<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997
REGISTRATION NO. 333-37993
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCESS BEYOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<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
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 5, 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./p.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, (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 November 7, 1997, and the Second Amendment to the
Merger Agreement dated 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").
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 Communications Inc., (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 80.15% 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 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.
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./p.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
November 7, 1997, and the Second Amendment to the Merger Agreement dated
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 Communications Inc., (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 80.15% 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 the Proxy
Statement/Prospectus as Exhibit A 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 3, 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. 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 5, 1997
<PAGE> 5
SUBJECT TO COMPLETION, DATED DECEMBER 5, 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 (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. 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 80.15% of the issued and outstanding securities of the Company. 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 defined 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
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 shareholder; and (d) the obligations of Hayes under the
Hayes Option Plan will be assumed by the Company.
The Company and Hayes have agreed in the Merger Agreement that immediately
following the Effective Time, the Hayes shareholders will own 79% and the Access
Beyond stockholders will own 21% of the outstanding Access Beyond equity
securities (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) and Access Beyond Series A
Preferred Stock. On November 21, 1997 the Company had 12,516,183 shares of
Common Stock and 9,910 shares of 6% Convertible Stock issued and outstanding. On
November 21, 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) will be applied to the outstanding Hayes securities, resulting in
issue of 45,788,162 shares of the Company's Common Stock and 1,217,930 shares of
the Company's Series A 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 5, 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 5, 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 November
18, 1997 was $5.625.
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. The 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
<PAGE> 7
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............................................................................. 14
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
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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<TABLE>
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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................................................................. 34
Material Tax Consequences of the Merger.............................................. 34
Resale of Common Stock; Affiliates................................................... 37
NASDAQ/NMS Listing................................................................... 37
Dissenters' Rights................................................................... 37
THE MERGER AGREEMENT................................................................... 39
The Merger........................................................................... 39
Effective Time....................................................................... 39
Terms of the Merger.................................................................. 39
Surrender and Payment................................................................ 40
Representations and Warranties....................................................... 41
Conduct of Business by the Company and Hayes Pending the Merger...................... 41
Certain Covenants.................................................................... 42
Market Standoff Agreements........................................................... 43
Conditions........................................................................... 43
Termination; Effect of Termination................................................... 44
Amendment............................................................................ 46
MARKET PRICE INFORMATION, DIVIDENDS AND RELATED STOCKHOLDER MATTERS.................... 47
The Company.......................................................................... 47
Hayes................................................................................ 47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................ 49
Unaudited Pro Forma Condensed Combined Balance Sheet................................. 50
Unaudited Pro Forma Condensed Combined Statement of Operations....................... 51
Unaudited Pro Forma Condensed Combined Statement of Operations....................... 52
BUSINESS OF THE COMPANY................................................................ 53
General Development.................................................................. 53
Principal Products................................................................... 53
Discontinued Operations.............................................................. 54
Suppliers............................................................................ 55
Patents, Copyrights and Licenses..................................................... 55
Backlog.............................................................................. 55
Competition.......................................................................... 55
Research and Development............................................................. 56
Environmental Matters................................................................ 56
Sales and Marketing.................................................................. 56
Customer Support, Service and Warranty............................................... 56
International Operations............................................................. 56
Properties........................................................................... 57
Employees............................................................................ 57
Legal Proceedings.................................................................... 57
MANAGEMENT OF THE COMPANY.............................................................. 58
Executive Officers................................................................... 58
Management Post Merger............................................................... 59
</TABLE>
iii
<PAGE> 9
<TABLE>
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Committees of the Company's Board.................................................... 62
Compensation of Directors............................................................ 62
Executive Compensation............................................................... 63
Employment and Consulting Agreements................................................. 63
Retirement and Savings Plan.......................................................... 64
Option Grants in Last Fiscal Year.................................................... 64
Option Exercises and Holdings........................................................ 65
The Amended and Restated 1996 Incentive Option Plan.................................. 65
The Amended and Restated 1996 Non-employee Directors' Stock Option Plan.............. 68
Compensation Committee Interlocks and Insider Participation.......................... 69
Compensation Committee Report on Executive Compensation.............................. 70
SECURITY OWNERSHIP OF THE COMPANY...................................................... 71
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 73
STOCK PERFORMANCE GRAPH................................................................ 73
ACCESS BEYOND'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 74
Liquidity and Capital Resources...................................................... 74
Results of Operations................................................................ 75
Fiscal 1997 Compared to Fiscal 1996.................................................. 76
Fiscal 1996 Compared to Fiscal 1995.................................................. 78
BUSINESS OF HAYES...................................................................... 79
General.............................................................................. 79
Principal Products................................................................... 80
Suppliers............................................................................ 82
Patents, Copyrights and Licenses..................................................... 82
Backlog.............................................................................. 83
Competition.......................................................................... 83
Sales................................................................................ 84
Marketing............................................................................ 84
Customer Support, Service and Warranty............................................... 85
Research and Development............................................................. 85
Environmental Matters................................................................ 86
Properties........................................................................... 86
Employees............................................................................ 86
Legal Proceedings.................................................................... 86
MANAGEMENT OF HAYES.................................................................... 87
Directors and Executive Officers..................................................... 87
Executive Compensation............................................................... 87
Option/SAR Grants in Last Fiscal Year................................................ 88
Aggregated Option Exercised in Last Fiscal Year and Fiscal Year End Option Values.... 88
Employment Agreements................................................................ 88
SECURITY OWNERSHIP OF HAYES............................................................ 90
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 91
</TABLE>
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<TABLE>
<CAPTION>
PAGE
--
<S> <C>
HAYES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 92
General Business Developments........................................................ 92
Liquidity and Capital Resources...................................................... 92
Results of Operations................................................................ 93
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................................ 98
Authorized Capital Stock............................................................. 98
Common Stock......................................................................... 98
Preferred Stock...................................................................... 98
Series A Preferred Stock............................................................. 98
Antitakeover Provisions.............................................................. 100
DESCRIPTION OF THE CAPITAL STOCK OF HAYES.............................................. 103
Authorized Capital Stock............................................................. 103
Hayes Common Stock................................................................... 103
Preferred Stock...................................................................... 103
Hayes Series A Preferred Stock....................................................... 103
Hayes Series B Preferred Stock....................................................... 104
COMPARISON OF RIGHTS OF STOCKHOLDERS OF THE COMPANY AND HAYES.......................... 104
Business Combinations................................................................ 104
Amendments to Charters............................................................... 105
Amendments to By-laws................................................................ 105
Redemption of Capital Stock.......................................................... 106
Stockholder Action................................................................... 106
Special Stockholder Meetings......................................................... 106
Number and Election of Directors..................................................... 107
Antitakeover Provisions.............................................................. 107
Indemnification of Directors and Officers............................................ 108
LEGAL MATTERS.......................................................................... 109
EXPERTS................................................................................ 109
ITEM 2................................................................................. 109
RATIFICATION OF PREFERRED STOCK INVESTMENT AGREEMENT................................... 109
ITEM 3................................................................................. 111
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING JULY 31, 1998................................................... 111
OTHER MATTERS.......................................................................... 111
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./p.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 35,000 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
Communications Inc., (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 3, 1997 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 12,516,193 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 collectively, (such 6% Convertible Stock and
such shares of Common Stock, collectively, the "6% Securities")). After giving
effect to the Merger and assuming that (x)
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<PAGE> 16
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 the Company's Common Stock are exercised, the Hayes shareholders will
own approximately 80.15% 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 the date of this
Proxy Statement/Prospectus confirming its August 26, 1997 opinion. The full text
of the written opinion of DLJ dated as of the date of this Proxy
Statement/Prospectus, 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 , 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
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agreements entered into by them (the form of which is attached to the Merger
Agreement as Exhibit D-1) 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. The statutory waiting period under the HSR Act will expire on
December 11, 1997. 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, a bonus 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 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 will 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.
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%.
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
14
<PAGE> 25
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,
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
15
<PAGE> 26
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 expects to register the resale of such shares under the Securities Act
by December 31, 1997 if it fails to do so or 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 the promotion and sale of
their products, or to devote greater resources to the development of new
products than can the Company.
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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 statement 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, the Company expects to register 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 would allow 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 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
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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, will be dilutive and could individually or in the
aggregate, adversely affect the market price of the Common Stock.
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 the Company (i) fails to effect such registration and
listing within the applicable time periods or (ii) fails to maintain the
effectiveness of such registration statement or listing for more than a
specified number of days or (iii) 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 failure 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.
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 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
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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 "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
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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, will control the election of a majority of
the directors, without regard to the conversion of the 6% Convertible Securities
to be issued pursuant to the Preferred Stock Investment Agreement. 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./p.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 5, 1997.
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 and (ii) 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 Communications Inc., (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 80.15%
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.
The Conversion Ratio is equal to the percentage ownership immediately
following the closing of the Merger of the 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 3, 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 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
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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 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 this Proxy Statement/Prospectus, 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 the Company Board, DLJ was asked to
render an opinion to the Company Board 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 the Company Board 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. DLJ has
delivered to the Company Board a subsequent opinion (the "DLJ Opinion") dated as
of the date of this Proxy Statement/ Prospectus 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 DATED AS OF THE DATE OF THIS PROXY STATEMENT/
PROSPECTUS 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.
The Company Board 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 distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
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The DLJ Opinion was prepared for the Company Board 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 Annual Meeting nor does it constitute an opinion as to the price
at which the Common 'Stock will actually trade at any time. The Merger was
negotiated at arm's length by Access Beyond and Hayes. The Company Board
requested that DLJ not solicit, and DLJ did not solicit, the interest of any
other party.
In arriving at its opinion, DLJ reviewed the Merger Agreement, the terms of
the Series A Preferred Stock and a letter of intent which Hayes had entered into
in July 1997 with a prospective investor (the "Investor Letter of Intent") to
purchase 1,350,743 of Hayes Series C Preferred Stock for a purchase price of
$30.0 million. 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 the
respective managements were certain financial projections for the Company for
the period beginning August 1, 1997 and ending July 31, 1998 prepared by the
management of the Company and certain financial projections for Hayes for the
period beginning August 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, and 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 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.
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 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 at its August 26, 1997 board meeting with respect to
the material analyses underlying its August 26, 1997 opinion. The analyses
underlying the DLJ Opinion are substantially identical.
ANALYSIS OF ACCESS BEYOND
Liquidity Analysis. Based upon the Company's draft year-end financial
statements, for the quarter ended July 31, 1997, Access Beyond had an operating
loss of $4.1 million, and, as of July 31, 1997, Access Beyond had approximately
$578,000 of cash and limited borrowing capacity. Access Beyond's management
advised DLJ that it was pursuing capital sources including the repayment of
certain notes receivable and attempting to obtain a credit facility; however,
Access Beyond's management informed DLJ that it was uncertain as to the timing
and likelihood of the receipt of any such funds. Management's liquidity
assessment indicated that under the then current circumstances and as projected
by management for fiscal year 1998, Access Beyond would require an additional
$2.9 million of liquidity for the periods through July 1998.
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In addition, management intended to lower operating costs by significantly
reducing nonmanufacturing personnel and reducing certain other operating
expenses. Under the revised liquidity assessment reflecting such reductions,
Access Beyond's cash balance was projected to decrease to $52,000 by December
31, 1997.
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 1.4x and 21.4x, respectively. The multiples of equity value to
projected calendar year 1998 net income (as opposed to LTM revenues and LTM
EBITDA) for the Small-Cap Public Comparable was 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 3.3x to 8.6x and
15.2x to 25.1x, respectively, resulting in an average multiple of 5.6x and
21.7x, respectively. The multiples of equity value to projected calendar year
1998 net income for the Large-Cap Public Comparables ranged from 19.2x to 33.4x,
resulting in an average multiple of 26.2x. DLJ then derived a valuation range
for Access Beyond by concentrating on Enterprise Value as a multiple of revenues
and net income multiples, which DLJ concluded to be the most relevant bases 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 1.5x to 2.5x, 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 $1.56 to $2.56 per share. DLJ determined
that the relevant range of projected calendar year 1998 net income multiples was
24.0x to 28.0x. DLJ then calculated the imputed valuation ranges for Access
Beyond by applying these multiples to the projected calendar year 1998 net
income provided by Access Beyond management, which yielded a range of equity
values for Access Beyond of $4.65 to $5.43 per share.
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 $0.44 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
Computers, Crosscom Corp. by OlicomAS, 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
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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 $27.5 million to $38.8 million, which results in an equity value range
of $2.25 to $3.15 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
average multiple of 0.6x. 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 19.2x to 22.9x,
resulting in a average multiple of 21.0x. The analysis indicated that the
multiples of Enterprise Value to LTM revenues and LTM EBITDA for Remote Access
Public Comparables ranged from 1.4x to 8.6x and 15.2x to 25.1x, respectively,
resulting in an average multiple of 4.8x and 21.7x, respectively. The multiple
of equity value to projected calendar year 1998 net income for Remote Access
Public Comparables ranged from 19.2x to 33.4x, resulting in an average multiple
of 26.2x. The analysis indicated that the multiple of Enterprise Value to LTM
revenues for xDSL Public Comparables ranged from 6.2x to 30.4x, resulting in an
average of 17.3x. The multiple of LTM EBITDA for xDSL Public Comparables was
20.4x, since only one company had positive EBITDA. The multiple of equity value
to projected calendar year 1998 net income for xDSL Public Comparables ranged
from 32.1x to 84.2x, resulting in an average multiple of 58.1x. 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 1.2x to 1.8x, a premium to the
Modem Public Comparables due to Hayes' xDSL 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 $214.4 million to $338.5
million. DLJ concluded that the appropriate range of projected calendar year
1998 net income multiples was 21.0x to 29.0x. 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 Hayes of $187.1 million to $258.4 million.
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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 $413.5 million to $537.6 million, which results in an equity value
range of $379.8 million to $503.9 million after subtracting $33.3 million of net
debt.
New Investment Analysis. Prior to delivering the DLJ Opinion, DLJ reviewed
a draft of the Investor Letter of Intent for the $30.0 million new money
investment in Hayes (the "Investment"). DLJ did not participate in negotiating
the Investment and has not reviewed the Investment since delivering the DLJ
Opinion. For the purposes of the opinion, DLJ has assumed that either (i) the
contemplated equity purchase will be completed on the terms set forth in the
Investor Letter of Intent or (ii) alternative sources of sufficient liquidity
will be available to Hayes, on a timely basis, that would not materially affect
the Conversion Ratio in a manner adverse to the Company as compared with the
Conversion Ratio that is anticipated to result from the contemplated equity
purchase pursuant to the Investor Letter of Intent.
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 Hayes 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
15% to 30%. To estimate the residual value of Access Beyond 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 15% to 30%. 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 $150.4 million to $477.6
million. The range of implied enterprise values of Hayes was then adjusted for
debt (net of cash and cash equivalents of $5.0 million) by deducting $11.3
million from implied Enterprise Value to yield an implied equity value of Hayes
of $139.1 million to $466.3 million.
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: 5.7% of revenues, 11.3% of gross profit, 78.3% of
shareholders' equity excluding the Investment, 24.9% of shareholders' equity
including the Investment and 0.0% 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: 8.6% of revenues, 13.7% of gross profit, 20.5% of operating income
and 21.4% of net income.
Accretion Analysis. DLJ reviewed the projected pro forma combined income
statement of Access Beyond and Hayes, including projected synergies. All
projections, including synergies, were provided by
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managements of Hayes and Access Beyond. Access Beyond's projected stand-alone
earnings per share ("EPS") for calendar year 1998 was $0.32. The projected pro
forma EPS of the combined entity, including the Investment, for calendar year
1998 was $0.38, which represents a premium of 17.9% 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 1.2x to 1.8x,
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 $230.1 million to $361.7 million. The implied value of
the equity to be received by Access Beyond shareholders in the Merger was $3.87
to $6.08 per share. DLJ concluded that the relevant range of projected calendar
year 1998 net income multiples was 21.0x to 29.0x. 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 $238.1 million to $328.7 million. The implied value of the
equity to be received by Access Beyond shareholders in the Merger was $3.62 to
$5.00 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 $339.5 million to
$468.8 million. The implied value of the equity to be received by Access Beyond
shareholders in the Merger was $5.16 to $7.13 per share.
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 August 26, 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 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 6, 1997, Access
Beyond has agreed to pay DLJ a retainer of $50,000, a fee of $350,000 upon the
delivery of the DLJ Opinion and 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. 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.
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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.
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."
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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 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.
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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 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
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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 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
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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 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.
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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.
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.
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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 the Company 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 the Company's 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, the Company 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 the Company 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 the
Company 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 the
Company of such holder's demand in writing within 30 days after the Company
makes or offers payment for such holder's shares. If the Company 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 the Company's payment offer, and the
Company must provide such information within 10 days after receipt of the
written demand, and (ii) the shareholder may notify the Company 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. The Company 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 Communications Inc.
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 80.15% of the issued and outstanding equity
securities of the Company excluding the options and 6% Securities.
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
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.
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<PAGE> 50
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 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.
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<PAGE> 51
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 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,
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<PAGE> 52
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;
(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.
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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 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
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<PAGE> 54
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 and
termination of the Antidilution Warrant; (h) execution of the Voting Agreement,
the Hayes Affiliate Agreements and the Market Stand-Off Agreements; and (i)
receipt by the Company of a fairness opinion, updated as of the Closing, from
DLJ that the Merger is fair to the Company and its stockholders from a financial
point of view of the Conversion Ratio.
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 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
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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 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.
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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.
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MARKET PRICE INFORMATION, DIVIDENDS AND RELATED STOCKHOLDER MATTERS
THE COMPANY
The Common Stock is traded on NASDAQ/NMS under the symbol "ACCB." 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)....... $8 7/8 $6
Third quarter ended April 30, 1997................................... $7 1/8 $3
Fourth quarter ended July 31, 1997................................... $6 7/8 $3 1/4
First quarter ended October 31, 1997................................. $8 3/16 $4 3/8
Second quarter (through November 18, 1997)........................... $5 3/4 $4 13/16
</TABLE>
On November 18, 1997, the last reported sale price of the Common Stock on
NASDAQ/NMS was $5.625 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 4, 1997, the last trading day prior to the mailing of this
Proxy Statement to the Company's stockholders, the high and low sale prices of
the Common Stock on NASDAQ/NMS were $ and $ , 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 are 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> 58
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>
48
<PAGE> 59
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.
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<PAGE> 60
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) 458(4) 583
Preferred stock, series A....................... 35,000 (35,000)(4) 12(4) 12
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>
50
<PAGE> 61
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
51
<PAGE> 62
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.
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<PAGE> 63
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,
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<PAGE> 64
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.
54
<PAGE> 65
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
55
<PAGE> 66
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> 67
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.
57
<PAGE> 68
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>
58
<PAGE> 69
<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>
59
<PAGE> 70
<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, ......................... 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>
60
<PAGE> 71
<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>
61
<PAGE> 72
<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 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> 73
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> 74
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 $3,167,563
James Gallagher.............. 75,000 5.1% 6.625 12/5/06 312,482 791,891
Mark Silverman............... 60,000 4.1% 6.625 12/5/06 249,986 633,513
John Clary................... 125,000 8.5% 6.625 12/5/06 520,803 1,319,818
100,000 6.8% 4.00 6/4/07 251,558 637,497
</TABLE>
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<PAGE> 75
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning each exercise
of stock options, during the fiscal year ended July 31, 1997 by the Named
Executive Officers and unexercised stock options held by the Named Executive
Officers as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED PER SHARE IN-THE-MONEY
SHARES OPTIONS/SARS AT EXERCISE PRICE OF OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END UNEXERCISED FISCAL YEAR-END
EXERCISE REALIZED EXERCISABLE/ OPTIONS AT FISCAL EXERCISABLE/
NAME (#)(1) ($)(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,
65
<PAGE> 76
however, that no person may receive Options to acquire more than 500,000 shares
of Common Stock during 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 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
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<PAGE> 77
other relationship of an optionee terminates upon disability (as defined in
Section 221(e)(3) of the Code) 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
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<PAGE> 78
grant of such stock options. Generally, Section 83 of the Code requires that,
upon exercise of an option, the 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 Committee. The principal terms
of the Option grants are fixed in the Directors' Plan. Therefore, the Committee
will have 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 21, 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 21, 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 21, THE EFFECTIVE NOVEMBER 21, THE EFFECTIVE
OWNER NOVEMBER 21, 1997 1997 (1) TIME(1)(11) 1997(1)(12) TIME(1)(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)..................... 3,080,603(8) 24.2% 5.3% 20.7% 4.5%
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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<PAGE> 82
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 21,, 1997. Does not include additional shares of
Common Stock issuable to Mr. Ronald Howard in lieu of a $437,500 cash bonus
payable upon a change in control.
(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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<PAGE> 83
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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<PAGE> 84
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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<PAGE> 85
issued the Paradyne Shares to Paradyne. Pursuant to the Purchase Agreement, the
Company is required to register 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> 86
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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<PAGE> 87
<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> 88
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> 89
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> 90
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> 91
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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<PAGE> 92
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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<PAGE> 93
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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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,
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<PAGE> 95
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 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> 96
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 punative 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> 97
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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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> 99
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> 100
SECURITY OWNERSHIP OF HAYES
The following table sets forth the beneficial ownership of capital stock in
Hayes as of November 21, 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 21, 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> 101
(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 November , 1997, Hayes sold 72,276 shares of common stock of BVRP
Software S.A. ("BVRP"), to ACMA, a shareholder of Hayes, for a purchase price of
$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 five days prior
to the closing. 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> 102
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> 103
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 Hayes 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> 104
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 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.
94
<PAGE> 105
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.
95
<PAGE> 106
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.
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<PAGE> 107
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> 108
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 November 21, 1997
the Company had 12,516,185 shares of Common Stock issued and outstanding and
9,910 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> 109
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, and conversion notices are received, 18.75% of the 6%
Convertible Stock will be convertible at a Conversion Price equal to 92.5%,
instead of 85%, of the Market Value and 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 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 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
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<PAGE> 110
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> 111
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 October 1, 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
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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,
and conversion notices are received, 18.75% of the 6% Convertible Stock will be
convertible at a Conversion Price equal to 92.5%, instead of 85%, of the Market
Value and 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 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.
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 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 the Company (i) fails to effect such
registration and listing within the applicable time periods or (ii) fails to
maintain the effectiveness of such registration statement or listing for more
than a specified number of days or (iii) 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 failure 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 additional shares of 6%
Convertible Stock for $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
110
<PAGE> 121
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
November 21, 1997, 20,892 shares of Common Stock (less than two-tenths 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 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.
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.
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.
111
<PAGE> 122
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> 123
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.
DELOITTE & TOUCHE LLP
Washington, D.C.
