more of Hayes stock or is an officer or director of
Hayes occurs during the Pre-Merger Period and/or (c) issued to CIS during the
Pre-Merger Period, if any, shall be considered shares of outstanding Hayes
stock exchanged for Access Beyond voting stock in the Merger and then disposed
of pursuant to a prearranged plan.
26. There is no indebtedness existing between Hayes and any
Hayes shareholder which will be repaid in connection with or as part of the
Merger, or will be specifically funded with
<PAGE> 6
amounts Access Beyond would contribute to Hayes subsequent to the Merger.
27. At all times within the five year period prior to the
Effective Time, Hayes was not a Real Property Holding Corporation as such terms
are defined in the Code.
OPINIONS
Based solely on the information submitted and the
representations set forth above and assuming that the Merger will take place as
described in the Agreement and that the representations made by Access Beyond
and Hayes (including the representation that Hayes' shareholders will maintain
sufficient equity ownership interest in Access Beyond after the Merger) are true
and correct at the time of the consummation of the Merger, we are of the opinion
that:
1. Provided the Merger qualifies as a statutory merger under
the Delaware General Corporate Laws and the Georgia Business Corporation Code,
the Merger will be a reorganization within the meaning of Section 368(a) of the
Code. Hayes and Access Beyond will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. The shareholders of Hayes as of the date of the Agreement
owning common stock will recognize no gain or loss upon the exchange of their
Hayes Common Stock solely for shares of Access Beyond Common Stock.
3. The shareholders of Hayes as of the date of the Agreement
owning Series A Stock will recognize no gain or loss upon the exchange of their
Hayes Series A Stock solely for shares of Access Beyond Common Stock.
4. The shareholders of Hayes as of the date of the Agreement
owning Series B Stock will recognize no gain or loss upon the exchange of their
Hayes Series B Stock solely for shares of Access Beyond Series A Stock.
5. The basis of the Access Beyond Common Stock received by the
Hayes Common Stock and the Hayes Series B Stock shareholders in the proposed
transaction will, in each instance, be the same as the basis of the Hayes stock
surrendered in exchange therefore, less the basis of any fractional share of
Access Beyond stock settled by cash payment.
6. The holding period of the Access Beyond Common Stock
received by the Hayes shareholders will, in each instance, include the period
during which the Hayes stock surrendered in exchange therefor was held, provided
that the Hayes stock was held as a capital asset on the date of the exchange.
7. The basis of the Access Beyond Series A Stock received by
the Hayes shareholders in the proposed transaction will, in each instance, be
the same as the basis of the Hayes Series B Stock surrendered in exchange there
for, less the basis of any fractional share of Access Beyond Series A Stock
settled by cash payment.
8. The holding period of the Access Beyond Series A Stock
received
<PAGE> 7
by the Hayes shareholders will, in each instance, include the period during
which the Hayes stock surrendered in exchange therefor was held, provided that
the Hayes stock was held as a capital asset on the date of the exchange.
9. The payment of cash to Hayes shareholders in lieu of
fractional share interest of Access Beyond Common Stock will be treated for
federal income tax purposes as if the fractional shares were distributed as part
of the exchange and then were redeemed by Access Beyond. These cash payments
will be treated as having been received as distributions in full payment in
exchange for the shares redeemed as provided in Section 302(a) of the Code.
Generally any gain or loss recognized upon such exchange will be capital gain or
loss, provided the fractional share would constitute a capital asset in the
hands of the exchanging shareholder.
10. Where solely cash is received by a Hayes shareholder in
exchange for Hayes stock pursuant to the exercise of dissenters rights, such
cash will be treated as having been received in redemption of such holders of
Hayes stock, subject to the provisions and limitations of Section 302 of the
Code.
The opinions expressed herein are based upon existing
statutory, regulatory, and judicial authority, any of which may be changed at
any time with retroactive affect. In addition, our opinions are based solely on
the documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed and you have
confirmed to be true on the date hereof and will be true on the date of which
the proposed transaction is consummated. Our opinions cannot be relied upon if
any of the facts contained in such documents or if such additional information
is, or later becomes, inaccurate, or if any of the statements set out herein is,
or later becomes, inaccurate. This opinion is limited to the effect of the
income tax laws of the United States of America and we express no opinion as to
the laws of any jurisdiction other than the United States of America. We express
no opinion as to the United States tax treatment of Hayes shareholders who are
not United States citizens or residents for federal tax purposes.
Finally, our opinions are limited to the tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the proposed transaction, including,
for example, any issues related to inter-company transactions, accounting
methods, bad debt reserves, or changes in accounting methods, Code Section 382
change of ownership limitations, or other similar limitations resulting from
the Merger. The shares of Hayes stock and the shareholders referred to herein
do not include any stock rights, warrants or options to acquire Hayes stock or
holders thereof.
The foregoing opinion is furnished in connection with the
above-described transaction and may not be relied upon except with respect to
the consequences specifically discussed herein. Unless the prior written consent
of our firm is obtained, this opinion is not to be quoted or otherwise referred
to in any report, proxy statement, or registration statement, except as
otherwise required by law.
We consent to the use of this opinion and to the references
made to the firm under the caption "THE MERGER - Material Tax Consequences of
the Merger" constituting part of the registration statement on Form S-4 of
Access Beyond.
<PAGE> 8
Sincerely,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