August 29, 1997 (November 12, 1997 as to Note 11)
F-2
<PAGE> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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
Communications Inc. 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> 160
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> 161
<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 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 Specimen Stock Certificate for Hayes Communications Inc.
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> 162
<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> 163
<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
** Management contract, compensation plan or arrangement
*** To be filed by amendment
(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> 164
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> 165
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> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Gaithersburg, State of Maryland, on November 24, 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. 1 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 November 24, 1997
- ------------------------------------- Officer (Principal Executive
Ronald Howard Officer) and Chairman of the Board
/s/ MARK FIELDS* Controller and Acting Chief November 24, 1997
- ------------------------------------- Financial Officer (Principal
Mark Fields Financial and Accounting Officer)
/s/ BARBARA PERRIER DREYER* Director November 24, 1997
- -------------------------------------
Barbara Perrier Dreyer
/s/ JOHN HOWARD* Director November 24, 1997
- -------------------------------------
John Howard
/s/ ARTHUR SAMBERG* Director November 24, 1997
- -------------------------------------
Arthur Samberg
/s/ PAUL SCHALLER* Director November 24, 1997
- -------------------------------------
Paul Schaller
</TABLE>
*By: /s/ RONALD HOWARD
---------------------------
(Ronald Howard, as
Attorney-in-Fact)
II-7
<PAGE> 167
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
November 24, 1997
II-8
<PAGE> 168
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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.
November 24, 1997
II-9
<PAGE> 169
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> 170
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 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> 171
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> 172
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
--------- --------------------------------------------------------------------- ----------
<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 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.
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
--------- --------------------------------------------------------------------- ----------
<C> <S> <C>
*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 Specimen Stock Certificate for Hayes Communications Inc.
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).
*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).
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
--------- --------------------------------------------------------------------- ----------
<C> <S> <C>
*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
** Management contract, compensation plan or arrangement
*** To be filed by amendment
<PAGE> 1
EXHIBIT 2.3.2
FIRST AMENDMENT TO AGREEMENT AND PLAN
OF REORGANIZATION BETWEEN ACCESS BEYOND, INC.
AND HAYES MICROCOMPUTER PRODUCTS, INC.
This First Amendment to the Agreement and Plan of Reorganization
between Access Beyond, Inc. and Hayes Microcomputer Products, Inc. (this
"Amendment") is entered into as of November 7, 1997, by and between Access
Beyond, Inc., a Delaware corporation ("Access Beyond"), and Hayes Microcomputer
Products, Inc., a Georgia corporation ("Hayes") (and individually referred to
as "Party" and jointly and severally referred to herein as "Parties"). This
Amendment will be effective as of the Effective Date (as defined below).
RECITALS
A. The Parties previously entered into an Agreement and Plan of
Reorganization on July 29, 1997 (the "Merger Agreement") pursuant to which,
subject to the terms and conditions set forth therein, a new corporation that
will be organized in Georgia as a wholly owned subsidiary of Access Beyond
("Newco") will merge with and into Hayes in a reverse triangular merger (the
"Merger"), with Hayes to be the surviving corporation of the Merger.
Capitalized terms used but not otherwise defined in this Agreement have the
meanings ascribed to such term in the Merger Agreement.
B. Elliott Associates, L.P., Westgate International, L.P.,
Montrose Investments, Ltd., Westover Investments, L.P., Stark International,
Ltd., Shepard Investment International, Ltd., Ramius Fund, Ltd., Gam Arbitrage
Investments, Inc., Leonardo, L.P., Raphael, L.P., and AG Super Fund
International Partners, L.P. (the "Investors") have agreed with Access Beyond
to purchase up to 45,000 shares of Access Beyond's 6% Cumulative Convertible
Preferred Stock, with a $1,000 per share liquidation preference, for the price
of $1,000 per share (the "Preferred Stock Investment").
C. As a part of the Preferred Stock Investment, Access Beyond
will be required to create and issue shares of 6% Cumulative Convertible
Preferred Stock, with a $1,000 per share liquidation preference.
D. Certain other amendments to the Merger Agreement are now
necessary.
NOW, THEREFORE, in reliance upon the recitals set forth above, the
Parties hereto agree as follows:
1. Access Beyond shall create a class of preferred stock known as "6%
Cumulative Convertible Preferred Stock" which class of preferred stock shall
have an initial liquidation preference of $1,000 per share and is more fully
described in a Certificate of Designations substantially in the form attached
hereto as Exhibit A to this Amendment. Without violating the
<PAGE> 2
Merger Agreement, Access Beyond may enter into a Preferred Stock Investment
Agreement, a Registration Rights Agreement and such other agreements as are
necessary and appropriate to effectuate the sale by Access Beyond to Investors
of up to 45,000 shares of the newly-created 6% Cumulative Convertible Preferred
Stock for up to $45,000,000 with the sale of 10,000 of the said shares for
$10,000,000 taking place prior to the Closing of the Merger Agreement and the
sale of up to 35,000 additional shares of the 6% Cumulative Convertible
Preferred Stock taking place after Closing of the Merger Agreement. In the
event the Investors convert any of 6% Cumulative Convertible Preferred Stock
prior to the Closing of the Merger Agreement, then each Party agrees that it
will be proportionately diluted by the common stock required to be issued to
Investors, and that the respective percentages of the shares of Access Beyond
to be held immediately after the Effective Time by the Access Beyond and Hayes
shareholders as contemplated by Section 1.1.5 of the Merger Agreement shall be
appropriately adjusted to accommodate the dilution occasioned by conversion of
the 6% Cumulative Convertible Preferred Stock.
2. Recital D (i) of the Merger Agreement is hereby stricken in its
entirety and replaced with the following:
(i) Chestnut Capital Limited Partnership, Rinzai Limited
and Vulcan Ventures Incorporated, who together hold a majority or more
of the issued and outstanding shares of each class or series of Hayes
capital stock, and a sufficient number of shares of Hayes capital
stock to approve the Merger (the "Principal Hayes Shareholders"), are
each executing and delivering to Access Beyond a fully signed copy of
a certain Voting Agreement substantially in the form of Exhibit C-1
voting a sufficient number of shares of Hayes capital stock to
constitute a vote of sixty-nine and five tenths percent (69.5%) of the
issued and outstanding shares of Hayes capital stock in favor of the
Merger, containing a market standoff agreement, an agreement to vote
in favor of the Merger, this Agreement, the Certificate of Merger and
the transactions provided for herein and against any transaction that
could adversely affect the Merger (collectively, the "Voting
Agreements").
3. Section 5.3.3 of the Merger Agreement is hereby stricken in its
entirety.
4. Section 7.13 of the Merger Agreement is hereby stricken in its
entirety and replaced with the following:
7.13 Access Beyond Restated Certificate. The stockholders
of Access Beyond shall have approved and the Secretary of State of
Delaware shall have accepted for filing the Amended and Restated
Certificate of Incorporation substantially in the form attached hereto
as Exhibit 7.13 (the "Restated Certificate") in order to (a) change
Access Beyond's name to Hayes Communications Inc.; (b) create the
Access Beyond Series A Stock in an amount sufficient to provide for
conversion of the Hayes Series B Stock; and (c) increase the number of
shares of all classes of Access Beyond stock to 160,000,000.
<PAGE> 3
5. Section 9.1 (b) of the Merger Agreement is hereby stricken in its
entirety and replaced with the following:
(b) by either Access Beyond 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 this Agreement
to perform any material obligation required to be performed by such
Party at or prior to the Effective Time);
6. Section 9.3.1 of the Merger Agreement is hereby stricken in its
entirety and replaced with the following:
9.3.1 Allocation. Except as set forth in this Section 9.3,
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; provided, however, that Hayes and Access Beyond
shall share equally all fees and expenses other than attorneys' fees,
incurred in connection (i) with the printing and filing of the Form
S-4 and the Prospectus/Proxy Statement and amendments or supplements
thereto; (ii) any filings required of Hayes or Access Beyond pursuant
to the HSR Act; and (iii) any filings required of Hayes or Access
Beyond pursuant to NASDAQ requirements. Each Party shall promptly
reimburse its principal shareholders, stockholders, officers and
directors for amounts paid by them as filing fees to governmental
agencies and other reasonable and necessary expenses that are incurred
by such persons to comply with any consent or approval required to be
obtained in order to perform this Agreement.
7. Exhibit 1.5B (Certificate of Officer of Hayes Microcomputer Products,
Inc.) to the merger Agreement is hereby stricken in its entirety and replaced
with the new Exhibit 1.5B, set forth as Exhibit B to this Amendment.
8. Exhibit C-4 (Executive Employment Agreement of Ronald A. Howard) to
the Merger Agreement is hereby stricken in its entirety and replaced with the
new Exhibit C-4, set forth as Exhibit C to this Amendment.
9. Exhibit C-5 (Executive Employment Agreement of Dennis C. Hayes) to the
Merger Agreement is hereby stricken in its entirety and replaced with the new
Exhibit C-5, set forth as Exhibit D to this Amendment.
10. All other provisions of the Merger Agreement shall remain unchanged
and are hereby declared to be in full force and effect, except as expressly
amended hereby.
11. By executing this Amendment, Hayes represents that the Amendment and
the actions contemplated hereby have been duly authorized by the Hayes
Transaction Committee and Access
<PAGE> 4
Beyond represents that the Amendment and the actions contemplated hereby have
been duly authorized by the Access Beyond Board of Directors.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ACCESS BEYOND, INC. HAYES MICROCOMPUTER PRODUCTS, INC.
BY:/s/ Ronald A. Howard By:/s/ Dennis C. Hayes
--------------------------------- --------------------------------
Ronald A. Howard, President Dennis C. Hayes, Chairman
<PAGE> 5
EXHIBIT B
CERTIFICATE OF OFFICER
OF HAYES MICROCOMPUTER PRODUCTS, INC.
The undersigned officer of Hayes Microcomputer Products, Inc., a
Georgia corporation ("Hayes"), on behalf of the management of Hayes, after
consulting with legal counsel and financial auditors regarding the meaning of
and the factual support for the following representations, hereby represent, in
connection with the proposed merger of Hayes with and into _________________, a
Georgia corporation ("Newco"), a wholly owned subsidiary of Access Beyond,
Inc., a Delaware corporation ("Acquiror"), with Hayes surviving the merger and
with Hayes shareholders receiving solely Acquiror voting stock in the merger,
intended to qualify as a reorganization described in Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of Section 368(a)(2)(E), collectively referred to as the "Merger,"
pursuant to that certain Agreement and Plan of Reorganization by and between
Acquiror, Newco and Hayes, dated as of _____________, 1997, and Exhibits
thereto (collectively the "Agreement"),(1) that to the best of their knowledge
and belief the following facts are now true, correct and complete; and will
continue to be true, correct and complete as of the Effective Time for the
Merger and thereafter, as relevant.
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 for purposes of this representation, 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 Acquiror regarding
the merger (the "Pre-Merger Period"), (b) assets used by Hayes to pay expenses
or 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. 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.
- ----------------------------
(1) Unless otherwise indicated, all capitalized terms shall have the
meaning defined in the Agreement.
<PAGE> 1
Exhibit 2.3.3
SECOND AMENDMENT TO AGREEMENT AND PLAN
OF REORGANIZATION BETWEEN ACCESS BEYOND, INC.
AND HAYES MICROCOMPUTER PRODUCTS, INC.
This Second Amendment to the Agreement and Plan of Reorganization between
Access Beyond, Inc. and Hayes Microcomputer Products, Inc. (the "Second
Amendment") is entered into as of November 21, 1997, by and between Access
Beyond, Inc., a Delaware corporation ("Access Beyond"), and Hayes
Microcomputer Products, Inc., a Georgia corporation ("Hayes") (and individually
referred to as "Party" and jointly and severally referred to herein as
"Parties"). This Second Amendment will be effective as of the Effective Date
(as defined below).
RECITALS
A. The Parties previously entered into an Agreement and Plan of
Reorganization on July 29, 1997 (the "Merger Agreement") pursuant to which,
subject to the terms and conditions set forth therein, a new corporation that
will be organized in Georgia as a wholly owned subsidiary of Access Beyond
("Newco") will merge with and into Hayes in a reverse triangular merger (the
"Merger"), with Hayes to be the surviving corporation of the Merger, and the
Merger Agreement was amended pursuant to that certain First Amendment to the
Agreement and Plan of Reorganization between Access Beyond, Inc. and Hayes
Microcomputer Products, Inc. on November 7, 1997 (the "First Amendment").
Capitalized terms used but not otherwise defined in this Second Amendment have
the meanings ascribed to such term in the Merger Agreement and the First
Amendment. (As used herein, the term "Merger Agreement, as amended" means the
Merger Agreement and the First Amendment.)
B. Certain other amendments to the Merger Agreement, as amended, are now
necessary.
NOW, THEREFORE, in reliance upon the recitals set forth above, the Parties
hereto agree as follows:
1. The last sentence of paragraph 1 of the First Amendment is hereby deleted
and the following sentence is inserted in lieu thereof:
In the event the Investors convert any of 6% Cumulative
Convertible Preferred Stock prior to the Closing of the
Merger Agreement, then each Party agrees that it will be
proportionately diluted by the common stock required to be
issued to Investors, as if such common stock were issued
after the Closing of the Merger Agreement and that the
respective percentages of the shares of Access Beyond to be
held immediately after the Effective Time by the Access
Beyond and Hayes shareholders as contemplated by Section
1.1.5 of the Merger Agreement shall be calculated without
regard to the issuance of the common shares occasioned by
conversion of the 6% Cumulative Convertible Preferred Stock.
<PAGE> 2
2. Section 1.1.5 of the Merger Agreement is hereby amended in the
definition of "C", in the Conversion Ratio, by adding after the words
"Effective Time", the following:
calculated without regard to the issuance of common stock upon
conversion prior to the Effective Time of any of the 6% Cumulative
Convertible Preferred Stock issued to the Investors pursuant to
the Preferred Stock Investment.
3. Section 8.16 of the Merger Agreement is hereby amended by deleting
in the fourth line thereof the words "at the Closing", and inserting in lieu
thereof the following: "not more than five (5) days prior to the Effective Date
of the registration statement on Form S-4".
4. Exhibit 7.13 to the Merger Agreement, as amended, is hereby deleted
and a new Exhibit 7.13 is inserted in lieu thereof, as set forth on Exhibit
"A" attached to this Second Amendment and made a part hereof by this
reference. The purpose of this substituted Restated Certificate is to provide
the completed information left blank in the original Restated Certificate
attached to the Merger Agreement.
5. All other provisions of the Merger Agreement, as amended, shall
remain unchanged and are hereby declared to be in full force and effect, except
as expressly amended hereby.
6. By executing this Amendment, Hayes represents that the Second
Amendment and the actions contemplated hereby have been duly authorized by the
Hayes Transaction Committee and Access Beyond represents that the Second
Amendment and the actions contemplated hereby have been duly authorized by the
Access Beyond Board of Directors.
IN WITNESS WHEREOF, the Parties hereto have executed this Second Amendment
as of the date first above written.
ACCESS BEYOND, INC. HAYES MICROCOMPUTER PRODUCTS, INC.
BY: /s/ Ronald A. Howard By: /s/ Dennis C. Hayes
_______________________________ _______________________________
Ronald A. Howard, President Dennis C. Hayes, Chairman
<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 Communications Inc.
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
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<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
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<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
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<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
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<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.
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<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
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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
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<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.
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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:___________________
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<PAGE> 1
EXHIBIT 4.2.4
HAYES AFFILIATE AGREEMENT
This Hayes Affiliate Agreement (this "Affiliate Agreement") is made and
entered into as of July 29, 1997 (the "Effective Date") among Access Beyond,
Inc., a Delaware corporation ("Access Beyond"), Hayes Microcomputer Products,
Inc., a Georgia corporation ("Hayes") and S.P. Quek Investments Pte Ltd.
("Shareholder") who is an affiliate of Hayes.
RECITALS
A. This Affiliate Agreement is entered into pursuant to that certain
Agreement and Plan of Reorganization dated as of July 29, 1997 between Access
Beyond and Hayes (as such may be amended the "Merger Agreement") which provides
(subject to the conditions set forth therein) for the merger of a wholly owned
subsidiary of Access Beyond ("Newco") with and into Hayes in a reverse
triangular merger (the "Merger"), with Hayes to be the surviving corporation of
the Merger, all pursuant to the terms and conditions of the Merger Agreement and
the Agreement of Merger to be entered into between Newco and Hayes in the form
attached to the Merger Agreement (the "Agreement of Merger"). The Merger
Agreement and the Agreement of Merger are collectively referred to herein as the
"Merger Agreements." Capitalized terms used but not otherwise defined in this
Affiliate Agreement have the meanings ascribed to such terms in the Merger
Agreement.
B. The Merger Agreements provide that, in the Merger, the shares of
Hayes Common Stock and shares of Hayes Series A Preferred Stock that are issued
and outstanding at the Effective Time of the Merger will be converted into
shares of Access Beyond Common Stock and the shares of Hayes Series B Preferred
Stock that are issued and outstanding at the Effective Time of the Merger will
be converted into shares of Access Beyond Series A Stock, all as more
particularly set forth in the Merger Agreement.
C. Shareholder understands that Shareholder is deemed an "affiliate" of
Hayes within the meaning of the Securities Act of 1933, as amended (the "1933
Act"), and that any shares of Access Beyond capital stock acquired by the
Shareholder in the Merger may be disposed of only in conformity with the
limitations described herein.
A G R E E M E N T
1. TAX TREATMENT, RELIANCE. Shareholder understands and agrees that it
is intended that the Merger will be treated as a tax-free reorganization for
federal income tax purposes and that such treatment requires that a sufficient
number of former stockholders of Hayes maintain a meaningful continuing equity
ownership interest in Access Beyond after the Merger. Shareholder understands
that the representations, warranties and covenants of Shareholder set forth
herein will be relied upon by Hayes and Access Beyond and their respective
counsel and accounting firms and by Hayes' stockholders. Shareholder will rely
on Shareholder's own tax advisers as to the tax
<PAGE> 2
attributes of the Merger to Shareholder and understands that neither Access
Beyond, nor Access Beyond's counsel, Hayes or Hayes' counsel has guaranteed nor
will guarantee to Shareholder that the Merger will be a tax-free reorganization,
nor shall any of them have any liability to Shareholder as a result of issuing
any opinion in respect thereof that may be required in connection with any
registration statement under the 1933 Act.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SHAREHOLDER.
Shareholder represents, warrants and covenants as follows.
(a) Authority; Affiliate Status. Shareholder has all requisite
right, power, legal capacity and authority to execute, deliver and perform this
Affiliate Agreement and to perform its obligations hereunder. Shareholder
further understands and agrees that Shareholder is deemed to be an "affiliate"
of Hayes within the meaning of the 1933 Act and, in particular, Rule 145
promulgated under the 1933 Act ("Rule 145").
(b) Hayes Securities Owned. Attachment 1 hereto sets forth all
shares of Hayes capital stock and any other securities of Hayes owned by
Shareholder, including all securities of Hayes as to which Shareholder has sole
or shared voting or investment power, and all rights, options and warrants to
acquire shares of capital stock or other securities of Hayes granted to or held
by Shareholder (such shares of Hayes capital stock, other securities of Hayes
and rights, options and warrants to acquire shares of Hayes capital stock and
other securities of Hayes are hereinafter collectively referred to as "Hayes
Securities"). As used herein, the term "Expiration Date" means the earliest to
occur of (i) the closing, consummation and effectiveness of the Merger, or (ii)
such time as the Merger Agreement may be terminated in accordance with its
terms.
(c) New Hayes Securities. As used herein, the term "New Hayes
Securities" means, collectively, any and all shares of Hayes capital stock,
other securities of Hayes and rights, options and warrants to acquire shares of
Hayes capital stock and other securities of Hayes that Shareholder may purchase
or otherwise acquire any interest in (whether of record or beneficially), on and
after the Effective Date of this Affiliate Agreement and prior to the Expiration
Date. All New Hayes Securities will be subject to the terms of this Affiliate
Agreement to the same extent and in the same manner as if they were Hayes
Securities.
(d) Merger Securities. As used herein, the term "Merger
Securities" means, collectively, all shares of Access Beyond Common Stock, and
Access Beyond Series A Stock that are or may be issued by Access Beyond in
connection with the Merger or the transactions contemplated by the Merger
Agreements, or to any former holder of Hayes options, warrants or rights to
acquire shares of Hayes Common Stock, and any securities that may be paid as a
dividend or otherwise distributed thereon or with respect thereto or issued or
delivered in exchange or substitution therefor or upon conversion thereof.
(e) Transfer Restrictions on Merger Securities. Shareholder
has been advised that the issuance of the shares of Access Beyond Common Stock
and Access Beyond Series A
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<PAGE> 3
Stock in connection with the Merger is expected to be effectuated pursuant to a
Registration Statement on Form S-4 under the 1933 Act, and that the provisions
of Rule 145 will limit Shareholder's resales of such Merger Securities.
Shareholder accordingly agrees not to sell, transfer, exchange, pledge, or
otherwise dispose of, or make any offer or agreement relating to, any of the
Merger Securities and/or any option, right or other interest with respect to any
Merger Securities that Shareholder may acquire, unless: (i) such transaction is
permitted pursuant to Rules 145(c) and 145(d) under the 1933 Act; or (ii) legal
counsel representing Shareholder, which counsel is reasonably satisfactory to
Access Beyond, shall have advised Access Beyond in a written opinion letter
reasonably satisfactory to Access Beyond and Access Beyond's legal counsel, and
upon which Access Beyond and its legal counsel may rely, that no registration
under the 1933 Act would be required in connection with the proposed sale,
offer, exchange, pledge or other disposition of Merger Securities by
Shareholder, or (iii) a registration statement under the 1933 Act covering the
Merger Securities proposed to be sold, transferred, exchanged, pledged or
otherwise dispose of, describing the manner and terms of the proposed sale,
transfer, exchange, pledge or other disposition, and containing a current
prospectus, shall have been filed with the Securities and Exchange Commission
("SEC") and been declared effective by the SEC under the 1933 Act, or (iv) an
authorized representative of the SEC shall have rendered written advice to
Shareholder (sought by Shareholder or counsel to Shareholder, with a copy
thereof and all other related communications delivered to Access Beyond and its
legal counsel) to the effect that the SEC would take no action, or that the
staff of the SEC would not recommend that the SEC take action, with respect to
the proposed disposition of Merger Securities if consummated. Nothing herein
imposes upon Access Beyond any obligation to register any Merger Securities
under the 1933 Act.
(f) Intent. Shareholder does not now have, and as of the
Effective Time of the Merger will not have, any present plan or intention 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 common 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 of this representation, 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 common stock and/or
(b) with respect to which a Sale by a Hayes shareholder who owns 5% or more of
Hayes stock or is an officer or director of Hayes occurs during the pre-merger
period shall be considered shares of outstanding Hayes stock exchanged for
Access Beyond voting common stock in the Merger and then disposed of pursuant to
a prearranged plan.
3. LEGENDS. Shareholder also understands and agrees that stop transfer
instructions will be given to Access Beyond's transfer agent with respect to
certificates evidencing the Merger Securities to enforce Shareholder's
compliance with Shareholder's representations in Sections 2(e) and Shareholder's
compliance with applicable securities laws regarding the Merger Securities, and
that there will be placed on the certificates evidencing such Merger Securities
a legend providing substantially as follows:
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<PAGE> 4
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED, ANY APPLICABLE STATE
SECURITIES LAWS, AND THE OTHER CONDITIONS SPECIFIED IN THAT
CERTAIN HAYES AFFILIATE AGREEMENT DATED AS OF JULY 29, 1997
AMONG ACCESS BEYOND, INC. ("ACCESS BEYOND"), HAYES
MICROCOMPUTER PRODUCTS, INC. AND THE HOLDER OF SUCH SHARES, A
COPY OF WHICH MAY BE INSPECTED BY THE HOLDER OF THIS
CERTIFICATE AT THE OFFICES OF THE ISSUER. THE ISSUER WILL
FURNISH WITHOUT CHARGE A COPY THEREOF TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST THEREFOR."
4. NOTICES. All notices, approvals, consents, requests and
other communications that any party is required or elects to give hereunder
shall be in writing and shall be deemed to have been given (a) upon personal
delivery thereof, including by appropriate international courier service, five
(5) days after delivery to the courier or, if earlier, upon delivery against a
signed receipt therefor or (b) upon transmission by facsimile or telecopier,
which transmission is confirmed, in either case addressed to the party to be
notified at the address set forth below or at such other address as such party
shall have notified the other parties hereto, by notice given in conformity with
this Section 4:
(a) If to Access Beyond:
Access Beyond, Inc.
1300 Quince Boulevard
Gaithersburg, Maryland 20878
Attention: President/CEO
Facsimile: (301) 921-9149
with a copy to:
Morrison, Cohen, Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen I. Budow, Esq.
Facsimile: (212) 735-8708
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<PAGE> 5
(b) If to Hayes:
(If via hand delivery or overnight courier)
Hayes Microcomputer Products, Inc.
5835 Peachtree Corners East
Norcross, Georgia 30092-3404
Attention: Chairman of the Board and
Contracts Administration
(If via mail)
Hayes Microcomputer Products, Inc.
Post Office Box 105103
Atlanta, Georgia 30348
Attention: Chairman of the Board and
Contracts Administration
Facsimile: (770) 840-6830
with a copy to:
Womble Carlyle Sandridge & Rice, PLLC
1275 Peachtree Street, N.E., Suite 700
Atlanta, Georgia 30309-3574
Attention: G. Donald Johnson, Esq.
Facsimile: (404) 888-7490
(c) If to Shareholder:
At the address for notice to such
Shareholder set forth on the last page
hereof
with a copy to:
Counsel for Shareholder, if any, at the
address shown on the signature page hereto
Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 4.
5. SURVIVAL; TERMINATION. All representations, warranties and
agreements made by Shareholder in this Affiliate Agreement shall survive the
consummation of the Merger. This Affiliate Agreement shall be terminated and
shall be of no further force and effect upon the earlier to occur of (i) any
termination of the Merger Agreement pursuant to its terms, or (ii) any waiver of
either any closing condition in favor of Hayes or any obligation of Access
Beyond under or any amendment of the Merger Agreement, or the giving of any
required consent of Hayes under Section 4.3 or any other provision of the Merger
Agreement, unless such waiver, amendment or consent is approved either by the
Board of Directors of Hayes or any committee thereof consisting
5
<PAGE> 6
of at least two (2) members of the Hayes Board authorized to approve any such
amendment, waiver or consent, one of whom approving such amendment, waiver or
consent by action of either the full Hayes Board or such committee is a
representative of Rinzai Limited.
6. EXPENSES. All costs and expenses incurred in connection
with the transactions contemplated by this Affiliate Agreement shall be paid by
the party incurring such costs and expenses; provided, however, that the
Shareholder's legal costs and expenses shall be promptly paid by Hayes.
7. COUNTERPARTS. This Affiliate Agreement may be executed in
counterparts, each of which will be an original as regards any party whose name
appears thereon and all of which together will constitute one and the same
agreement. This Affiliate Agreement will become binding when one or more
counterparts hereof, individually or taken together, bear the signatures of all
parties reflected hereon as signatories. Facsimile copies with signatories of
the parties to this Agreement, or their duly authorized representatives, shall
be legally binding and enforceable. All such facsimile copies are declared as
originals and, accordingly admissible in any jurisdiction or tribunal having
jurisdiction over any matter relating to this Agreement.
8. ASSIGNMENT, BINDING EFFECT. Except as provided herein,
neither this Affiliate Agreement nor any of the rights, interests or obligations
hereunder shall be assigned the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties hereto.
Subject to the preceding sentence, this Affiliate Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted signs.
9. AMENDMENT AND WAIVERS. Any term or provision of this
Affiliate Agreement may be amended, and the observance of any term of this
Affiliate Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by a writing signed by the
parties to be bound thereby. The waiver by a party of any breach hereof or
default in the performance hereof will not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
10. ENTIRE AGREEMENT. This Affiliate Agreement and any
documents delivered by the parties in connection herewith constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersedes all prior agreements and under standings between the
parties with respect thereto.
11. OTHER AGREEMENTS. Nothing in this Affiliate Agreement
shall limit any of the rights or remedies of Access Beyond or Shareholder or any
of the obligations of either party under any Voting Agreement between Access
Beyond and Shareholder or any other agreement.
12. SEVERABILITY. Any term or provision of this Affiliate
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
6
<PAGE> 7
terms and provisions of this Affiliate Agreement or affecting the validity or
enforceability of any of the terms and provisions of this Affiliate Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Affiliate Agreement in any other jurisdiction. If any provision of this
Affiliate Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
13. GOVERNING LAW. The internal laws of the State of Georgia
(irrespective of its choice of law principles) will govern the validity of this
Affiliate Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
14. CONSTRUCTION. The language hereof will not be construed
for or against either party. A reference to a section will mean a section of
this Affiliate Agreement, unless otherwise explicitly set forth. The titles and
headings in this Affiliate Agreement are for reference purposes only and will
not in any manner limit the construction of this Affiliate Agreement. For the
purposes of such construction, this Affiliate Agreement will be considered as a
whole.
15. HAYES SHAREHOLDER AGREEMENT. Shareholder acknowledges that
the execution hereof by Shareholder and the execution by any other shareholders
of Hayes of similar agreements in connection with the Merger, is not a violation
of, and, in particular, does not constitute a "Transfer" or "Disposition" under
the Shareholder Agreement among the shareholders of Hayes dated April 16, 1996.
Shareholder further acknowledges and agrees that this Affiliate Agreement does
not constitute any liquidation or redemption event applicable to the Merger
Securities under the Articles of Incorporation, Bylaws or other organizational
documents of Hayes, or contracts to which such Shareholder is a party.
IN WITNESS WHEREOF, the parties hereto have caused this
Affiliate Agreement to be executed as of the date first written above.
ACCESS BEYOND, INC. HAYES MICROCOMPUTER PRODUCTS, INC.
By:______________________________ By:___________________________________
Name: Name:
Title: Title:
SHAREHOLDER:
S.P. Quek Investments Pte Ltd.
BY:_________________________________
Sim Pim Quek, Director
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ATTACHMENT 1
Affiliate's Address for Notice: S.P. Quek Investments Pte Ltd.
c/o ACMA Limited
17 Jurong Port Road
Singapore 619092
Shane Byrne, Esq.
Jackson Tufts Cole & Black, LLP
10th Floor
San Jose, CA 95113
with a copy to counsel Powell, Goldstein, Frazer & Murphy
for Shareholder 191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: James A. Wallker, Jr., Esq.
Number of Shares of Hayes
Common Stock owned as of the
date of this Affiliate Agreement: None
Number of Shares of Hayes
Series A Preferred Stock owned
as of the date of this Affiliate Agreement: 245,000
Number of Shares of Hayes
Series B Preferred Stock owned
as of the date of this Affiliate Agreement: N/A
Number of Hayes Options for
Common Stock owned as of
the date of this Affiliate Agreement: N/A
Number of Hayes Warrants for
Common Stock owned as of
the date of this Affiliate Agreement: N/A
8
<PAGE> 1
Exhibit 5.1
[Letterhead of Morrison Cohen Singer & Weinstein, LLP]
(212) 735-8600
November 24, 1997
Access Beyond, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
Re: Access Beyond, Inc. Registration Statement on Form S-4
Gentlemen:
As counsel to Access Beyond, Inc., a Delaware corporation (the
"Company"), we have been requested to render our opinion in connection with
the issuance of up to 45,788,162 shares of the Company's common stock, $.01 par
value (the "Common Stock") and 1,217,930 shares of the Company's Series A
Preferred Stock, $.01 par value (the "Preferred Stock"; the Common Stock and the
Preferred Stock, collectively, the "Shares") pursuant to a registration
statement on Form S-4 (the "Registration Statement") being filed by the
Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended.
In connection with the foregoing, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation of the Company, as amended, and such other documents as we have
deemed necessary or appropriate as a basis for the opinions set forth below. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as conformed or photostatic
copies. As to any facts material to such opinions which we did not
independently establish or verify, we have relied upon statements or
representations of officers and other representatives of the Company, public
officials or others.
Based upon the foregoing, we are of the opinion that:
The Shares have been duly authorized by the Board of Directors of the
Company and, when issued in accordance with the terms described in the
Registration Statement, will be validly issued, fully paid and non-assessable,
and no personal liability will attach to the ownership thereof.
<PAGE> 2
Access Beyond, Inc.
November 24, 1997
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters"
in the Proxy Statement/Prospectus. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morrison Cohen Singer & Weinstein, LLP
<PAGE> 1
EXHIBIT 8.1
October , 1997
Hayes Microcomputer Products, Inc.
P. O. Box 105203
Atlanta, Georgia 30348
Access Beyond, Inc.
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 October __, 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 to you solely in connection
with the above-described transaction and may not be relied upon except with
respect to the consequences specifically discussed herein or used for any
other purpose. 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
<PAGE> 1
EXHIBIT 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is entered into
by and between Hayes Communications Inc., formerly known as Access Beyond, Inc.
(the "Company") and Ronald A. Howard (the "Executive") on this 29th day of
July, 1997.
For and in consideration of the employment or continued employment, as
the case may be, of the Executive by the Company, the mutual covenants and
promises contained herein, and in the Terms and Conditions of Employment
attached hereto as Exhibit "A," and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive hereby covenant and agree as follows:
1. Employment; Duties. Company hereby employs Executive as Vice
Chairman of the Board of Directors and Chief Executive Officer on the terms and
conditions set forth herein and Executive accepts such employment. Executive
shall report as designated by the Board of Directors of the Company and shall
have those duties and responsibilities normally undertaken by the Chief
Executive Officer of a public company, as such are determined from time to time
by the Board of Directors of the Company. At any time after the first
anniversary of the Effective Date of the Merger, at the election of either the
Board or the Executive, Executive shall cease to be employed as the Chief
Executive Officer of the Company and shall thereafter be employed by the
Company as a consultant with the such duties as may be mutually agreed to
between the Executive and the Board of Directors. Executive shall serve as a
member of and participate on the Senior Management Committee consisting of the
Chairman, Vice Chairman and the President, to be established by the Board of
Directors of the Company subject to guidelines established by the Board, to
foster and enhance communications among the senior officers of the Company in
order to facilitate and coordinate the strategic and operational activities of
the Company. The Company agrees that Executive will not be required to relocate
to the Atlanta area; provided that Executive agrees that he will spend as much
time at the Company's headquarters as reasonably determined by the Board of
Directors of the Company to be necessary for Executive to perform his duties.
Any costs associated with Executive's travel to and from the Company's
headquarters, together with any expense associated with Executive's lodging
while at the Company's headquarters, shall be borne by the Company or
reimbursed to Executive, as the case may be, provided that the incurrence and
reimbursement of such costs and expenses must be in accordance with the
Company's policies.
2. Compensation.
(a) Base Salary. Whether employed as Vice Chairman of
the Board of Directors and Chief Executive Officer or as consultant,
Executive's initial base salary shall be $280,000.00 per year and
shall be reviewed and subject to increase but not decrease in the
discretion of the Board on an annual basis for the Term hereof. The
Executive's salary shall not be less than that of the President of the
Company during the first year of the Term hereof.
<PAGE> 2
(b) Bonus. In addition, Executive shall be eligible for
aggregate bonuses equal to an amount calculated by dividing
Executive's base salary by fifty-nine and four tenths percent (59.4%)
and subtracting from the result so obtained the amount of Executive's
base salary. The amount obtained by such calculation is herein
referred to as the "Bonus Amount".
(i) The Executive shall be eligible for a
Personal Incentive Bonus in the maximum
amount of the product of thirty percent
(30%) multiplied times the remaining sum,
if any, resulting from subtracting
$50,000.00 from the Bonus Amount, and based
on attaining personal goals in respect to
his duties on behalf of the Company as such
goals may be established by the
Compensation Committee of the Company.
(ii) Executive shall be eligible for a Corporate
Incentive Bonus in the maximum amount of
the sum of (x) $50,000.00 plus (y) the
product of seventy percent (70%) multiplied
times the remaining sum, if any, resulting
from subtracting $50,000.00 from the Bonus
Amount, based on the Company's attaining
such goals, objectives and benchmarks as
may be set by the Board of the Company.
3. Stock Option Plan. The Company shall award to Executive each
year during the Term hereof, stock options to purchase 150,000 shares of common
stock of the Company with an exercise price at fair market value as of the date
of award (the "Options"). Fair market value shall mean the average closing
price of the Company's stock for the twenty (20) trading days immediately prior
to the date of the award. Such Options shall have the following additional
features:
(a) The Options will have a term of ten (10) years from
the date of award, and must be exercised within such ten (10) year
period, except as expressly set forth below in this Section 3.
(b) The Options will be awarded effective as of January
1 of each year of the Term hereof.
(c) Twenty-five percent (25%) of the Options will vest
at the date of award and twenty-five percent (25%) on December 31 of
such year and each ensuing year, except as otherwise provided in this
Section 3.
(d) If Executive voluntarily resigns his employment
(except in the case of a breach hereof by the Company, or in the case
of a Change of Control, as hereinafter defined) or if Executive's
employment is terminated by the Company for Cause (as
-2-
<PAGE> 3
hereinafter defined), then no further vesting will occur and all
unvested Options will terminate immediately upon such termination of
employment. Executive must exercise any vested Options after such
termination of employment within the earlier to occur of (i) five (5)
years after the date of termination of employment or (ii) the
expiration of the ten (10) year term of the Options.
(e) If Executive's employment is not continued after the
expiration of the Term hereof for a period of at least two (2) years
or if Executive's employment terminates as a result of his death or
disability, or if Executive's employment terminates for any reason
within one (1) year after a Change of Control, then all unvested
Options shall vest at the time that such Options would have vested as
if Executive's employment had continued through such time.
(f) If Executive's employment is terminated in breach
hereof by the Company, or if Executive terminates as a result of a
breach hereof by the Company, then all unvested Options awarded
through such termination date shall vest immediately upon such
termination.
(g) "Change of Control," for purposes of this Section 3,
means (i) the closing of a merger, consolidation or reorganization of
the Company with or into any other corporation or corporations in
which the Company is not the surviving entity (other than a mere
reincorporation transaction), (ii) a sale of all or substantially all
of the assets of the Company, (iii) a transaction or series of related
transactions in which the Company issues shares representing more than
50% of the voting power of the Company, immediately after giving
effect to such transaction or series of related transactions, to a
person or persons who were not shareholders of the Company immediately
prior to such transaction, or (iv) if during any period of two (2)
consecutive years or less there shall cease to be a majority of the
Board comprised of "Continuing Directors", defined as individuals who
constitute the Board as of the date of this Employment Agreement and
any new director(s) whose election by such Board or nomination for
election by Employer"s stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then in office who either were
directors as of the date of this Employment Agreement or whose
election or nomination for election was previously approved.
4. Term. The term of the Executive's employment hereunder is
conditioned upon the occurrence of, and shall commence on, the Effective Time
under the Agreement and Plan of Reorganization between Hayes Microcomputer
Products, Inc. and Access Beyond, Inc. (the "Effective Time"), and shall
continue for a period of three (3) years from January 1, 1998 unless either
terminated or extended as provided by the Agreement (the "Term"). The
Employment Agreement dated November 18, 1996 between Access Beyond, Inc. and
Executive is hereby terminated effective as of the Effective Time.
-3-
<PAGE> 4
5. Benefits. Executive shall be afforded the same benefits and
perquisites as shall be made generally available to the other senior executive
officers of the Company. It is expressly agreed that the Company shall continue
to pay the premiums on the life insurance policy that has heretofore been paid
by the Company immediately prior to the Effective Time.
6. Termination and Severance. This Agreement may be terminated
by Company with Cause as defined in the Terms and Conditions of Employment
attached hereto as Exhibit "A". In the event that Company or the Chairman of
the Board terminates Executive's employment for Cause, or Executive voluntarily
terminates employment other than due to breach hereof by the Company, or the
Term expires, the Company shall not be obligated to pay any salary or other
Compensation to Executive after the effective date of termination. Executive
agrees to provide Company with at least six (6) weeks advance written notice
prior to voluntary termination or resignation by Executive.
7. Dispute Resolution.
7.1 Resolution of Disputes and Mediation. Except for the matters
set forth in Sections 2, 3, and 5 of Exhibit "A" hereto, any dispute between
the parties either with respect to the interpretation of any provision of this
Agreement or with respect to the performance by the Executive or by the Company
hereunder (the "Dispute") shall be resolved in accordance with this Section 7
as follows:
7.1.1 Upon the written request of either party hereto, each
of the parties shall appoint a designated representative, whose task
it shall be to meet for the purpose of endeavoring to resolve the
Dispute. The Company's designated representative shall be a member of
the Board excluding (i) the Executive and (ii) the Board member
selected by the Executive to be a Board member.
7.1.2 The designated representatives shall meet as often as
necessary to gather and furnish to the other all information with
respect to the Dispute which is appropriate and germane in connection
with its resolution.
7.1.3 Such representatives shall discuss the Dispute and
negotiate in good faith in an effort to resolve the Dispute without
the necessity of any formal proceeding relating thereto.
7.1.4 During the course of such negotiations all reasonable
requests made by one party to the other for non-privileged information
reasonably related to the Dispute, shall be honored in order that each
of the parties may be fully advised of the other's position.
7.1.5 The specific format for such discussions shall be left
to the discretion of the designated representatives but may include
the preparation of agreed upon statements of fact or written
statements of position furnished to the other party.
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7.2 Judicial Resolution. If the parties hereto are not able to
resolve the Dispute concerning this Agreement as set forth in Section 7.1 above
within sixty (60) calendar days, upon the initial written request as provided
in Section 7.1.1, then the parties shall have the option and right to resolve
such Dispute by judicial or other equitable resolution.
8. Errors and Omissions. The Company shall provide directors'
and officers' liability and errors and omissions coverage for the Executive in
an amount and under terms consistent with those provided other Company officers
and directors.
9. Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by the Executive in performing
his duties hereunder, including without limitation, expenditures for
entertainment, travel, lodging, and meals; provided, however, the Executive
shall submit to the Company verification of the nature and amount of such
expenses in accordance with Company policies and procedures as established from
time to time by the Compensation Committee, including audit, related to expense
reimbursement of employees.
10. Repayment Upon Disallowance. Any salary, commission,
expense, reimbursement or other payment to the Executive by the Company
pursuant to Section 9 which is disallowed in whole or in part as a deductible
expense to the Company for federal or state income tax purposes shall be
promptly repaid to the Company by the Executive to the full extent of such
disallowance, but without the payment by the Executive of any interest or
penalty incurred by the Company in connection with the disallowance of any such
payment as a deductible expense for the Company.
11. Terms and Conditions. Executive acknowledges that this
Agreement, and his employment obligations hereunder, expressly include the
provisions set forth in the Terms and Conditions of Employment attached hereto
as Exhibit "A", which are incorporated herein by this reference thereto. This
Agreement shall supersede any prior employment agreement, and any restrictive
covenants, previously entered into by Executive with the Company.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date and year first above written.
EXECUTIVE: COMPANY:
(SEAL) By: (SEAL)
- ------------------------------- ------------------------------
Ronald A. Howard Dennis C. Hayes, Chairman
[TERMS AND CONDITIONS OF EMPLOYMENT ON FOLLOWING PAGES]
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<PAGE> 6
EXHIBIT "A"
TERMS AND CONDITIONS OF EMPLOYMENT
1. Duties and Responsibilities. Executive shall devote his full
business time and best efforts to the duties and responsibilities assigned by
the Company in accordance with the provisions hereof and shall abide by this
Agreement and the Company's Operations Policies. Notwithstanding the foregoing,
nothing in this Agreement shall be deemed to prohibit the Executive from
serving on boards of directors or from consulting with charitable or other
organizations on non-Company time, so long as such organization is not in
competition with the Company and does not interfere with Executive's
performance of his duties on behalf of the Company. Executive's specific job
description and responsibilities include, but are not limited to, those
described in Section 1 of this Agreement.
2. Confidential Information, Trade Secrets. Executive shall not
use or disclose to any person or entity any Confidential Information or trade
secrets of Company other than as necessary in the fulfillment of this Agreement
in the course of employment. This paragraph shall be effective during the term
hereof and for a period of two (2) years after termination of employment,
whether with or without Cause.
3. Inventions. The Company and Executive acknowledge that in
the course of Executive's employment by the Company, Executive may from time to
time develop or participate in the development of software or technology. All
works or inventions conceived, originated, authored, or discovered, in whole or
in part, by Executive, which result from any work performed for the Company or
related to or useful in the business of the Company are and shall be the
exclusive property of the Company. Executive shall cooperate with the Company
in the protection of the Company's copyrights, patents, and other proprietary
rights therein and, to the extent deemed desirable by the Company, in the
registration of the same. Executive hereby assigns to the Company all of
Executive's right, title and interest in and to any and all inventions,
processes, systems and creations, whether or not patentable or copyrightable,
that Executive may conceive, develop, or create, in whole or in part, during
his employment with the Company, whether or not during normal working hours.
Executive shall sign and deliver all documents relative to said inventions
requested by the Company for the purpose of confirming the Company's title
thereto.
4. Company Property. Upon request of the Company, and without
request promptly on termination of this Agreement or Executive's employment
hereunder, Executive shall deliver all Company Property in Executive's
possession or control to the Company. Executive acknowledges and agrees that
title to all Company Property is vested in the Company, and Executive shall not
retain any such property or any copies thereof in any form, including magnetic
or electronic form.
5. Protective Covenants. Executive is and will during the
course of employment become intimately familiar with Confidential Information,
trade secrets, facilities and services, and other property of the Company, and
the protection of the Company requires that all such property and information
must remain the sole and private property of the Company to be used only for
the Company's benefit, not to be disclosed to any other party or used by
Executive
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<PAGE> 7
against Company. Accordingly, Executive does hereby warrant, represent,
covenant and agree, as follows:
(i) Covenant Not to Compete. Executive agrees that, for a
period of eighteen (18) months from the termination of his
employment with Company, whether with or without Cause, he
shall not, directly or indirectly, on behalf of himself or
any other person or entity, compete with the Company within a
fifty (50) mile radius of the Company's principal place of
business in Norcross, Georgia, or its principal place of
business in Gaithersburg, Maryland, by engaging in the
manufacture, assembling, or selling of computer component
products, software, or systems, including modems, competitive
with those manufactured, assembled, or sold by the Company,
in a capacity which requires Executive to perform services
substantially identical to the services performed by
Executive on behalf of Company.
(ii) Covenant Not to Solicit Customers. During the term of
Executive's employment hereunder, and for a period of
eighteen (18) months following the termination of such
employment for any reason whatsoever, Executive shall not
(except on behalf of or with the prior written consent of
Company), either directly or indirectly, on Executive's own
behalf or on behalf of others, solicit, divert, or
appropriate any business for the manufacture, assembling, or
sale of computer component products, software or systems,
including modems, competitive with those manufactured,
assembled or sold by the Company, from any customer or
actively sought prospective customer of the Company to whom
the Company offered or provided products or services, and
with whom Executive had material contact at any time during
the twenty-four (24) months preceding the termination of
Executive's employment.
(iii) Covenant Not to Solicit Employees. During the term of
Executive's employment hereunder, and for a period of
eighteen (18) months following the termination of such
employment for any reason whatsoever, Executive shall not
employ or solicit the employment of any employee of the
Company who was an employee of the Company at any time during
the six (6) months preceding the termination of Executive's
employment with the Company, for the purpose of causing such
employee to take employment with Executive or a competitor of
the Company.
Executive agrees and acknowledges that the restrictions in
this Agreement are not vague, over broad or indefinite, and are reasonable and
designed to protect the legitimate business interests of the Company. In
addition to any other remedies which Company may have under the law for breach
of any or all of said covenants, Company shall be entitled to injunctive and/or
other equitable relief against Executive for any violation of any of said
Covenants.
6. Survival. Paragraphs 2, 3, 4, 5, and 6 hereof, together with
any provisions of the Company's Operations Policies expressly or by necessary
implication applicable after the termination of employment, shall survive
termination of this Agreement. Upon termination, Executive shall repay to
Company immediately any advances by Company, not offset by earnings or other
credits due him or her, even if not expressly made repayable at the time of
such advance, it being the intent of the parties that all such advances shall
be repayable as provided by this
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<PAGE> 8
paragraph. Company may offset any sums owed to Company by Executive against any
amounts otherwise owed by Company to Executive. No sums otherwise due Executive
at termination shall be payable to Executive if, at the time of termination or
thereafter, Executive shall be in violation of any term or provision of this
Agreement.
7. Entire Agreement. This Agreement contains the entire
understanding and agreement between the parties, and all promises,
representations, warranties or inducements made by either party to the other,
including any prior employment agreement or restrictive covenants, not
specifically made in writing or made a part hereof by reference, are expressly
superseded and shall have no force or effect. This Agreement may not be
modified except in a writing signed by both parties hereto.
8. Severability. If any provision of this Agreement (including
any subparts of any paragraph) is invalid or unenforceable by any rule of law
or public policy, this Agreement shall be construed so as to delete herefrom
the invalid or unenforceable covenant or provision. To the extent that any
provision is invalid or unenforceable that may be valid or enforceable by
limitation thereof, then such provision shall be enforceable to the fullest
extent permitted under the law of the jurisdiction in which enforcement is
sought. If any particular provision is held to be invalid, illegal or
unenforceable, all other covenants, terms, conditions and provisions hereof
shall be and remain in full force and effect.
9. Binding Effect. This Agreement shall be binding upon, and
shall inure to the benefit of, each respective party's heirs, successors, legal
representatives, executors and assigns. This Agreement shall be construed and
governed in accordance with the laws of the State of Georgia.
10. Definitions. Any word used in this Agreement which is
defined in this paragraph shall have the meaning set forth below:
(a) "Agreement." The Executive Employment Agreement,
together with the Terms and Conditions of Employment and any documents
incorporated therein by reference. In the event of any inconsistency between
the Agreement and any Operations Policies, the Agreement shall control.
(b) Cause. The term "Cause" as used in the within and
foregoing Agreement shall mean (i) Executive's breach of a material covenant or
obligation of this Agreement, including any of the Terms and Conditions of
Employment, or any failure or refusal by Executive to perform Executive's
duties hereunder to the reasonable satisfaction of the Board of Directors, or
to comply with any lawful directive of the Board of Directors consistent with
the provisions of this Agreement, if, after receiving written notice of such
breach, failure or refusal to perform, Executive does not cure or correct such
breach, failure or refusal or cease and desist from such breach if incapable of
being cured, within fifteen (15) business days after Executive's receipt of
such notice; and (ii) conviction of a crime involving any act of Executive in
the course of Executive's employment that constitutes larceny, fraud or moral
turpitude, or (iii) failure to maintain the confidentiality of the Confidential
Information and trade secrets of Company.
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<PAGE> 9
(c) "Company." Hayes Microcomputer Products, Inc., and
any successor or assignee hereof.
(d) "Company Property." All property, without
limitation, whether real, personal, tangible or intangible, including all
inventions, confidential information, trade secrets, facilities, trade names,
logos, patents and all tangible materials and supplies (whether originals or
duplicates and including, but not in any way limited to, sample products, video
tape cassettes, film, catalogues, price lists, rate sheets, outstanding
quotations, books, records, manuals, sales presentation literature, training
materials, calling or business cards, customer record cards, customer files,
customer names, addresses and telephone numbers, supplier information,
contacts, pricing and practices, strategic partner information, files and
records, current or prospective business plans, Operations Policies,
directives, correspondence, documents, contracts, orders, messages, memoranda,
notes, circulars, agreements, bulletins, invoices and receipts, and sources of
financing), which in any way pertain to Company's business, whether or not
furnished to Executive by Company and whether or not prepared, compiled, or
acquired by Executive while employed by Company, are the sole property of
Company.
(e) "Compensation." Any and all payments, remuneration
and benefits, provided to Executive by the Company, regardless of the form
thereof. Such compensation as is paid to Executive shall be conclusively deemed
legally sufficient consideration for this Agreement.
(f) "Confidential Information." All confidential
information regarding the Company's business, including but not limited to its
methods of operation, products, software programs, equipment and techniques,
existing and contemplated facilities and services, inventions, systems, devices
(whether or not patentable), financial information and practices, plans,
pricing, selling techniques, names, addresses and phone numbers of the
Company's Customers and prospective Customers and suppliers and prospective
suppliers, credit information and financial data of the Company and the
Company's Customers and prospective customers and suppliers and prospective
suppliers, particular business requirements of the Company's Customers, and
special methods and processes involved in designing, producing and selling
Company's facilities and services, current and prospective business plans,
strategic partner information, files and records, and the terms of this
Agreement, all shall be deemed Confidential Information and the Company's
exclusive property. The parties agree that Confidential Information shall be
deemed to be trade secrets under the Georgia Trade Secrets Act. Confidential
Information shall not include information that is in the public domain or
otherwise readily accessible to members of the public.
(g) "Customer." Each person, corporation, firm,
partnership or other entity whatsoever, which has purchased or shall purchase
the Company's products, facilities or services.
(h) "Executive." The person signing this Agreement as
Executive, regardless of any title or duties which may now or hereafter be
assigned to such person by the Company. This Agreement shall govern the
employment relationship in any and all such situations.
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(i) "Inventions." Any and all devices, systems,
software and other programs, processes, products, patents and any other
creation (all of the foregoing, for purposes of this paragraph, called
"inventions") identical or similar to or relating to devices, processes,
systems, products or services utilized and/or offered by the Company.
(j) "Operations Policies." All written procedures,
policies, instructions from Company's officers, directors or managers, the
Company Employee Manual (if any), and all other written communications from the
Company to Executive individually, not inconsistent with Executive's duties
hereunder, or to all Company's employees. Said Operations Policies are hereby
incorporated herein and expressly made a part of this Agreement by this
reference thereto.
(k) "Termination." Cessation of this Agreement or the
underlying employment relationship, whether by action of the Executive or
Company, and whether voluntary or involuntary. Termination hereby may be with
or without Cause.
(l) "Terms and Conditions of Employment." This document
entitled Terms and Conditions of Employment, which is Exhibit "A" to the
Executive Employment Agreement, and all of the provisions hereof.
PLEASE INITIAL:
------------------------------
Executive
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<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this ___
day of __________, 1997, between HAYES COMMUNICATIONS INC. (formerly known as
ACCESS BEYOND, INC.), a Delaware corporation (the "Company"), and DENNIS C.
HAYES, a resident of Gwinnett County, Georgia (the "Executive").
W I T N E S S E T H :
WHEREAS, Hayes Microcomputer Products, Inc., a Georgia
corporation ("Hayes") and Executive have entered into that certain Employment
Agreement dated July 1, 1983, as amended and restated by that certain Amendment
and Restated Employment Agreement dated April 16, 1996 (the "Employment
Agreement") which are currently in force; and
WHEREAS, pursuant to the April 16, 1996 Employment Agreement
between Executive and Hayes, Executive has been entitled to a $1,000,000 annual
base salary and certain benefits and perquisites which Executive and the
Company desire to revise to an incentive-based compensation plan which reflects
that Hayes will become a publicly traded company upon completion of the Merger
pursuant to the Merger Agreement (defined below); and
WHEREAS, the Executive and the Company desire to enter into
this Agreement in order to set forth the terms under which Executive's
employment with the Company will commence upon the Effective Time (as defined
below) and certain arrangements with respect to Executive's activities and
obligations following the termination of Executive's employment with the
Company; and
WHEREAS, Hayes is engaged in the business of developing,
manufacturing, marketing and distributing certain computer component products,
software and systems and the Company is engaged in the business of developing
and marketing network access devices (hereinafter the collective business of
Hayes and the Company referred to as the "Business of the Company"); and
WHEREAS, Hayes has entered into that certain Agreement and
Plan of Reorganization between Hayes and the Company dated the _____ day of
____________, 1997 (the "Merger Agreement"); and
WHEREAS, execution of this Agreement is a condition precedent
to the effectiveness and enforceability of the Merger Agreement and the closing
of the Merger as contemplated in the Merger Agreement is a condition to the
effectiveness of this Agreement..
NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and
<PAGE> 2
sufficiency of which are hereby acknowledged, the Executive, Hayes, and the
Company agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 Appointment as Chairman. For the Term of this Agreement as
set forth in Section 2 hereof, the Executive shall be employed, hold the
office, perform the duties, and have the authority and responsibilities of the
Chairman of the Board of Directors, which shall be a corporate office of the
Company ("Chairman") of the Company as set forth herein.
1.2 Duties of the Chairman. The Executive shall have the
following authority, responsibilities and duties as Chairman of the Company:
1.2.1 The Chairman shall direct the Office of Chairman which
will develop initiatives for the Board of Directors ("Board") and
shareholders in connection with long-term operating and strategic
planning, policy development, new technology strategy and corporate
business development for the Company.
1.2.2 The Chairman shall act as a Company spokesperson and
shall exert his best efforts to interface, develop and maintain
positive relations with the industrial, political, business,
financial, academic, investment and research communities.
1.2.3 The Chairman shall serve as a member of and participate
on the Senior Management Committee to be established by the Board of
Directors of the Company to foster and enhance communications among
the senior officers of the Company in order to facilitate and
coordinate the strategic and operational activities of the Company.
1.3 Other Duties. The Chairman shall perform such other duties
as may be reasonably assigned from time to time by the Board consistent with
the position of Chairman.
1.4 Duties of CEO. To the extent that the responsibilities of
the Chairman duplicate duties assigned to the Chief Executive Officer of the
Company (the "CEO"), the Chairman shall advise the CEO on those
responsibilities.
1.5 Outside Activities. During the Term, the Executive shall
devote his full business time and efforts to the execution of his duties and
responsibilities hereunder. Notwithstanding the foregoing, nothing in this
Agreement shall be deemed to prohibit the Executive from serving on other
boards of directors, whether or not for compensation (subject to Board approval
and opinion of Company counsel, as may be appropriate) and from consulting for
other non-Competing Businesses, as defined in Section 5.1, on non-Company time,
or from owning copyrights, royalties, or other rights with respect to books,
historical accounts, speeches, presentations, or other works of authorship by
or in collaboration with the Executive, whether or not they relate to the
Company or its affairs to the extent that such activities do not interfere with
his performance of his duties and responsibilities as Chairman and are
permitted by Sections 5, 6, and 7 of this Agreement.
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1.6 Other Positions. The Executive shall only hold the office of
Chairman. The employment by the Company of the Executive hereunder as the
Chairman shall not preclude appointment or election of the Executive by the
Board to any other corporate office of the Company.
2. TERM AND EFFECTIVE TIME.
The term of the Executive's employment hereunder is conditioned upon
the occurrence of, and shall commence on, the Effective Time under the Merger
Agreement (the "Effective Time"), and shall continue for a period of three (3)
years from January 1, 1998 unless either terminated or extended as provided by
the Agreement (the "Term"). The April 16, 1996 Employment Agreement is
terminated effective as of the Effective Time.
3. COMPENSATION AND OTHER BENEFITS.
3.1 Salary. As compensation for his services to the Company
rendered pursuant hereto, the Executive shall be paid a base salary at the rate
Four Hundred Thousand Dollars ($400,000.00) per annum (hereinafter referred to
as "Base Salary") with increases on each anniversary date of the Effective Time
to the Base Salary 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 of the U.S. Department of Labor (or the official successor to
such index) in effect on such anniversary date as compared to the CPI in effect
on the preceding anniversary date or Effective Time, as appropriate. The Base
Salary shall accrue and be due and payable in equal, or as nearly equal as
practicable, semi-monthly installments, and the Company may deduct from each
such installment all amounts required to be deducted and withheld in accordance
with the provisions of any applicable law now in effect or hereafter in effect
including without limitation federal and state income, FICA and other
withholding tax requirements, and such other deductions permitted by the
Company which Executive may authorize from time to time.
If the Effective Time is on other than the first business day of a
calendar month or if the Executive's employment hereunder shall terminate on
other than the last day of a calendar month, the Executive's Base Salary for
such month shall be prorated according to the number of days during such month
that the Executive was employed hereunder.
3.2 Bonus. Executive shall be eligible for such bonuses as
follows:
3.2.1 Personal Incentive Bonus. Executive shall be paid a
personal incentive bonus up to a maximum of Five Hundred Thousand
Dollars ($500,000.00) per year, payable quarterly, based on
Executive's attaining personal goals in respect to his employment as
Chairman of the Company, such goals to be mutually determined by the
Executive and the Compensation Committee of the Board (the
"Compensation Committee") and approved by the Board.
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3.2.2 Corporate Incentive Bonus. The Executive shall be
eligible to receive a Corporate Incentive Bonus up to a maximum amount
of Three Hundred Thousand Dollars ($300,000.00) per year, payable
semi-annually. The payment of such Corporate Incentive Bonus shall be
based on the Company's attainment of the same goals, objectives and
benchmarks as set by the Board for the payment of a similar corporate
incentive bonus to the President of the Company.
3.3 Stock Option Plan. The Company shall award to Executive each
year during the Term hereof, stock options to purchase 200,000 shares of common
stock of the Company with an exercise price at fair market value as of the date
of award (the "Options"). Fair market value shall mean the average closing
price of the Company's stock for the twenty (20) trading days immediately prior
to the date of the award. Such Options shall have the following additional
features:
(a) The Options will have a term of ten (10) years from
the date of award, and must be exercised within such ten (10) year
period, except as expressly set forth below in this Section 3.3.
(b) The Options will be awarded effective as of January
1 of each year of the Term hereof.
(c) Twenty-five percent (25%) of the Options will vest
at the date of award and twenty-five percent (25%) on December 31 of
such year and each ensuing year, except as otherwise provided in this
Section 3.3.
(d) If Executive voluntarily resigns his employment
(except in the case of a breach hereof by the Company or in the case
of a Change of Control, as hereinafter defined) or if Executive's
employment is terminated by the Company for Cause (as hereinafter
defined), then no further vesting will occur and all unvested Options
will terminate immediately upon such termination of employment.
Executive must exercise any vested Options after such termination of
employment within the earlier to occur of (i) five (5) years after the
date of termination of employment or (ii) the expiration of the ten
(10) year term of the Options.
(e) If Executive's employment is not continued after the
expiration of the Term hereof for a period of at least two (2) years
or if Executive's employment terminates as a result of his death or
disability (as contemplated by Section 3.7.3 hereof), or if
Executive's employment terminates for any reason within one (1) year
after a Change of Control, then all unvested Options shall vest at the
time that such Options would have vested as if Executive's employment
had continued through such time.
(f) If Executive's employment is terminated in breach
hereof by the Company, or if Executive terminates as a result of a
breach by the Company, then all unvested
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Options awarded through such termination date shall vest immediately
upon such termination.
(g) "Change of Control," for purposes of this Section
3.3, means the closing of a merger, consolidation or reorganization of
the Company with or into any other corporation or corporations in
which the Company is not the surviving entity (other than a mere
reincorporation transaction), a sale of all or substantially all of
the assets of the Company or a transaction or series of related
transactions in which the Company issues shares representing more than
50% of the voting power of the Company, immediately after giving
effect to such transaction or series of related transactions, to a
person or persons or other entity or entities who were not
shareholders of the Company immediately prior to such transaction.
3.4 Civic, Trade Organization and Club Dues. Subject to
quarterly review of the Compensation Committee with respect to ongoing business
expenses, the Company shall pay for or reimburse the Executive for dues paid in
connection with his membership in civic organizations or trade organizations
which promote the image or Business of the Company or establish, maintain or
expand the interface and relationship between the Company and various
communities; and for Executive's dues at clubs utilized by Executive or made
available by Executive and other management to entertain customers, vendors and
others with whom the Company or Hayes has business relations, or for other
Company-related business activities, entertainment and functions.
3.5 Vacation. The Executive shall receive not less than thirty
(30) working days paid vacation during each twelve (12) month period of the
Term. The Executive shall give the Board members at least five (5) days prior
written or oral notice before commencing each vacation period. To the extent
that any annual vacation provided herein is not taken during the year in which
it accrued, such unused vacation time shall be carried forward to the following
year not to exceed twenty (20) working days per year, and provided that
Executive shall not have more than fifty (50) working days of accrued and
unused vacation at any one time.
3.6 Health Plans. The Executive shall be eligible to participate
in the Company's health plans, in accordance with their terms, which the
Company now or hereafter has in effect and which are generally made available
to the Company's other employees, and the Company shall make contributions for
Executive's participation in such plans as it generally makes for its other
employees. The Company reserves the right to modify, add to or eliminate any or
all of its fringe benefit plans at any time and for any reason.
3.7 Insurance.
3.7.1 Life Insurance. The Company shall continue to
maintain at no cost to the Executive, except as provided in this
Section 3.8.1, those life insurance policies with respect to the
Executive which are set forth on Schedule 3.8. The Executive may
borrow such amounts as are permitted under the terms of such life
insurance policies; provided, however, that on and after the Effective
Time the Executive shall be solely responsible for
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<PAGE> 6
repayment of such borrowed amounts, interest thereon and payment of
any resulting increase(s) in the Company's premium payment and shall
give advance written notice to the Board of his intention to borrow
such amounts.
3.7.2 Errors and Omissions. The Company shall provide
directors' and officers' liability and errors and omissions coverage
for the Executive in an amount and under terms consistent with those
provided other Company officers and directors.
3.7.3 Disability. If the Executive is determined to be
disabled under the Company's short-term disability plan or long-term
disability plan ("Disability Plan"):
(a) The Company shall pay to the Executive,
through insurance or otherwise, an amount
equal to one hundred percent (100%) of the
Executive's Base Salary plus the maximum
amount of the Personal Incentive Bonus for
a period of one year from and after the
occurrence of the disability as determined
under the Disability Plan. The sum of
amounts paid by the Company under this
Section 3.7.3(a) shall be reduced by the
Executive's total income during such period
from: social security, workers'
compensation, compensation from the Company
or any other business entity which
controls, or is controlled by, or is under
common control with the Company including,
but not limited to, any Disability Plan
benefits and earned income from employment
in any capacity ("Offset Amount").
(b) Commencing on the three hundred sixty-sixth
(366th) consecutive calendar day from and
after the Executive's disability as
determined under the Disability Plan, the
Company shall pay to the Executive, through
insurance or otherwise, an amount equal to
seventy-five percent (75%) of the
Executive's Base Salary plus the maximum
amount of the Personal Incentive Bonus. The
sum of amounts paid by the Company under
this Section 3.7.3(b) shall be reduced by
the Offset Amount plus all of the
Executive's proceeds from the sale of
Company stock.
(c) The Company's obligation to make payments,
as set forth in Sections 3.7.3(a) and (b),
to the Executive during the Executive's
period of disability shall cease upon the
later of the termination of the Term or
three (3) years from the commencement of
the disability as described in the first
sentence of this Section 3.7.3.
(d) The Executive's Base Salary and vacation
accrual shall cease during payments under
Section 3.7.3(a) and (b), but all other
benefits of this Agreement shall continue.
The Executive's Base Salary and
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vacation accrual shall recommence upon the
cessation of the Executive's disability
during the Term, and said Base Salary shall
be the amount as set forth in Section 3.1
of this Agreement.
3.8 Car. The Company shall provide the Executive with one
Company or Hayes employee as a driver on a full-time basis, and a car of
similar quality and status as a Mercedes Benz, 4 door sedan, model 420SEL, or
successor model, as available in North America. Such services and car shall be
paid for or provided by the Company, directly or indirectly, by such method
deemed appropriate by the Compensation Committee.
3.9 Administrative Assistant. The Company shall provide as
necessary the services of a personal administrative assistant based in the
Company's offices, who is paid consistent with a clerical level Company
position to assist the Executive in personal finances, social functions and
other matters in order to enhance Executive's ability to focus on the Business
of the Company.
3.10 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by the Executive in performing
his duties hereunder, including without limitation, expenditures for
entertainment, travel, lodging, and meals; provided, however, the Executive
shall submit to the Company verification of the nature and amount of such
expenses in accordance with Company policies and procedures as established from
time to time by the Compensation Committee, including audit, related to expense
reimbursement of employees.
3.11 Miscellaneous. The salary, compensation and benefits set
forth in this Section 3 shall not preclude or exclude the payment of any other
or additional compensation to the Executive by the Company (as determined by
the Compensation Committee of the Company) for serving as an officer, director,
Board committee member or in any other capacity for the Company to which he is
appointed or elected by the Board and which is not specifically covered by this
Agreement.
3.12 Repayment Upon Disallowance. Any salary, commission,
expense, reimbursement or other payment to the Executive by the Company
pursuant to this Section 3 which is disallowed in whole or in part as a
deductible expense to the Company for federal or state income tax purposes
shall be promptly repaid to the Company by the Executive to the full extent of
such disallowance, but without the payment by the Executive of any interest or
penalty incurred by the Company in connection with the disallowance of any such
payment as a deductible expense for the Company.
4. TERMINATION/EXTENSION.
4.1 Definition of "Cause." For purposes of this Agreement, Cause
shall mean: (i) felony conviction of the Executive in connection with his
employment, judgment against the Executive in a civil action brought by the
Company relating to fraud or diversion or conversion of Company assets by the
Executive, or other felony conviction of the Executive involving moral
turpitude; (ii) failure by the Executive to perform the duties of his
employment set forth in this
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<PAGE> 8
Agreement or failure to follow lawful policies of the Company or lawful and
reasonable directives of the Board; or (iii) violation of Section 5, 6 or 7 of
this Agreement. The Executive shall be given sixty (60) days written notice by
the Board of an occurrence of a failure or violation of Section 4.1 (ii) or
(iii) and shall be provided an opportunity to cure, if possible, and/or to
cease and desist, as appropriate; provided, however, that if such failure or
violation (or a substantially related failure or violation) occurs more than
three (3) times during any six (6) month period, there shall be no further
notice.
4.2 Definition of "Total Disability." For the purposes of this
Section 4 only, "Total Disability" shall mean the Executive's disability
pursuant to the Company's Disability Plan for a period of at least one hundred
eighty (180) consecutive calendar days. Total Disability shall be deemed to
have occurred on the first (1st) day following said one hundred eighty (180)
calendar day period.
4.3 Termination Events.
The Term shall be terminated with respect to Executive's
employment as set forth below and only for the following reasons:
4.3.1 By mutual agreement of the Board and the Executive;
4.3.2 At the election of and by the Executive, upon a breach
of the Agreement by the Company;
4.3.3 At the election of and by the Board for Cause, as
defined in Section 4.1, with an opportunity to cure and/or cease and
desist, as appropriate, as provided by said Section 4.1;
4.3.4 Automatically three (3) full calendar years after the
Effective Time.
4.3.5 Automatically upon the Executive's death;
4.3.6 At the election of and by the Board upon the
Executive's Total Disability as defined in Section 4.2 of this
Agreement; or
4.3.7 In the event that, after the Effective Time, the
Executive is not re-elected to serve on the Board of Directors of the Company,
then Executive's title as Chairman shall cease and Executive shall for the
remainder of the Term be deemed an employee of the Company with such title,
responsibility and authority as may be delegated to him by the Board of
Directors; provided, however, that all other aspects of this Agreement shall
continue to be in effect in accordance with their terms.
4.4 Severance Payments Upon Termination Events. The Executive
shall receive no severance payment upon the occurrence of the termination of
the Executive's employment
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<PAGE> 9
pursuant to Section 4.3; provided, however, in the event of termination in
accordance with Section 4.3.5, the Executive's estate shall receive an amount
equal to three-twelfths (3/12ths) of Executive's Base Salary.
5. RESTRICTIVE COVENANTS.
5.1 During the Term. During the Term, the Executive shall not,
either directly or indirectly, on his own behalf or as a partner, officer,
director, employee, consultant, agent or trustee of any person, firm,
corporation, partnership or other entity, engage in or be employed by any
business or enterprise which is the same as, or substantially the same as, the
Business of the Company ("Competing Business").
5.2 After the Term. For a period of eighteen (18) months after the
Term (the "Restricted Period"), the Executive shall keep, observe and abide by
each of the following separate covenants:
5.2.1 Except on behalf of the Company, the Executive shall
not, either directly or indirectly, on his own behalf or as a partner,
officer, director, employee, consultant, agent or trustee of any
person, firm, corporation, partnership or other entity, within the
Area, as defined in Section 5.3, engage in or be employed by or have
any interest in any business organization of whatever form engaged,
either directly or indirectly, in a Competing Business in a capacity
that requires him to perform services on behalf of such Competing
Business substantially similar to those performed by him on behalf of
the Company; provided, however, that the Executive may during the
Restricted Period interview and seek to make arrangements for such
employment, engagement or interest that commences after the Restricted
Period.
5.2.2 During the Restricted Period, except on behalf of the
Company, the Executive shall not, either directly or indirectly, on
his own behalf or in the service or on behalf of others, solicit,
divert or hire away, to any Competing Business or attempt to solicit,
divert or hire away, to any Competing Business any person or persons
employed by the Company as of the termination of the Term or within
the six (6) months preceding or subsequent to the termination of the
Term, whether or not such employee is a full-time employee or a
temporary employee of the Company, and whether or not such employment
is pursuant to a written contract with the Company or is for a
determined period or at will, until such employee has ceased his
employment with the Company for at least six (6) months.
5.3 Definition of "Area". The "Area" is defined as the
geographic territory included in a radius of fifty (50) miles from Hayes'
business location in Norcross, Georgia and the Company's business location in
Gaithersburg, Maryland.
5.4 No Prior Restrictions. The Executive affirms and represents
that he is under no obligation to any former employer or third party which is
inconsistent with, or which imposes any
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<PAGE> 10
restriction upon, the continued employment of the Executive by the Company or
the Executive's undertakings under this Agreement.
5.5 Survival. The provisions of this Section 5 shall continue
after the Term as set forth herein and shall survive irrespective of the reason
the Executive's employment terminates.
6. OWNERSHIP, NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL
INFORMATION.
6.1 Definition of Confidential Information. For purposes of this
Section 6, "Confidential Information" shall mean any and all data and
information relating to the Business of the Company (whether constituting a
trade secret or not), (i) which is or has been disclosed to the Executive, or
of which the Executive becomes aware as a consequence of or through his
employment relationship with the Company, or which was developed in whole or in
part by him during the term of his employment with the Company; and (ii) which
has value to the Company and is not generally known by its competitors.
Confidential Information shall not include any data or information (A) that has
been voluntarily disclosed to the public by the Company or has become generally
known to the public (except where such public disclosure has been made by the
Executive or another person or entity without authorization by the Company), or
(B) that has been independently developed and disclosed by parties other than
the Executive or the Company to the public generally or to the Executive
without breach of any obligation of confidentiality by any such parties running
directly or indirectly to the Company, or (C) that otherwise enters the public
domain through lawful means. Confidential Information may include, but is not
limited to, information relating to the Company's financial affairs (including
the Company's relationship with its investors and lenders), products,
processes, services, customers, employees, executives' compensation, research,
development, inventions, manufacturing, purchasing, accounting, engineering and
marketing.
6.2 Definition of Trade Secrets. For the purposes of this
Section 6, Trade Secrets shall mean, in addition to the information described
in the Georgia Trade Secrets Act, (i) any Invention, as defined herein, which
is being used or studied by the Company and is not described in a printed
patent, described in any literature already published and distributed
externally by the Company, and which is not readily ascertainable from
inspection of a product of the Company, (ii) any engineering, technical, or
product specifications including those of features to be used, or use of which
is contemplated, in a future product of the Company; and (iii) any machine,
process or method of manufacturing employed by the Company, whether patentable
or not, which is not generally known to competitors of the Company. Trade
Secrets shall not include any data or information (A) that has been voluntarily
disclosed to the public by the Company or has become generally known to the
public (except when such public disclosure has been made by Executive or
another person or entity without authorization by the Company), or (B) that has
been independently developed and disclosed by parties other than the Executive
or the Company to the public generally or to the Executive without a breach of
any obligation of non-disclosure by any such parties running directly or
indirectly to the Company, or (C) that otherwise enters the public domain
through lawful means.
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<PAGE> 11
6.3 Ownership. The Executive acknowledges and agrees that all
Confidential Information and Trade Secrets, and all physical embodiments
thereof, are confidential to and are and shall remain the sole and exclusive
property of the Company, and that any of the Confidential Information or Trade
Secrets produced by him shall be considered proprietary to the Company. The
Executive agrees: (i) immediately to disclose solely to the Company all
Confidential Information and Trade Secrets developed in whole or in part by him
during the term of his employment with the Company; (ii) to assign to the
Company any right, title or interest he may have in such Confidential
Information and Trade Secrets, and (iii) at the request and expense of the
Company, to do all things and sign all documents or instruments reasonably
necessary in the opinion of the Company to eliminate any ambiguity as to the
ownership by and rights of the Company in such Confidential Information and
Trade Secrets including, without limitation, providing to the Company his full
cooperation in any litigation, unless between the Executive and the Company
after termination of Executive's employment, or other proceeding to establish,
protect or obtain such ownership and rights. Upon request by the Company, and
in any event upon termination of his employment with the Company for any
reason, the Executive shall promptly deliver to the Company all property
belonging to the Company, including, without limitation, all Confidential
Information and Trade Secrets (and all embodiments thereof) then in his
custody, control or possession.
6.4 Non-Disclosure. The Executive agrees that, during the term
of his employment by the Company and (i) at all times following the termination
of such employment for any reason whatsoever, with respect to Trade Secrets
under the Georgia Trade Secrets Act and (ii) during the Restricted Period with
respect to other Confidential Information, he will not use, disclose or make
available, directly or indirectly, any Confidential Information or Trade
Secrets to any person, concern or entity, except in the performance of his
duties and responsibilities hereunder or with the prior written consent of the
Company. The provisions of this Section 6 shall continue after the Term as
provided herein and shall survive irrespective of the reason the Executive's
employment terminates.
7. INVENTIONS AND TRADEMARKS.
7.1 Definition of Invention and Executive Invention.
7.1.1 For the purposes of this Section 7, Invention shall
mean any discovery, whether or not patentable, including, but not
limited to, any useful process, method, formula, technique, machine,
manufacture, composition of matter, algorithm or computer program, as
well as improvements thereto, which is new or which the Executive has
a reasonable basis to believe may be new.
7.1.2 For the purposes of this Section 7, Executive
Invention shall mean any Invention which is conceived by the Executive
or conceived by the Executive in a joint effort with others during the
Executive's employment by the Company which (i) may be reasonably
expected to be used in a current product of the Company, a projected
future product of the Company, or a product similar to a Company
product; (ii) results from
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<PAGE> 12
work that the Executive has been assigned as part of his duties as an
employee, officer or director of the Company; (iii) is in an area of
technology which is the same or substantially related to the areas of
technology with which the Executive is involved in the performance of
the Executive's duties as an employee, officer or director of the
Company; (iv) is useful, or which may reasonably be expected to be
useful, in any manufacturing process, product design or internal
control system of the Company; or (v) is in an area of technology
which includes machinery or processes with which the Executive
normally works in performing his duties as an employee, officer or
director of the Company.
7.2 Property of the Company. The Executive hereby agrees that all
Executive Inventions shall become the property of the Company. The Company
makes no claim of rights to any Inventions of the Executive which are not
Executive Inventions, except to the extent that, by operation of law, the "shop
rights doctrine" provides the Company with any such rights.
7.3 Conception of Invention. The Executive hereby agrees that if
he conceives any Invention during his employment, for which there is a
reasonable basis to believe that the conceived Invention may be an Executive
Invention, the Executive will provide notice containing a written description
of the Invention to each Board member, adequate to allow evaluation thereof by
the Board for a determination of whether the Invention is an Executive
Invention. In the event of any dispute regarding such determination, the
dispute shall be resolved pursuant to Section 9 hereof.
7.4 Patent Registration. The Executive hereby agrees that should
the Company elect to file any application for patent protection either in the
United States or in any foreign country on an Executive Invention, the
Executive will execute all necessary papers and documents, including formal
assignments to the Company, relating to such patent application. The Executive
further agrees that he will cooperate with any attorneys or other persons
designated by the Company by explaining the nature of the Executive Invention,
reviewing applications and other papers, and providing any other assistance
reasonably required for the orderly prosecution of the patent applications.
7.5 Discontinuance of Use. On or after the termination of the
Term, the Executive may request that the Board approve the transfer or
assignment to the Executive of a (i) patent or an Executive invention which
existed during the Term but has not been practiced or used for a period of one
(1) year or more prior to the Executive's request therefor or (ii) trademark,
service mark or tradename which was owned by the Company during the Term but
has not been used for a period of one (1) year or more prior to the Executive's
request therefor. The Board shall make a determination with respect to such
transfer or assignment and the value thereof in its sole discretion.
7.6 Survival. The provisions of this Section 7 shall continue
after the Term as provided herein and shall survive irrespective of the reason
for the Executive's termination.
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<PAGE> 13
8. BREACH OF COVENANTS BY EXECUTIVE.
The Executive agrees that the covenants and agreements contained in
Sections 5, 6 and 7 of this Agreement are of the essence of this Agreement and
that each of such covenants is reasonable and necessary to protect and preserve
the interests and properties of the Company and the Business of the Company.
The Executive further agrees that the Company is engaged in and through the
Area in the Business of the Company and that irreparable loss and damage will
be suffered by the Company should the Executive breach any of such covenants
and agreements. Each of such covenants and agreements is separate, distinct and
severable not only from the other of such covenants and agreements but also
from the other and remaining provisions of this Agreement and the
unenforceability of any such covenant or agreement shall not affect the
validity or enforceability of any other such covenants or agreements or any
other provision or provisions of this Agreement. The Executive acknowledges
that damages are inadequate for any breach of Sections 5, 6 or 7, and that the
Company shall, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of both temporary and permanent
injunctions to prevent a breach or contemplated breach by the Executive of any
of such covenants or agreements. The Executive shall further be liable for
damages, if any, resulting from any breach of such covenants and agreements.
9. RESOLUTION OF DISPUTES.
9.1 Resolution of Disputes and Mediation. Except for the matters
set forth in Sections 5, 6, and 7 hereof, any dispute between the parties
either with respect to the interpretation of any provision of this Agreement or
with respect to the performance by the Executive or by the Company hereunder
(the "Dispute") shall be resolved in accordance with this Section 9 as follows:
9.1.1 Upon the written request of either party hereto, each
of the parties shall appoint a designated representative, whose task
it shall be to meet for the purpose of endeavoring to resolve the
Dispute. The Company's designated representative shall be a member of
the Board excluding (i) the Executive and (ii) the Board member
selected by the Executive to be a Board member.
9.1.2 The designated representatives shall meet as often as
necessary to gather and furnish to the other all information with
respect to the Dispute which is appropriate and germane in connection
with its resolution.
9.1.3 Such representatives shall discuss the Dispute and
negotiate in good faith in an effort to resolve the Dispute without
the necessity of any formal proceeding relating thereto.
9.1.4 During the course of such negotiations all reasonable
requests made by one party to the other for non-privileged information
reasonably related to the Dispute, shall be honored in order that each
of the parties may be fully advised of the other's position.
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<PAGE> 14
9.1.5 The specific format for such discussions shall be left
to the discretion of the designated representatives but may include
the preparation of agreed upon statements of fact or written
statements of position furnished to the other party.
9.2 Judicial Resolution. If the parties hereto are not able to
resolve the Dispute concerning this Agreement as set forth in Section 9.1 above
within sixty (60) calendar days, upon the initial written request as provided
in Section 9.1.1, then the parties shall have the option and right to resolve
such Dispute by judicial or other equitable resolution.
10. MISCELLANEOUS.
10.1 Key Man Insurance. The Executive agrees that during the
Term, the Company in its sole discretion may purchase in addition to those
specified in Section 3.9.1 insurance policies on the Executive's life with the
Company as the primary beneficiary, provided that all costs of such insurance
are paid by the Company.
10.2 Assignment. This Agreement may not be assigned by any party
hereto without the prior written agreement of the other party hereto.
10.3 Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable, such provision shall be enforced
to the maximum extent permissible so as to effect the intent of the parties,
and the validity, legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
10.4 Beneficiary. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors, heirs, executors,
administrators and permitted assigns.
10.5 Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, written or oral, of the parties hereto, relating
to the subject matter of this Agreement. Nothing in this Agreement is intended
or shall confer upon or give any person other than the parties hereto any
rights or remedies under or by reason of this Agreement.
10.6 No Amendments. No amendments or modifications of this
Agreement shall be valid or binding upon the Company unless made in writing and
approved by the Board and signed by a Board member duly authorized by the Board
(other than a Board member designated by the Executive or the Executive), or
upon the Executive unless made in writing and signed by the Executive.
10.7 Waiver. The waiver by either party hereto of a breach by the
other party of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of the same or any other
provision by the breaching party.
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<PAGE> 15
10.8 Notices. Any notice required or permitted to be given
hereunder shall be in writing and delivered personally or by facsimile/telecopy
transmission. Any notice delivered personally shall be deemed given as of the
date of delivery. Notice given by facsimile/telecopy shall be evidenced by the
facsimile/telecopy verification confirming that the notice was satisfactorily
transmitted and received and shall be deemed given as of the date of
confirmation; provided, however, that its receipt shall be confirmed by
telephone and all notices sent by facsimile/telecopy transmission must be
thereafter transmitted to the party to be notified by an overnight express mail
delivery service within three (3) days of said facsimile/telecopy transmission.
AS TO THE COMPANY:
Hayes Communications Inc.
______ Peachtree Corners Circle East
Norcross, Georgia 30092
Attention: Chief Executive Officer
Facsimile: (770) __________
AS TO EXECUTIVE:
Dennis C. Hayes
Hayes Communications Inc.
_____ Peachtree Corners Circle East
Norcross, Georgia 30092
Private Fax: (770) 840-6830
AS TO HAYES:
Hayes Microcomputer Products, Inc.
_____ Peachtree Corners Circle East
Norcross, Georgia 30092
Attention: Chief Executive Officer
Facsimile: (770) ____________
10.9 Headings. The enumeration and headings contained in this
Agreement are for convenience of reference only and are not intended to have
any substantive significance in interpreting this Agreement.
10.10 Number. Unless the context otherwise requires, whenever used
in this Agreement, the singular shall include the plural and the plural shall
include the singular.
10.11 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
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<PAGE> 16
10.12 Counterparts. This Agreement may be executed in four (4)
counterparts and each of such counterparts, when duly executed, shall be deemed
an original document.
IN WITNESS WHEREOF, Dennis C. Hayes, the Executive, and the
Company, acting by and through its duly authorized officers, have hereunto
executed, delivered and sealed this Agreement effective as of the Effective
Time.
EXECUTIVE:
(SEAL)
--------------------------------------
DENNIS C. HAYES
5835 Peachtree Corners Circle East
Norcross, Georgia 30092
Private Fax: (404) 840-6830
COMPANY:
ATTEST: HAYES COMMUNICATIONS INC.
[CORPORATE SEAL] BY:
-----------------------------------------
Name:
------------------------------------
Title:
- ------------------------- -----------------------------------
Secretary
The undersigned Hayes Microcomputer Products, Inc.,is made a
signatory hereto for the sole purpose of terminating the Employment Agreement
dated April 16, 1996, pursuant to paragraph 2 of this Agreement.
HAYES MICROCOMPUTER PRODUCTS, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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<PAGE> 17
SCHEDULE 3.8 TO EMPLOYMENT AGREEMENT
LIFE INSURANCE POLICIES
<TABLE>
<CAPTION>
Policy Number
& Company Policy Date Policy Owner Beneficiary
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1. Amer. United Life 04/18/84 Company Company
#6-002-1742
2. Amer. United Life 08/18/86 Executive Estate of Executive
#6-026-4910
3. Amer. United Life 04/18/84 Company Company
#1-516-163
4. Confederation Life 06/28/92 Company Estate of Executive
# 542 0411
5. Security Life 07/08/92 Company Estate of Executive
# 001045302
</TABLE>
<PAGE> 1
EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of
October 2, 1997, by and between ACCESS BEYOND, INC., a Maryland corporation (the
"Borrower") which maintains its chief executive office at 1300 Quince Orchard
Boulevard, Gaithersburg, Maryland, 20878, and FOOTHILL CAPITAL CORPORATION, a
California corporation (the "Lender") whose mailing address is 7443 Lee Davis
Road, Suite 200, Post Office Box 218, Mechanicsville, Virginia 23111, provides:
1. Definitions: As used herein, the following terms, when initial capital
letters are used, shall have the respective meanings set forth below. In
addition, all terms defined in the Uniform Commercial Code as enacted in the
Commonwealth of Virginia (the "UCC"), whether or not capitalized, shall have the
meanings given therein unless otherwise defined herein.
1.1 Account Debtor shall mean the account debtor or any customer of the
Borrower who is obligated or indebted to the Borrower with respect to any of the
Receivables and/or the prospective purchaser with respect to any contract right,
and/or any Person who enters into or proposes to enter into any contract or
other arrangement with the Borrower pursuant to which the Borrower is to deliver
any personal property or perform any service.
1.2 Affiliate shall mean any Person directly or indirectly controlling,
controlled by, or under common control with the Borrower. For purposes of this
definition, "control" as applied to any Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of the Borrower whether through the ownership of voting securities, by
contract or otherwise.
1.3 Business Day(s) shall mean a day on which the Lender is open to
conduct a full lending business.
1.4 Collateral shall mean the following types or items of personal
property, whether now owned or hereafter acquired by the Borrower, wherever
located: (a) the Receivables, the General Intangibles, the Inventory, the
Equipment, the Payments and all other items of personal property; (b) all of the
Borrower's rights, title and interest in and to all goods and other property
represented by or securing any of the foregoing, including all goods that may be
reclaimed or repossessed from or returned by Account Debtors; (c) all of the
Borrower's rights as an unpaid seller, including stoppage in transit, detinue
and reclamation; (d) all additional amounts due the Borrower from any Account
Debtor, irrespective of whether such additional amounts have been specifically
assigned to the Lender; (e) all guarantees and other agreements and property
securing or relating to any of the items referred to above or acquired for the
purpose of securing or enforcing such items; (f) all books of account and
records, ledger sheets, files, documents, customer lists and other documents
containing the names, addresses and other information regarding the Borrower's
customers; computer tapes, programs, discs and other material, media or
documents relating to the recording, billing or analyzing of any of the above;
all computers, word processors, printers, switches, interfaces, source codes,
mask works, software, instructional material, and connectors, and all parts,
accessories, additions, substitutions, or options together with all property or
equipment used in connection with any of the above or which are used to operate
or cause to operate any features, special applications, format controls, options
or software of any or all of the above-mentioned items; (g) all policies of
insurance on the foregoing property and the proceeds of such insurance; (h) all
rebates received or due from manufacturers and others; (i) all post office
boxes; and (j) all proceeds and products of any of the foregoing in whatever
form, including cash, negotiable instruments and other evidences of
indebtedness, chattel paper, security agreements and other documents.
1.5 Eligible Government Accounts shall mean the amount of billed
Government Accounts of the Borrower for work completed, under specific
Government Contracts which are and at all times shall continue to be acceptable
to the Lender in all respects and which have been assigned to the Lender
pursuant to the Assignment of Claims Act or any appropriate regulation of any
department, agency or instrumentality of the United States (without regard to
prior approvals of such specific Government Contracts) after deducting
<PAGE> 2
therefrom (a) all billed Government Accounts under which more than 90 days have
elapsed from the invoice date, (b) all Government Accounts arising under
Government Contracts which contain an express prohibition against assignment;
(c) all retainages, payments, adjustments, setoffs and credits applicable
thereto, and (d) all amounts due thereon considered by the Lender, in its sole
discretion, to be difficult to collect or uncollectible by reason of return,
rejection, repossession, loss or damage of or to the products or goods giving
rise thereto.
1.6 Eligible Inventory shall mean all Inventory valued at the lowest of
(a) the Borrower's net purchase cost or net manufacturing cost, (b) the lowest
bulk market price, (c) the Borrower's lowest bulk selling price, minus estimated
expenses for completion and disposal, and minus an allowance for normal profit
margin for bulk sales, (d) any ceiling prices which may be established by any
law, or (e) prevailing market value, excluding, however, any Inventory which
consists of (i) any goods located outside of the United States, (ii) any goods
located outside of a State in which the Lender has properly perfected its
security interest by filing, free and clear of all other Liens, (iii) any goods
not in the actual possession of, or in transit to or from, the Borrower or any
goods in the possession of a bailee, warehouseman, consignee or similar Person,
(iv) all work-in-process, (v) any goods the sale or other disposition of which
has given rise to a Receivable, (vi) any goods which the Lender determines in
its reasonable discretion at any time and in good faith are defective,
unmerchantable or obsolete, (vii) any goods which are not covered by insurance
as required by Section 6.5 hereof, and (viii) any goods which the Lender in its
reasonable discretion has deemed to be ineligible because the Lender otherwise
considers the collateral value thereof to be impaired or its ability to realize
such value to be insecure.
1.7 Eligible Receivables shall mean, at any time of determination thereof,
each Receivable of the Borrower to the extent that it conforms and continues to
conform to the following criteria to the satisfaction of the Lender: (i) the
Receivable arose from a bona fide outright sale of goods or provision of
services by the Borrower, and such goods or services have been delivered to the
appropriate Account Debtor or its respective designees, the Borrower has in its
possession shipping and delivery receipts evidencing such shipment and delivery,
no return, rejection or repossession has occurred and such goods or services
have been finally accepted by the Account Debtor; (ii) the Receivable is based
upon an enforceable written order or contract for goods delivered or services
rendered and the same were shipped, held, or performed in accordance with such
order or contract; (iii) the title of the Borrower to the Receivable and, except
as to the Account Debtor and any creditor which finances the Account Debtor's
purchase of such goods, to any goods is absolute and is not subject to any prior
assignment, claim, lien, or security interest, and the Borrower otherwise has
the full and unqualified right and power to assign and grant a security interest
in it to the Lender; (iv) the amount shown on the books of the Borrower and on
any invoice, certificate, schedule or statement delivered to the Lender is owing
to the Borrower and no partial payment has been received unless reflected on
such invoice, certificate, schedule or statement; (v) the Receivable is not
subject to any claim of reduction, counterclaim, set-off, recoupment, or other
defense in law or equity, or any claim for credits, allowances, or adjustments
by the Account Debtor because of returned, inferior, or damaged goods,
unsatisfactory services or for any other reason; (vi) the Account Debtor has not
returned or refused to retain, or otherwise notified the Borrower of any dispute
concerning, or claimed nonconformity of, any of the goods or services from the
sale of which the Receivable arose; (vii) the Receivable is not outstanding more
than the number of days set forth in Schedule A attached hereto from the date of
the invoice therefor; (viii) the Receivable does not arise out of a contract
with, or order from, an Account Debtor that, by its terms, forbids or makes void
or unenforceable the assignment by the Borrower to the Lender of the Receivable
arising with respect thereto; (ix) the Borrower has not received any note, trade
acceptance draft or other instrument with respect to, or in payment of, the
Receivable, unless, if any such instrument has been received, the Borrower
immediately notified the Lender and, at the latter's request, endorsed or
assigned and delivered the same to the Lender; (x) the Borrower has not received
any notice of the death of the Account Debtor or a partner thereof; nor has the
Borrower received any notice of dissolution, termination of existence,
insolvency, business failure, appointment of a receiver for
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any part of the property of, assignment for the benefit of creditors by, or the
filing of a petition in bankruptcy or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against, the Account Debtor; (xi) the
Account Debtor is not an Affiliate of the Borrower; (xii) the Account Debtor is
not incorporated in or primarily conducting business in any jurisdiction located
outside of the United States of America; (xiii) the Borrower is not indebted in
any manner to the Account Debtor, with the exception of customary credits,
adjustments and/or discounts given to a Account Debtor by the Borrower in the
ordinary course of its business. The Lender, in the exercise of its sole
discretion, may exclude from eligibility all or any portion of any Receivable
that (i) results in an unacceptable concentration of the Receivables in any
Account Debtor; or (ii) the Lender has deemed ineligible because of uncertainty
as to the credit worthiness of the Account Debtor or because the Lender
otherwise considers the collateral value thereof to be impaired or its ability
to realize such value to be insecure. In the event of any dispute under the
foregoing criteria, as to whether a Receivable is, or has ceased to be, an
Eligible Receivable, the decision of the Lender in the exercise of its sole and
absolute discretion shall control.
1.8 Environmental Laws shall mean all federal, state and local laws,
whether now or hereafter enacted, and as amended from time to time, relating to
pollution or protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of Hazardous
Materials into the environment (including, without limitation, ambient air,
surface water, ground water or land), or otherwise relating to the manufacture,
generation, production, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, and any and all
regulations, codes, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder.
1.9 Equipment shall mean (a) all equipment of the Borrower of every type
and description, now owned and hereafter acquired and wherever located,
including, without limitation, all machinery, motor vehicles and other rolling
stock, furniture, furnishings, tools, dies, fittings, accessories, all
substitutions therefor, leasehold improvements, fixtures, and materials and
supplies relating to any of the foregoing; (b) all present and future documents
of title and trust receipts relating to any of the foregoing; (c) all present
and future rights, claims and causes of action of the Borrower in connection
with purchases of (or contracts for the purchase of), or warranties relating to,
or damages to, goods held or to be held by the Borrower as equipment; (d) all
present and future warranties, manuals and other written materials (and
packaging thereof or relating thereto) relating to any of the foregoing; and (e)
all present and future general intangibles of the Borrower in any way relating
to any of the foregoing.
1.10 Event of Default shall mean any event described in Section 9.1
hereof.
1.11 Fair Labor Standards Act shall mean the Fair Standards Labor Act as
amended, 29 U.S.C. Sections 201-209, any applicable regulations and
interpretations issued pursuant thereto, and any amendments to any of the
foregoing.
1.12 General Intangibles shall mean all general intangibles now owned or
hereafter acquired by the Borrower, including, without limitation, choses of
action, causes of action and all other intangible property of every kind and
nature, including, without limitation, corporate or other business records,
inventions, designs, blueprints, plans, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, registrations, domestic and
foreign copyrights, copyright applications, service marks, logos, licenses,
franchises, customer lists, tax refunds, tax refund claims, contractual rights,
insurance policies on lives of employees payable to the Borrower, any letter of
credit on which the Borrower is a beneficiary, rights or claims against carriers
and shippers, leases and rights to indemnification between the Borrower and the
U.S. Government or any agency thereof, and all amendments thereto.
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1.13 Government Accounts shall mean all accounts arising out of any
Government Contract.
1.14 Government Contracts shall mean any contract between the Borrower and
the United States Government or any agency thereof, and all amendments thereto.
1.15 Guarantor and Guarantors shall mean individually and collectively the
Person(s) listed on Schedule A attached hereto.
1.16 Hazardous Materials shall mean any (i) hazardous, regulated and/or
toxic chemicals, materials, substances or wastes occurring in the air, water,
soil or ground water on, over or under the real property owned, occupied or
controlled by the Borrower, or in or on improvements thereon (the "Property"),
as defined by the Comprehensive Environmental Response, Compensation, and
Liability Act (Superfund or CERCLA), and the Superfund Amendments and the
Reauthorization Act of 1986 (SARA), 42 U.S.C. Sections 9601 et seq., the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001 et seq., the Resource Conservation and Recovery Act (the Solid Waste
Disposal Act or RCRA), 42 U.S.C. Sections 6901 et seq., the Federal Water
Pollution Control Act, (CWA), 33 U.S.C. Sections 1251 et seq., the Clean
Air Act (CAA), 42 U.S.C. Sections 7401 et seq., and the Toxic Substances
Control Act (TSCA), 15 U.S.C. Sections 2601 et. seq., or comparable state
statutes, as each such statute may be amended from time to time, and/or as
defined in regulations promulgated thereunder; (ii) oil, petroleum products, and
their by-products; (iii) any substance, the presence of which is prohibited or
controlled by any other applicable federal or state or local laws, regulations,
statutes or ordinances now in force or hereafter enacted relating to waste
disposal or environmental protection with respect to hazardous, toxic or other
substances generated, produced, leaked, released, spilled or disposed of at or
from the Property; and (iv) any other substance which by law requires special
handling in its collection, storage, treatment or disposal including, but not
limited to, asbestos, polychlorinated biphenyls (PCBs), urea formaldehyde foam
insulation and lead-based paints, but not including small quantities of such
materials present on the Property in retail containers and used in the ordinary
course of the Borrower's business.
1.17 Inventory shall mean all inventory now owned or hereafter acquired by
the Borrower, including, without limitation (a) all goods which are held for
sale or lease by the Borrower or are furnished or to be furnished by the
Borrower under contracts for service, (b) all raw materials, work in process,
finished goods, materials and supplies of every kind used or consumed in
connection with the manufacture, packing, shipping, advertising or sale of such
goods, (c) all proceeds and products from the sale or other disposition of such
goods, including all goods returned or repossessed, or acquired by the Borrower
by way of substitution or replacement, and all additions and accessions thereto,
and all documents and instruments covering such goods, and (d) all of the above
owned by the Borrower or in which the Borrower now has or in which the Borrower
may hereafter acquire an interest, whether in transit or in the Borrower's
constructive or actual possession or held by the Borrower or others for the
Borrower's account (including any of the above held on consignment), including,
without limitation, all of the above which may be located on the Borrower's
premises or upon the premises of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents, finishers, converters or other third
parties who may have possession, temporary or otherwise, thereof.
1.18 Letter(s) of Credit shall mean any letter(s) of credit issued
pursuant to Section 2.4 hereof for or on behalf of the Borrower.
1.19 Loan Documents shall mean the Note, this Agreement, the Guaranty or
any other agreement or document referred to herein or now or hereafter delivered
in connection with the transactions contemplated
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hereby, together with any and all revisions, amendments, restatements and
modifications to, replacements of and substitutions for, any of the foregoing.
1.20 Lockbox Agreement shall mean the written agreement by and among the
Borrower, the Lender and a federally insured banking institution, in form and
substance satisfactory to the Lender, whereby said parties agree that Payments
shall be mailed to a U.S. Post Office box to which the bank shall have exclusive
and unrestricted access under such agreement. Under such agreement, Payments
shall hereafter be deposited into an account of the Lender maintained at the
bank for application to the Revolving Loan.
1.21 Note shall mean, collectively, any promissory notes executed by the
Borrower to evidence the any other loans by the Lender to the Borrower as
renewed, extended, restated or modified from time to time described in Section
2.3.
1.22 Obligations shall mean, without limitation, the Revolving Loans,
other loans by the Lender to the Borrower and all other indebtedness and
liabilities of the Borrower to the Lender of every kind, nature and description,
now existing or hereafter arising, regardless of how they arise or by what
agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument and whether liquidated or unliquidated, secured or
unsecured, direct or indirect (that is, whether the same are due directly from
the Borrower to the Lender, or are due indirectly from the Borrower to the
Lender by reason of the Borrower having acted as endorser, guarantor or obligor
of indebtedness, liabilities or obligations to the Lender of any third party),
absolute or contingent, due or to become due, and all obligations to perform
acts or refrain from taking any action. Obligations shall also include all
interest, fees and other charges chargeable to the Borrower or due from the
Borrower to the Lender from time to time and all costs and expenses referred to
in Sections 13 and 14 hereof.
1.23 Payment(s) shall mean any check, note, draft, bill of exchange,
acceptance, money order, legal tender or other form of payment or evidence of
indebtedness in total or partial payment of the amount due on any Receivable or
other Collateral.
1.24 Permitted Liens shall mean (a) any lien or security interest
specifically consented to by the Lender in writing; and (b) purchase money
security interests on Equipment acquired after the date hereof in the ordinary
course of business provided such security interests secure not more than the
lower of the cost or fair market value of such Equipment and in the aggregate do
not exceed the amount as set forth in Schedule A attached hereto.
1.25 Person shall mean an individual, partnership, corporation, limited
liability company, business franchise, joint stock company, trust,
unincorporated association, joint venture, government authority or other entity
of whatever nature.
1.26 Reasonable Attorneys' Fees shall mean, as used in any of the Loan
Documents, the fees of counsel based upon counsel's usual and customary hourly
rates and not upon any fixed percentage of the Obligations.
1.27 Receivables shall mean (a) all of the Borrower's present and future
accounts, contract rights, receivables, promissory notes and other instruments,
chattel paper and all rights to receive the payment of money or other
consideration under present or future contracts, including, without limitation,
all of the Borrower's rights under each Government Contract and all related
Government Accounts now owned or hereafter acquired by the Borrower; (b) all
present and future cash of the Borrower; (c) all present and future judgments,
orders, awards and decrees in favor of the Borrower and causes of action in
favor of the Borrower;
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(d) all present and future contingent and noncontingent rights of the Borrower
to the payment of money for any reason whatsoever, whether arising in contract,
tort or otherwise, including, without limitation, all rights to receive payments
under presently existing or hereafter acquired or created letters of credit; (e)
all present and future claims, rights of indemnification and other rights of the
Borrower under or in connection with any contracts or agreements to which the
Borrower is or becomes a party or third party beneficiary; (f) all goods
previously or hereafter returned, repossessed or stopped in transit, the sale,
lease or other disposition of which contributed to the creation of any account,
instrument or chattel paper of the Borrower; (g) all present and future rights
of the Borrower as an unpaid seller of goods, including rights of stoppage in
transit, detinue and reclamation; (h) all rights which the Borrower may now or
at any time hereafter have, by law or agreement, against any Account Debtor or
other obligor of the Borrower, and all rights, liens and security interests
which the Borrower may now or at any time hereafter have, by law or agreement,
against any property of any Debtor or other obligor of the Borrower; and (i) all
present and future interests and rights of the Borrower, including rights to the
payment of money, under or in connection with all present and future leases and
subleases of real or personal property to which the Borrower is a party, as
lessor, sublessor, lessee or sublessee.
1.28 Reference Rate shall mean the rate of interest announced from time to
time by Norwest Bank Minnesota, N. A., as its "prime rate" or "reference rate"
as the case may be, whether or not such announced rate is the best rate
available from such financial institution. The Borrower hereby acknowledges and
agrees that the Reference Rate is a reference used in determining interest rates
on certain loans by the Lender and is not intended to be the lowest rate of
interest charged on any extension of credit to any customer. In the event the
foregoing institution ceases to announce a Reference Rate or the same is
unascertainable or is discontinued by the Lender as a standard, a comparable
rate designated by the Lender shall be deemed to be the Reference Rate.
1.29 Revolving Loans shall mean the loans described in Section 2.1
2. Loans, Interest, Fees and Letters of Credit
2.1 Subject to the terms and conditions of this Agreement, the Lender
agrees to make Revolving Loans from time to time to the Borrower in an aggregate
principal amount of up to:
(a) the percentage of Eligible Receivables set forth in
Schedule A attached hereto, and
(b) the percentage of Eligible Inventory set forth in Schedule
A attached hereto, and
(c) the percentage of Eligible Government Accounts set forth in
Schedule A attached hereto.
2.2 The Revolving Loans shall be made on the following terms and
conditions:
(a) The Revolving Loans shall be used solely for refinancing
existing indebtedness and for working capital.
(b) The aggregate principal amount of Revolving Loans based on the
value of Eligible Inventory shall not exceed the amount set forth in Schedule A
attached hereto.
(c) The aggregate principal amount of Revolving Loans shall not
exceed the amount set forth in Schedule A attached hereto.
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(d) All Revolving Loans will be made from time to time in the
absolute discretion of the Lender and neither this Agreement nor other action by
the Lender shall obligate the Lender to make further Revolving Loans to the
Borrower. After notice to the Borrower, the Lender may, in its discretion,
change any or all of the percentages set forth in Section 2.1(a), (b) or (c).
All Revolving Loans shall be payable without offset to the Lender and shall be
evidenced by the entries upon certain books and records designated by the
Lender.
(e) The Revolving Loans shall accrue interest on the daily
outstanding balance thereof at the annual rate (the "Interest Rate") set forth
in Schedule A attached hereto. Accrued interest shall be payable to the Lender
on the first day of each month beginning on the date set forth on Schedule A
attached hereto. The effective date of any increase or decrease in the Interest
Rate shall be the date on which the Reference Rate changes. All interest shall
be computed on the basis of a 360-day year and paid for the actual number of
days elapsed in each interest calculation period.
(f) Upon the occurrence of any Event of Default, the Interest Rate
may be increased, at the Lender's option, to a rate equal to the rate set forth
on Schedule A attached hereto above the Reference Rate in effect from time to
time (the "Default Rate of Interest").
(g) In addition to the interest payable to the Lender pursuant to
Section 2.2(e), the Borrower shall also pay to the Lender or the Lender may
collect from advances made to the Borrower under the Revolving Loans an amount
of interest equal to the aggregate of the amounts calculated each month by
multiplying the amount of each Payment received by the Lender from Account
Debtors during such month by the Interest Rate for a period beginning on the
date after a Payment is applied to the principal balance due under the Revolving
Loans and ending on the date set forth in Schedule A attached hereto.
(h) The Borrower shall pay the Lender a monthly service fee equal to
the amount set forth in Schedule A attached hereto (the "Service Fee").
(i) The Lender shall send the Borrower a monthly statement of the
Borrower's loan account showing all debits and credits and which shall also
reflect the interest accrued on the Revolving Loans pursuant to Section 2.2(e)
and (f) hereof, the additional interest charged with respect to Payments
pursuant to Section 2.2(g) hereof (collectively, the "Interest) and the Service
Fee for the immediately preceding month. The Interest and Service Fee shall be
added by the Lender to the Borrower's loan account at the end of each month and
shall be deemed to be first paid from amounts subsequently credited to the loan
account. The statement of the loan account shall be deemed correct and accepted
by and conclusively binding upon the Borrower unless the Borrower notifies the
Lender in writing specifically as to a particular discrepancy within 20 days
from the mailing of such statement.
2.3 The Lender agrees to make other loans to the Borrower in the amount
set forth in Schedule A attached hereto subject to the following terms and
conditions:
(a) The proceeds of the loans shall be used solely for the purposes
set forth in Schedule A attached hereto.
(b) The Borrower shall repay such loans in accordance with the terms
and conditions of the Note and Schedule A attached hereto. Unless sooner paid,
the entire unpaid principal amount of such loans and all accrued and unpaid
interest thereon shall be due and payable on the date set forth on Schedule A
(the "Maturity Date").
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(c) Such Loans shall accrue interest on the daily outstanding
balance thereof at the annual rate (the "Interest Rate") set forth in Schedule A
attached hereto. Accrued interest shall be payable to the Lender on the first
day of each month beginning on the date set forth on Schedule A attached hereto.
All interest shall be computed on the basis of a 360-day year and paid for the
actual number of days elapsed in each interest calculation period.
(d) Upon the occurrence of any Event of Default, the Interest Rate
may be increased, at the Lender's option, to a rate equal to the rate set forth
on Schedule A attached hereto above the Reference Rate in effect from time to
time (the "Default Rate of Interest").
(e) The Borrower shall pay the Lender a monthly service fee
equal to the amount set forth on Schedule A attached hereto. (the "Service
Fee")
(f) The Borrower shall pay to the Lender an appraisal fee of the
amount set forth on Schedule A for each appraisal of the Collateral performed by
Foothill or its agents (the "Appraisal Fee")
(g) The Borrower may prepay such loans at any time; provided that
each prepaid principal amount shall be accompanied by all outstanding interest
and fees and a prepayment fee equal to the percentage set forth on Schedule A of
the amount prepaid in the first year, a fee equal to the percentage set forth on
Schedule A of the amount prepaid in the second year and a fee equal to the
percentage set forth on Schedule A of the amount prepaid thereafter (the
"Prepayment Fee")
2.4 Subject to the terms and conditions of this Agreement, the Lender will
from time to time cause to be issued by a commercial bank (the "Issuer") Letters
of Credit to such parties and in such amounts which total, in the aggregate at
any time, not more than the amount set forth on Schedule A attached hereto as
the Borrower may from time to time request by submission to the Issuer or the
Lender of such documents, agreements and information as the Issuer or the Lender
may request.
(a) In the event the Issuer may issue one or more Letters of Credit
for the account of the Borrower, the amount available to be advanced under the
Revolving Loans shall be reduced by an amount equal to the amount which could be
drawn under such Letter(s) of Credit. Upon termination or release of a Letter of
Credit issued hereunder, the amount available to be advanced under the Revolving
Loans shall be increased by the amount which could have been drawn under such
Letter of Credit.
(b) The Borrower shall pay to the Lender for the account of the
Issuer such fee for the issuance of a Letter of Credit together with such other
fees, interest and charges as the Issuer may from time to time determine.
3. Security for the Obligations.
3.1 To secure the payment and performance of the Obligations, the Borrower
hereby grants to the Lender a continuing security interest in all existing and
hereinafter acquired or arising Collateral.
3.2 As additional security for the payment and performance of the
Obligations, the Obligations shall be guaranteed by the Guarantors who shall
each execute and deliver to the Lender an unconditional guaranty (the "Guaranty
Agreement") in form and substance satisfactory to the Lender and its counsel.
4. Receivables.
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4.1 Unless the Lender requires a Lockbox Agreement, the Lender hereby
authorizes and permits the Borrower to receive from Account Debtors or otherwise
all Payments, subject to the reasonable direction and control of the Lender at
all times. The Borrower shall open and maintain at its expense a depository
account ("Depository Account") over which the Lender alone shall have the power
of withdrawal or, if requested by the Lender a lockbox, with a bank acceptable
to the Lender, and deposit or direct all Payments to such account or lockbox
immediately upon receipt thereof. The Borrower's loan account with the Lender
shall be credited with (i) all amounts received on any Business Day in the
Lender's Chase Manhattan bank account by wire transfer from the Depository
Account or the Lockbox prior to 12:00 noon on such day; or (ii) all Payments
actually received at the Lender's address set forth at the beginning of this
Agreement pursuant to Section 4.2 on the date of such receipt. Payments which
are deposited into the Lender's account from the lockbox after 12:00 noon on any
day shall be credited to the Borrower's loan account on the next Business Day.
4.2 The Lender shall have the right at any time to notify Account Debtors
of its security interest in the Receivables and to require Payments to be made
directly to the Lender. To facilitate direct collection, the Borrower hereby
appoints the Lender and any officer or employee of the Lender, as the Lender may
from time to time designate, as attorney-in-fact for the Borrower to (a)
receive, open and dispose of all mail addressed to the Borrower and take
therefrom any Payments or proceeds of Receivables; (b) take over the Borrower's
post office boxes or make other arrangements, in which the Borrower shall
cooperate, to receive the Borrower's mail, including notifying the post office
authorities to change the address for delivery of mail addressed to the Borrower
to such address as the Lender shall designate; (c) endorse the name of the
Borrower in favor of the Lender upon any and all Payments that may come into the
Lender's possession; (d) sign and endorse the name of the Borrower on any
invoice or bill of lading relating to any Receivable, on verifications of
Receivables sent to any Debtor, to drafts against Account Debtors, to
assignments of Receivables and to notices to Account Debtors; and (e) do all
acts and things necessary to carry out this Agreement, including signing the
name of the Borrower on any instruments required by law in connection with the
transactions contemplated hereby and on financing statements as permitted by the
UCC. The Borrower hereby ratifies and approves all acts of such attorney-in-fact
and neither the Lender nor any other such attorney-in-fact shall be liable for
any acts of commission or omission, or for any error of judgment or mistake of
fact or law unless occasioned by the Lender's or such attorney-in-fact's gross
negligence. This power, being coupled with an interest, is irrevocable so long
as any of the Obligations remain unsatisfied.
4.3 The Lender shall not, under any circumstances, be liable for any error
or omission or delay of any kind occurring in the settlement, collection or
payment of any Receivable or any instrument received in payment thereof or for
any damage resulting therefrom unless occasioned by the Lender's gross
negligence or willful misconduct. The Lender may, after the occurrence of an
Event of Default, without notice to or consent from the Borrower, sue upon or
otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Receivables or any
securities, instruments or insurance applicable thereto and/or release the
obligor thereon. The Lender is authorized to accept the return of the goods
represented by any of the Receivables, without notice to or consent of the
Borrower, or without discharging or any way affecting the Obligations.
4.4 The Lender shall not be liable for or prejudiced by any loss,
depreciation or other damage to the Receivables and other Collateral unless
caused by the Lender's gross negligence or willful misconduct.
4.5 On or before ten (10) days after the end of each month, or from time
to time as the Lender may reasonably require, the Borrower shall deliver to the
Lender schedules of all outstanding Receivables and existing Inventory. Such
schedules shall be in form satisfactory to the Lender and shall show the age of
such
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Receivables in intervals of not more than 30 days, and contain such other
information and be accompanied by such supporting documents as the Lender may
from time to time prescribe. At the Lender's request, the Borrower shall also
deliver to the Lender copies of the Account Debtor's invoices, evidences of
shipment or delivery and such other schedules and information as the Lender may
reasonably request. The items to be provided under this Section are to be
prepared and delivered to the Lender from time to time solely for its
convenience in maintaining records of the Collateral and the Borrower's failure
to give any of such items to the Lender shall not affect, terminate, modify or
otherwise limit the Lender's security interest granted herein.
5. Representations and Warranties. The Borrower hereby represents
and warrants to the Lender that:
5.1 (a) The Borrower is and at all times hereafter shall be a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has the corporate power and authority to conduct
its business as now conducted and as proposed to be conducted while this
Agreement is in effect; (b) the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby are within the corporate
authority of the Borrower and have been duly authorized by all proper and
necessary corporate action; (c) the execution and delivery of this Agreement and
the performance of the transactions contemplated hereby will not violate or
contravene any provisions of law or the articles of incorporation or bylaws of
the Borrower, or result in a breach or default in respect of the terms of any
other agreement to which the Borrower is a party or by which it is bound, which
breach or default would result in the creation, imposition or enforcement of any
lien against any of the Collateral, or would have a material adverse effect on
the conduct of the Borrower's business as it is now being conducted and proposed
to be conducted while this Agreement is in effect, or would otherwise impair the
value of the security interest granted to the Lender hereunder; and (d) the
Borrower is duly qualified as a foreign corporation and is in good standing and
duly authorized to do business in every jurisdiction where the nature of its
properties or its business requires such qualification and authorization.
5.2 This Agreement is the valid and legally binding agreement of the
Borrower enforceable against the Borrower in accordance with its terms.
5.3 Except as previously disclosed to the Lender in writing, no Person has
sold substantially all of its assets to the Borrower or sold assets to the
Borrower outside the ordinary course of such seller's business or in a
transaction subject to the bulk transfer laws at any time in the past.
5.4 The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby do not require any approval or consent of
any governmental agency or authority, of stockholders of the Borrower, or of any
other Person.
5.5 The financial statements of the Borrower and the Guarantors and other
related information previously submitted to the Lender are true, complete and
correct in all material respects, fairly represent the financial condition of
the Borrower and each Guarantor and the results of their respective operations
and transactions as of the dates and for the periods of such statements and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the period involved. There are no
liabilities, direct or indirect, fixed or contingent, matured or unmatured,
known to the Borrower or the Guarantor which are not reflected therein. There
has been no material adverse change in the business, operations, prospects,
assets, properties or condition (financial or otherwise) of the Borrower or the
Guarantor since the date of said financial statements.
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5.6 The Borrower has filed all federal, state, local and other tax returns
and reports required to be filed by it and such returns and reports are true and
correct. The Borrower has paid all taxes, assessments and other governmental
charges lawfully levied or imposed on or against it or its property, other than
those presently payable without penalty or interest.
5.7 There is no litigation or proceeding or governmental investigation
pending or, to the knowledge of the Borrower, threatened against or relating to
the Borrower, its properties or business which is not reflected in the financial
statements and other related information previously submitted to the Lender by
the Borrower.
5.8 The Borrower is not in violation of or default under any statute,
regulation, license, permit, order, writ, injunction or decree of any
government, governmental department, commission, board, bureau, agency,
instrumentality or court, which violation or default would have a material
adverse effect on the business, properties or condition, financial or otherwise,
of the Borrower.
5.9 The Borrower is in compliance with all federal, state and local laws,
including, but not limited to, Environmental Laws and the Fair Labor Standards
Act.
5.10 (a) The Borrower has not terminated any employee pension benefit plan
("Plan") subject to Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") since September 2, 1984 and is not in the process of
terminating any Plan, and no fact, including, without limitation, any reportable
event described in Section 4043 of ERISA exists in connection with any Plan of
the Borrower which might constitute grounds for (i) the termination of any Plan
by the Pension Benefit Guaranty Corporation or (ii) the appointment by the
appropriate United States District Court of a trustee to administer any Plan.
(b) The Borrower has fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code (the "Code") with
respect to each Plan and is in compliance in all material respects with the
provisions of ERISA and the Code presently applicable to each Plan, and has made
all contributions to the Plans required by the terms thereof.
(c) The Borrower has not incurred any liability under Section 4203
or 4205 of ERISA with respect to any withdrawal or partial withdrawal from any
multi-employer plan (as defined in Section 4001(a)(3) of ERISA.
5.11 The Borrower is not in default under a material contract, which
default would have a material adverse effect on the business, properties or
condition, financial or otherwise, of the Borrower, or in the performance of any
covenants or conditions respecting any of its indebtedness, and no holder of any
indebtedness of the Borrower has given notice of any asserted default
thereunder, and no liquidation or dissolution of the Borrower and no
receivership, insolvency, bankruptcy, reorganization or other similar proceeding
relative to the Borrower or its properties is pending or, to the knowledge of
the Borrower, is threatened against it.
5.12 The Borrower maintains a place of business and keeps Collateral and
maintains its books of account and records, including all records concerning the
Collateral, only at the location(s) set forth in Schedule A attached hereto.
5.13 The Borrower is the sole owner of and has good and marketable title
to the Collateral, and the Borrower has full right and power to grant the Lender
a security interest therein. At the time the Collateral
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becomes subject to the Lender's security interest, the Collateral will be free
from all liens, encumbrances and security interests in favor of any Person other
than the Lender, except for Permitted Liens.
5.14 As to each and every Receivable, to the best of the Borrower's
knowledge and belief (a) it is a bona fide existing obligation, valid and
enforceable against the Account Debtor for a sum certain for sales of goods
shipped or delivered, or goods leased, or services rendered in the ordinary
course of business; (b) all supporting documents, instruments, chattel paper and
other evidence of indebtedness, if any, delivered to the Lender are complete and
correct and are valid and enforceable in accordance with their terms, except to
the extent enforceability may be limited by bankruptcy, insolvency or similar
laws affecting creditor's rights generally and by equitable principles of
general applicability (regardless of whether such enforceability is considered
in a proceeding in equity or at law), and all signatures and endorsements that
appear thereon are genuine, and all signatures and endorsers have full capacity
to contract; (c) the Account Debtor is liable for and will make payment of the
amount expressed in such Receivable according to its terms; (d) it is subject to
no discount, allowance or special terms of payment, except for ordinary trade
discounts and allowances for prompt payment, without the prior approval of the
Lender; (e) it is subject to no dispute, defense or offset, real or claimed; (f)
it is not subject to any prohibition or limitation upon assignment; and (g) the
Borrower has full right and power to grant the Lender a security interest
therein and the security interest granted in such Receivable to the Lender in
Section 3 hereof will be a valid first security interest which will inure to the
benefit of the Lender without further action. The warranties set out herein
shall be deemed to have been made with respect to each and every Receivable now
owned or hereafter acquired by the Borrower.
5.15 No portion of the Revolving Loans shall be used to purchase or carry
any "Margin Security" or "Margin Stock" as such terms are used in Regulations G
and U of the Board of Governors of the Federal Reserve System, 12 C.F.R. 207 and
221.
5.16 The Borrower is now in compliance and will in the future comply with
any and all of the requirements of Title 31 Section 3727 and Title 41 Section 15
of the United States Code where such statutes are applicable to a particular
Receivable, and shall take all such other action as may be necessary to
facilitate the direct collection of or ensure perfection of the Lender's
security interest in the Receivables at all times.
5.17 Except as previously disclosed to the Lender in writing, no
franchises, licenses, trademarks, trade names, copyrights or patents are owned
or licensed by, or registered in the name of, or have been applied for by, the
Borrower, and no such rights or agreements are necessary to the conduct of the
present business of the Borrower. The Borrower has no knowledge and has not
received any notice to the effect that any product it manufactures or sells, or
any service it renders, or any process, method, know-how, trade secret, part or
material it employs in the manufacture of any product it makes or sells or any
service it renders, or the marketing or use by it or another of any such product
or service, may infringe any trademark, trade name, copyright, patent, trade
secret or legally protectable right of any other Person.
5.18 The Borrower utilizes no tradenames in the conduct of its business,
except as stated above and has not changed its name, been the surviving entity
in a merger or acquired any business.
5.19 The Inventory is not now and shall not at any time hereafter be
stored with a bailee, warehouseman, or similar Person without the Lender's prior
written consent. If any Inventory is so stored, the Borrower will, concurrent
with storing such Inventory, cause any such bailee, warehouseman, or similar
Person to issue and deliver to the Lender, in a form acceptable to the Lender,
warehouse receipts in the Lender's name evidencing the storage of the Inventory.
All such warehouse receipts do and will evidence ownership of the Inventory
stored by the issuers thereof, and the holder thereof is and will continue to be
the owner of good and marketable title of same, free and clear of any liens or
encumbrances. All such warehouse
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receipts are and will be genuine, valid and enforceable by the holder thereof in
accordance with their terms and all statements thereon are and will be true and
accurate in all respects.
5.20 All Equipment is personalty and is not and will not be affixed to
real estate in such manner as to become a fixture or part of such real estate.
5.21 There are no strikes, work stoppages, material grievance proceedings
or other material controversies pending or, to the best of Borrower's knowledge,
threatened between the Borrower and any employees of the Borrower or any union
or other collective bargaining unit representing such employees. The Borrower
has complied and is in compliance with all laws relating to the employment of
labor, including, without limitation, provisions relating to wages, hours,
collective bargaining, occupational safety and health, equal employment
opportunities and the withholding of income taxes and social security
contributions, the non-compliance with which might materially adversely affect
its business, operations, prospects, assets, properties or condition (financial
or otherwise).
5.22 After giving effect to the transactions contemplated by this
Agreement, the Borrower (a) will have capital and assets sufficient to carry on
its business and all businesses in which it is engaged or about to be engaged,
(b) will be solvent and able to pay its debts and other liabilities, whether
fixed or contingent, as they mature, and (c) will own property the present fair
saleable value of which on a going concern basis (assuming an orderly
liquidation) is greater than the amount required to pay its debts and other
liabilities, whether fixed or contingent The Borrower does not intend to incur,
and does not believe that it is incurring obligations beyond its ability to pay
as they mature.
5.23 The foregoing representations and warranties are made by the Borrower
with the knowledge and intention that the Lender will rely thereon, are
continuing and are reaffirmed upon each advance under the Revolving Loan or
other loans authorized hereunder, and shall survive the execution and delivery
of this Agreement and the making of all loans hereunder.
6. Affirmative Covenants. The Borrower covenants and agrees that
until all of the Obligations have been paid in full, unless the Lender shall
otherwise consent in writing, it shall:
6.1 Maintain complete and accurate books of account and records pertaining
to the Collateral and the operations of the Borrower, and all such books of
account and records shall be kept and maintained at the location(s) set forth in
Schedule A attached hereto. The Borrower shall not move such books of account
and records without giving the Lender at least 30 days' prior written notice.
Prior to moving any of such books of account and records, the Borrower shall
execute and deliver to the Lender financing statements satisfactory to the
Lender. All such books of account and records and all financial statements and
reports furnished to the Lender shall be maintained and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods.
6.2 Grant the Lender, or its representatives, full and complete access to
all Collateral and to all books of account, records, correspondence and other
papers relating to the Collateral during normal business hours and the right to
inspect, examine, verify and make abstracts from and copies of the Collateral
and of such books of account, records, correspondence and other papers, and to
investigate such other activities and business of the Borrower as they may deem
necessary or appropriate at the time.
6.3 Deliver to the Lender:
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(a) Within 20 days after the end of each calendar month of each
fiscal year, unaudited financial statements, including a balance sheet and
related profit and loss statements, for such month prepared by the Borrower's
chief financial officer.
(b) Within 90 days after the end of each of the Borrower's fiscal
years, reviewed or audited financial statements (as the Lender may request),
including a balance sheet and related profit and loss statements, for such year
prepared by independent certified public accountants acceptable to the Lender.
Subject to the time limitations set forth above, the Borrower shall instruct
such accountants to deliver a copy of such financial statements, with all
opinions, statements and management letters provided to the Borrower by such
accountants, directly to the Lender at the time such financial statements are
delivered or exhibited to the Borrower.
(c) As soon as available, but in no event more than ten (10) days
after the end of each month, a written schedule in form satisfactory to the
Lender listing or otherwise describing the status of the Borrower's performance
and schedule for completion of each Government Contract which is or may become
the subject of a Receivable.
(d) No less frequently than once per year, the personal financial
statements of the Guarantor, in each case setting forth in appropriate detail on
forms provided by the Lender his assets, liabilities and income as of the end of
such year, certified by him to be true and correct and to accurately reflect his
financial condition as of the date thereof.
(e) Such other financial and business information and reports in
form and substance satisfactory to the Lender as and when the Lender may from
time to time reasonably request.
6.4 While this Agreement remains in effect and until the Obligations have
been paid in full, (a) maintain its corporate existence in good standing; (b)
make no change in the nature or character of its business or engage in any
business in which it was not engaged on the date of this Agreement; and (c)
maintain and keep in full force and effect all franchises, licenses and permits
necessary to the proper conduct of its business.
6.5 Maintain and keep all of its properties, real and personal, in good
working order, condition and repair and insure and keep insured all such
properties at all times against loss or damage by fire, theft, and such other
risks and hazards as are customarily insured against by corporations in similar
circumstances, or as the Lender may specify from time to time, with insurers, in
amounts and under policies acceptable to the Lender, and insure against loss or
damage from business interruption on account of fire or other casualty and
against liability on account of property damage and personal injury and under
all applicable worker's compensation laws, and against such other risks as the
Lender may reasonably request, with insurers, in amounts and under policies
reasonably acceptable to the Lender. If the Borrower fails to do so, the Lender
may obtain (but shall be under no obligation to do so) such insurance and add
the cost thereof to the Obligations. The Borrower agrees that, if any loss
should occur, the proceeds of all such insurance policies that relate to the
Collateral (the "Lender's Policies") may be applied to the payment of all or any
part of the Obligations, as the Lender may direct. At the Lender's request, the
Borrower shall deliver to the Lender the original (or certified copy) of each of
the Lender's Policies and evidence of payment of all premiums therefor. The
Lender's Policies shall contain an endorsement, in form and substance acceptable
to the Lender, showing loss payable to the Lender. Such endorsement or an
independent instrument furnished to the Lender shall provide that the insurer
will give the Lender at least 30 days' written notice before any such policy or
policies of insurance shall be altered or canceled and that no act of default of
the Borrower or any person shall affect the right of the Borrower to recover
under the Lender's Policies in case of loss of damage. The
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Borrower hereby directs all insurers under the Lender's Policies to pay all
proceeds payable thereunder directly to the Lender. The Borrower irrevocably
makes, constitutes and appoints the Lender (and all officers, employees or
agents designated by the Lender) as the Borrower's true and lawful attorney and
agent-in-fact for the purpose of making, settling and adjusting claims under the
Lender's Policies, endorsing the name of the Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies and for
making all determinations and decisions with respect to such policies.
6.6 Comply at all times with the provisions of all leases to which the
Borrower is a party or under which it occupies property, so as to prevent any
loss of forfeiture thereof or thereunder, provided, however, that the Borrower
may cancel, surrender or modify any lease or contest in good faith any provision
thereof if such action is deemed advantageous to its business and if no
forfeiture, other than reasonable settlement payments in connection with such
surrenders or cancellations, under any such lease results therefrom.
6.7 (a) Pay the Obligations as they become due or upon demand of
the Lender;
(b) Pay all indebtedness and obligations in accordance with their
terms and pay all taxes, assessments and governmental charges lawfully levied or
imposed on or against the Borrower or its properties prior to the date when such
taxes, assessments or charges shall become delinquent, unless the Borrower shall
contest the validity thereof in good faith and shall post any bond or other
security required by applicable law or by the Lender against the payment
thereof.
6.8 Comply with all federal, state and local laws including, but not
limited to requirements of Environmental Laws applicable to its business,
whether now in effect or hereafter enacted, and upon request of the Lender, the
Borrower will provide the Lender with such evidence of compliance as the Lender
may reasonably request.
6.9 If required, comply with Section 1809 of the Small Business Act
relating to I.R.S. Code Section 6302(h)(2)(C)(i)(iv) and (ii)(iv) or deposit
with a bank insured by the Federal Deposit Insurance Corporation or any
successor thereto, when due, all F.I.C.A. and withholding taxes and such other
taxes as may from time to time be owing, comply with all requirements of the
Lender with respect thereto and furnish the Lender with such proof of payment
thereof as the Lender may from time to time request.
6.10 Qualify as a foreign corporation and obtain all requisite licenses
and permits in each state in which the failure of the Borrower to so qualify
would have a material adverse effect on its business, operations, properties,
assets or financial condition.
6.11 At the request of the Lender, take the necessary or appropriate steps
to file and perfect, at the Borrower's expense, any lien, judgment, claim or
lawsuit that may be available to the Borrower under the laws of the applicable
jurisdiction in the event that any Receivable is not paid within 60 days after
its due date.
6.12 Defend the Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein and pay all costs and
expenses (including Reasonable Attorneys' Fees) incurred in connection with such
defense.
6.13 Promptly notify the Lender of any condition or event that
constitutes, or with the running of time, the giving of notice, or both, would
constitute, an Event of Default, and promptly inform the Lender of any material
adverse change in the financial condition of the Borrower or of the Guarantor.
6.14 Promptly notify the Lender in writing of any action or omission of
the Lender which the Borrower claims caused or may cause injury, loss or damage
to the Borrower. Failure of the Borrower to so
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notify the Lender of such claim within thirty (30) days after the Borrower
determines that it has such claim shall constitute a waiver of such claim.
6.15 Immediately notify the Lender of any change in the location of any of
the Borrower's places of business or the opening of any new place of business.
6.16 At the request of the Lender, execute and deliver such financing
statements, documents and instruments, and perform all other acts as the Lender
deems necessary or desirable, to perfect or continue the perfection of the
Lender's security interest in the Collateral, and pay, upon demand, all expenses
(including Reasonable Attorneys' Fees, filing fees and taxes) incurred by the
Lender in connection therewith.
6.17 At the request of the Lender, make available to the Lender a copy of
each Government Contract and a copy of each amendment thereto or modification
thereof which changes the price of such contract or the amount funded to pay for
such contract, except to the extent that furnishing such copies may be
prohibited by government security regulations.
6.18 At the request of the Lender, submit to the Lender for the Lender's
approval those Government Contracts which the Borrower desires to be included in
determining Eligible Government Accounts, and provide such other information
concerning such Government Contracts as the Lender may reasonably request. The
Lender shall not unreasonably delay or withhold its response regarding the
Lender's approval of such Government Contracts.
6.19 Promptly after the furnishing thereof, provide to the Lender copies
of any statement or report furnished to any other Person pursuant to the terms
of any indenture, loan, credit, or similar agreement and not otherwise required
to be furnished to the Lender pursuant to any other Section of this Agreement.
Promptly after the sending or filing thereof, provide to the Lender copies of
all proxy statements, and reports which the Borrower or any Affiliate sends to
its stockholders, and copies of all regular, periodic, and special reports, and
all registration statements which the Borrower files with the authority which
may be substituted therefor, or with any national securities exchange.
6.20 Prepare, execute, and file appropriate financing statements with
respect to any consigned Inventory showing the consignee as debtor, the Borrower
as secured party, and the Lender as assignee of the Borrower;
6.21 Not permit any item of the Equipment to become a fixture to real
estate or an accession to other property without the prior written consent of
the Lender, and the Equipment is now and shall at all times remain personal
property except with the Lender's prior written consent. If any of the Equipment
is or will be attached to real estate in such a manner as to become a fixture
under applicable state law and if such real estate is encumbered, the Borrower
will obtain from the holder of each lien or encumbrance a written consent and
subordination to the security interest hereby granted, or a written disclaimer
of any interest in the Equipment, in a form acceptable to the Lender.
6.22 Promptly, upon request by the Lender, deliver, assign, and endorse to
the Lender all chattel paper, instruments, promissory notes and all other
documents held by the Borrower in connection therewith.
6.23 With respect to all property owned, subleased, operated or occupied
by the Borrower, maintain and cause all operators, tenants, subtenants,
licensees and occupants of all such property to maintain such property free of
all Hazardous Materials, and prevent all such property from being used for the
manufacture, generation, production, processing, distribution, use, treatment,
storage, disposal, transport or
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handling of any Hazardous Materials; and deliver to the Lender copies of all
reports prepared by any governmental authority, any environmental auditor or
engineer, or any other person, relating to or in connection with the Borrower's
compliance with any Environmental Laws, unless the Borrower cannot obtain such
reports or copies thereof.
6.24 Sell or dispose of the Inventory only to buyers in the ordinary
course of business. Upon the sale, exchange, lease or disposition of Inventory,
the security interest of the Lender therein shall without breach in continuity
and without further formality or act continue in and attach to all cash and
non-cash proceeds of such sale, exchange, lease or disposition, including all
the instruments for the payment of money, Receivables, contract rights,
documents of title, shipping documents and chattel paper, and all Inventory
returned or rejected by customers or repossessed by the Borrower or by the
Lender. As to any such sale, exchange, lease or disposition, the Lender shall
have all of the rights of an unpaid seller, including stoppage in transit,
replevin, detinue and reclamation.
6.25 Immediately notify the Lender of any change in location of any of the
Inventory not in the ordinary course of business, and, prior to any such change,
execute and deliver to the Lender such financing statements satisfactory to the
Lender as the Lender may request. The Borrower, at its sole expense, will defend
the Inventory against any claims or demands adverse to the Lender's interest
therein, and will promptly pay, when due, all taxes or assessments levied
against the Borrower on the Inventory other than those contested by the Borrower
in good faith by appropriate proceedings. If the Borrower shall fail to pay such
taxes or assessments, or fail to keep the Inventory free from any lien or
security interest in favor of anyone other than the Lender, the Lender may (but
shall not be obligated to) make expenditures for such purposes and any amounts
so expended shall be added to the Obligations, shall be repayable on demand and
shall accrue interest at the rate specified in Section 2.2 (e) until repaid.
6.26 Report, in form satisfactory to the Lender, such information as the
Lender may reasonably request regarding the Inventory. Such reports shall be for
such period, shall reflect the Borrower's records as at such time and shall be
rendered with such frequency as the Lender may designate, and each such report
shall confirm that all Inventory reported upon is subject to the Lender's
security interest.
6.27 Advise the Lender promptly, in sufficient detail, of any substantial
change relating to the type, quantity or quality of the Inventory, or any event
which would have a material adverse effect on the value of the Inventory or on
the security interest granted to the Lender herein. A physical listing of all
Inventory, wherever located, shall be taken by the Borrower whenever reasonably
requested by the Lender, and a copy of such physical listing will be supplied to
the Lender. Such listing shall be extended to show the value of such Inventory
at the lowest wholesale price. The Lender may examine and inspect the Inventory
at any reasonable time.
6.28 Pay to the Lender, the Lender's customary Field Examination and Audit
Fees as set forth on Schedule A attached hereto.
6.29 At the request of the Lender, execute and deliver a Lockbox Agreement
to the Lender and comply with the terms thereof.
7. Negative Covenants. The Borrower covenants and agrees that until
the Obligations have been paid in full, unless the Lender shall consent in
advance in writing, it shall not:
7.1 Discontinue its business, sell a material part of its assets or
liquidate or sell, transfer, assign or otherwise dispose of any of the
Collateral, provided, however, that it may sell in the ordinary course of
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business and for a full and adequate consideration in money or money's worth,
any product, merchandise or service produced, marketed or furnished by it.
7.2 Sell (except for the sale of Inventory in the ordinary course of
business), assign, pledge, grant a security interest in any of the Collateral,
whether now owned or hereafter acquired, except for Permitted Liens.
7.3 (a) Make any loans to any Person, including any of its officers,
directors or stockholders or (b) repay any existing loans made to it by its
officers, directors or stockholders.
7.4 (a) Declare or pay any dividends (except dividends payable solely in
shares of its capital stock) or make any other payments on its capital stock,
(b) issue, redeem, repurchase or retire, purchase or otherwise acquire any of
its capital stock now or hereafter outstanding, (c) grant or issue any warrant,
right or option pertaining thereto or other security convertible into any of the
foregoing, or make any distribution to its stockholders (other than as provided
herein) or set aside any sum or property for any such purpose; provided,
however, that if and for so long as the Borrower elects under Section 1362 of
the Internal Revenue Code to have the provisions of Subchapter S of the Internal
Revenue Code apply to the Borrower and its shareholders, then for so long as no
Event of Default, or any event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, become an Event of Default,
exits or would result therefrom, the Borrower may make cash distributions to its
shareholders equal to the federal and state income taxes payable by them on
taxable income of the Borrower based on the maximum statutory rate applicable to
the individual shareholders for the applicable tax year.
7.5 Compromise or discount any Receivable except for ordinary trade
discounts or allowances for prompt payment.
7.6 Consolidate or merge with any Person or acquire or purchase any equity
or interest in any other Person, including shares of stock of other
corporations, or acquire or purchase any assets or obligations of any other
entity, except that the Borrower is permitted to own notes and other Receivables
acquired in the ordinary course of business.
7.7 Change its name, do business under an assumed or trade name, or move
any of the Collateral to another location not permitted under this Agreement
without giving the Lender at least 30 days' prior written notice thereof and
executing and delivering to the Lender such financing statements satisfactory to
the Lender as the Lender may request.
7.8 Replace or terminate the individuals named in Schedule A attached
hereto as an officer or employee of the Borrower.
7.9 Enter into any sale-leaseback transaction, or incur indebtedness
except:
(a) The Obligations of the Borrower to the Lender.
(b) Unsecured current liabilities incurred in the ordinary
course of business.
(c) Indebtedness (not overdue) secured by Permitted Liens.
(d) Indebtedness under guarantees or for other contingent
liabilities to the extent permitted by this Agreement.
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(e) Indebtedness of the Borrower which has been subordinated to the
Obligations pursuant to a subordination agreement acceptable to the Lender.
7.10 (a) Lend or advance money, credit, or property to any Person or
Affiliate; (b) invest in (by capital contribution or otherwise), or purchase or
repurchase the stock or indebtedness, or all or a substantial part of the assets
or properties, of any Person; (c) or guarantee, assume, endorse, or otherwise
become responsible for (directly or indirectly or by any instrument having the
effect of assuring any Person's payment or performance) the indebtedness,
performance, obligations, stock, or dividends of any Person or Affiliate; or (d)
agree to do any of the foregoing except the endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
7.11 Incur, create, assume or permit to exist rental obligations or other
commitments under leases of real or personal property (except leases of
equipment in the ordinary course of business) other than under leases in effect
on the date of this Agreement.
8. Conditions for Closing and Advances. The Lender's obligations to
make any advance under the Revolving Loans or the Note are subject to the
following:
8.1 With respect to the initial advance, the Borrower shall have delivered
to the Lender the following and the following conditions precedent have been
satisfied in the sole discretion of the Lender:
(a) The Borrower's written authorization to deduct from the initial
advance the amount set forth in Schedule A attached hereto in payment of the
funding fee.
(b) This Agreement fully executed.
(c) The executed original Note required by Section 2.3 (b).
(d) The executed Guaranty Agreements required by Section 3.2.
(e) Landlord waivers in favor of the Lender and in form and content
satisfactory to the Lender executed by the owner of any premises leased by the
Borrower.
(f) Such executed financing statements or other documents which the
Lender may request in connection with the Collateral; evidence satisfactory to
the Lender that all filings under the Uniform Commercial Code or with any
federal or state agency or department that the Lender or its counsel deems
necessary or desirable in connection with the creation and perfection of the
security interest granted hereunder have been effected; and such other evidence
as the Lender may require that confirms that, as a result of such filings, the
Lender's security interest in the Collateral is consistent with the
representation contained in this Agreement relating thereto.
(g) If requested by the Lender, a Certificate of Good Standing
for the Borrower in the state of its incorporation.
(h) If requested by the Lender, a Certificate of the Borrower's
qualification to do business as a foreign corporation in the state(s) in which
the nature of its business or its properties makes such qualification necessary.
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<PAGE> 20
(i) A certificate of the President of the Borrower certifying to
such matters as the Lender may request as of the date of the closing, in form
and substance satisfactory to the Lender.
(j) A certificate of the Secretary of the Borrower certifying that
the copies of the Borrower's bylaws and articles of incorporation and other
charter documents attached hereto are true and correct copies of same as of the
date of the closing.
(k) Certified copy of resolutions of the Board of Directors of the
Borrower authorizing the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby, dated the date of the
closing.
(l) Certificates or endorsements evidencing the insurance
coverage required by Section 6.5 hereof.
(m) The written opinion of the Borrower's and Guarantor's counsel in
form and content satisfactory to the Lender and its counsel.
(n) Evidence satisfactory to the Lender that all past due federal,
state and local taxes owed by the Borrower have been paid in full or that there
is sufficient availability under Section 2.1 hereof to allow the Lender to make
such payment from the proceeds of the Revolving Loans.
(o) The fully completed and executed IRS Form 8821 with respect to
the Borrower.
(p) If requested by the Lender, the executed Lockbox Agreement.
(q) If requested by the Lender, the executed assignment or
assignments to the Lender of life insurance on the life of such individual(s)
and in such face amount as the Lender may request, together with evidence of
acceptance of such assignment(s) by the issuing company or companies.
(r) If requested by the Lender, executed deeds of trust, mortgages
or other instruments in form acceptable to the Lender which, when recorded,
shall create a lien on such real property with such priority and securing such
amount of the Obligations as determined by the Lender.
(s) If requested by the Lender, fully executed subordination and
intercreditor agreements in form acceptable to the Lender executed by such
Persons as determined by the Lender.
(t) All such other documents, receipts, certificates, instruments or
information as the Lender or its counsel may request.
(u) There shall exist no Event of Default (as hereinafter defined)
and no event which, upon the giving of notice or lapse of time or both, would
constitute an Event of Default.
(v) The representations and warranties contained in this
Agreement shall be true and correct.
(w) If required by the Lender, the Lender shall have conducted a
follow-up field examination with respect to the Borrower's assets and the
results of such field examination are in all respects satisfactory to the
Lender.
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(x) The Lender shall have determined in good faith that no material
adverse change has occurred in the total financial condition of the Borrower or
the Guarantor from the financial condition of the Borrower or the Guarantor, as
the case may be, as set forth in the most recent financial statements furnished
to the Lender and as previously disclosed to the Lender.
8.2 All future advances of the Revolving Loan will be made from time to
time in the absolute discretion of the Lender, and neither this Agreement nor
any other action by the Lender shall obligate the Lender to make future loans or
advances to the Borrower. Future advances under the Revolving Loan shall be
further conditioned upon the following:
(a) The Borrower shall have delivered to the Lender such other
agreements, certificates, instruments, opinions and other documents and
materials as the Lender may reasonably request.
(b) The Borrower and the Guarantor shall have complied and shall
then be in compliance with all terms, covenants and conditions of this
Agreement.
(c) There shall exist no Event of Default and no event which, upon
notice or lapse of time or both, would constitute an Event of Default.
(d) The representations and warranties contained in this
Agreement shall be true and correct.
(e) The Lender shall have determined in good faith that no material
adverse change has occurred in the total financial condition of the Borrower or
the Guarantor from the financial condition of the Borrower or the Guarantor, as
the case may be, as set forth in the most recent financial statements furnished
to the Lender pursuant to this Agreement or from the financial condition of the
Borrower or the Guarantor, as the case may be, previously disclosed to the
Lender in any other manner.
9. Events of Default and Remedies.
9.1 The following shall constitute Events of Default under this Agreement:
(a) The failure of the Borrower to pay when due any of the
Obligations.
(b) The failure of the Borrower to observe or perform any
affirmative or negative covenant contained in any of the Loan Documents.
(c) The discovery that any representation or warranty at any time
made in or in connection with any of the Loan Documents, was in any material
respect false at the time it was made.
(d) The occurrence of a default (as described or defined therein)
under any other indebtedness or liability for borrowed money of the Borrower or
the Guarantor (other than the Revolving Loans) if the effect of such default is
to accelerate the maturity of such evidence of indebtedness or liability or to
permit the holder thereof to cause any indebtedness to become due prior to its
stated maturity.
(e) The suspension by the Borrower or any Guarantor of the operation
of its present business or a material adverse change (in the reasonable opinion
of the Lender) in the nature of its business; the admission in writing by the
Borrower or any Guarantor of its inability to pay its debts as they mature; the
permitting of a receiver or trustee to be appointed for all or substantially all
of its assets and, if appointed without its consent, the failure to cause such
receiver or trustee to be discharged within 60 days; the instituting
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<PAGE> 22
by the Borrower or any Guarantor of proceedings under any law, state or federal,
relating to bankruptcy, insolvency or any reorganization or arrangement for the
relief of debtors or, if any such proceedings are instituted against it, the
failure to cause such proceedings to be dismissed or stayed within 60 days.
(f) The validity or enforceability of any of the Loan Documents
shall be contested by the Borrower or the Guarantor or the Borrower or the
Guarantor shall deny that it has any liability or obligation hereunder.
(g) The validity or enforceability of any Guaranty Agreement shall
be contested by the Borrower or the Guarantor shall deny that he has any current
or future liability or obligation thereunder, or shall fail to perform his
obligations thereunder.
(h) The loss, theft, damage, or destruction of any material portion
of the Collateral for which there is either no insurance coverage or for which,
in the opinion of the Lender, there is insufficient insurance coverage.
(i) The Borrower makes any payment on account of indebtedness that
has been subordinated to any of the Obligations, other than payments
specifically permitted by the terms of such subordination.
(j) Any Person holding indebtedness that has been subordinated to
the Obligations dies, terminates the subordination agreement or asserts that it
is terminated, or becomes the subject of an insolvency proceeding, or such
Person dies and the subordination of such indebtedness is revoked, terminated or
is otherwise no longer effective.
(k) The filing against the Borrower of formal charges under any
federal or state law for which forfeiture of any part or all of the Collateral
is a part of the potential penalty and such charges are not dismissed within 90
days of the date of filing thereof.
9.2 Upon the occurrence of an Event of Default, the Lender at its option
may: (i) make no further advances under the Revolving Loan; (ii) terminate this
Agreement and declare the Obligations of the Borrower immediately due and
payable and exercise all of its rights and remedies against the Borrower and any
Collateral; (iii) exercise all rights granted to a secured party under the UCC ,
under applicable law, or otherwise or granted to the Lender herein. The Lender
shall have the right to require the Borrower to assemble any Collateral and make
such Collateral available at a location or locations designated by the Lender.
The Lender may foreclose its lien and security interest in the Collateral in any
way permitted by law. The Lender may enter the Borrower's premises without legal
process and without incurring a liability to the Borrower, if this can be done
without breach of peace, and remove the Collateral to such place or places as
the Lender may deem advisable, or the Lender may require the Borrower to make
the Collateral available to the Lender at a convenient place and, with or
without having the Collateral at the time or place of sale, the Lender may sell
or otherwise dispose of all or any part of the Collateral whether in its then
condition or after further preparation or processing, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, at any time or place, in one or more sales, and upon such terms and
conditions as the Lender may elect. In any such sale the Lender may be the
purchaser; (iv) take possession or control of, store, lease, operate, manage,
sell or otherwise dispose of all of any part of the Collateral; (v) notify all
parties under the contracts, accounts and Receivables forming all or any part of
the Collateral to make any payments due to the Borrower from such parties
directly to the Lender; (vi) in the Lender's own name, or in the name of the
Borrower, demand, collect, receive, sue upon or otherwise collect, extend the
time of payment of, or compromise or settle for cash, credit or otherwise upon
any terms, any of the Receivables or any securities, instruments or insurance
applicable thereto and/or release the obligor thereon; (vii) endorse as the
agent of
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the Borrower any chattel paper, documents, or instruments forming all or any
part of the Collateral; (viii) make formal application for the transfer of all
of the Borrower's permits, licenses, approvals, agreements, and the like
relating to the Collateral or to the Borrower's business to the Lender or to any
assignee of the Lender or to any purchaser of any of the Collateral; (ix) use
and operate any Equipment or other property of the Borrower to process or finish
any Inventory; (x) pay, purchase, contest, or compromise any encumbrance,
charge, or lien that, in the opinion of the Lender, appears to be prior or
superior to its Lien and pay all expenses incurred in connection therewith; (xi)
prepare and file any bankruptcy proofs of claim or similar documents against any
Account Debtor; (xii) take any other action which the Lender deems necessary or
desirable to protect and realize upon its security interest in the Collateral;
(xiii) in addition to the foregoing, and not in substitution therefor, take such
measures as it deems necessary or advisable to refurbish, repair, improve,
process, finish, operate, demonstrate, and prepare for sale the Collateral and
may store, ship, reclaim, recover, protect, advertise for sale or lease, and
insure the Collateral and exercise any one or more of the rights and remedies
exercisable by the Lender under other provisions of this Agreement, under the
Note, or provided by applicable law (including, without limitation, the UCC);
(xiv) obtain appointment of a receiver for all or any of the Collateral, the
Borrower and Guarantor hereby consenting to the appointment of such a receiver
and each agreeing not to oppose any such appointment. Any receiver so appointed
shall have such powers as may be conferred by the appointing authority including
any or all of the powers, rights and remedies which the Lender is authorized to
exercise by this Agreement, the Note and the Guaranty and shall have the right
to incur such obligations and to issue such certificates therefor as the
appointing authority shall authorize.
9.3 Any notices required under the UCC with respect to the sale or other
disposition of the Collateral shall be deemed reasonable if mailed by the Lender
to the Persons entitled thereto at their last known address at least five (5)
days prior to disposition of the Collateral and, in the case of a private sale
of Collateral, need state only that the Lender intends to negotiate such a sale.
9.4 The proceeds of any sale or disposition of the Collateral by the
Lender shall first be applied to the payment of all costs and expenses incurred
by the Lender in taking possession of, removing, storing, repairing or otherwise
preparing for sale and selling the Collateral (including the Lender's reasonable
attorney's fees and other legal costs and expenses). After payment of all such
costs and expenses, the Lender shall have the right to apply the remaining
proceeds of any such sale or disposition to the payment of the Obligations in
such order of application as the Lender may, in its sole discretion, elect.
9.5 The rights, options and remedies of the Lender shall be cumulative and
no failure or delay by the Lender in exercising any right, option or remedy
shall be deemed a waiver thereof or of any other right, option or remedy, or
waiver of any Event of Default hereunder.
9.6 In addition to the provisions of Section 9.2, it is expressly
understood and agreed between the Borrower and the Lender that default (which
shall include any failure by the Borrower to pay on demand any Obligation
payable on demand by it to the Lender) by the Borrower, beyond any applicable
grace period, on any other loans, indebtedness, liabilities or obligations of
the Borrower to the Lender or to any other Person (other than suppliers and
vendors in the ordinary course of business), now existing or hereafter arising,
regardless of how they arise or by what contract, agreement or instrument they
may be evidenced, or whether evidenced by any contract, agreement or instrument,
shall, at the Lender's option, if such default results in the acceleration of
any such indebtedness, liabilities or obligations, constitute an Event of
Default hereunder and a default on all such other loans, indebtedness,
liabilities or obligations of the Borrower to the Lender.
9.7 The Borrower, having knowledge that it may be entitled to notice and a
hearing prior to repossession of the Collateral, hereby waives any right it may
have under existing or future law to notice of foreclosure or of any other act
described herein, to any hearing that may be held relating to foreclosure or any
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other such act, and to any notice that may be required to be given by the Lender
prior to such hearing. The Borrower hereby expressly releases the Lender and its
agents from any and all liability relating to such foreclosure and any other
acts described herein unless occasioned by the Lender's gross negligence or
willful misconduct.
10. Destruction of Documents. Any documents, schedules, invoices or other
papers delivered to the Lender by the Borrower may be destroyed or otherwise
disposed of by the Lender three months after they are delivered to or received
by the Lender, unless the Borrower requests prior to delivery, in writing, the
return of said documents, schedules, invoices or other papers and makes
arrangements, at the Borrower's expense, for their delivery to the Borrower.
11. Indemnification. The Borrower, its successors and assigns, agrees at
its sole cost and expense to defend, indemnify and hold harmless the Lender, its
directors, officers, employees, agents, contractors, subcontractors, licensees,
invitees, successors and assigns, from and against any and all claims, demands,
judgments, damages, actions, causes of action, injuries, administrative orders,
consent agreement and orders, liabilities, penalties, costs, and expenses of any
kind whatsoever (including claims arising out of loss of life, injury to
persons, property or business or damage to natural resources) in connection with
the activities of the Borrower, its successors and assigns, its predecessors in
interest, or third parties who have trespassed on the Borrower's premises,
suppliers to the Borrower, the Guarantor or parties in contractual relationship
with the Borrower, its successors and assigns, or any of them, whether or not
occasioned wholly or in part by any condition, accident or event caused by any
act or omission of the Lender, its directors, officers, employees, agents,
contractors, subcontractors, licensees, invitees, successors and assigns which
arises out of the violation or alleged violation of any Environmental Law. The
Borrower, its successors and assigns shall assume the burden and expense of
defending all suits, administrative proceedings, and negotiations of any
description, with any and all Persons arising out of any of the occurrences set
forth herein. The terms and conditions of this Section shall survive the payment
of the Obligations and termination of this Agreement.
12. Jurisdiction, Venue and Waiver of Jury Trial.
12.1 The forum having the proper jurisdiction and venue to adjudicate any
claim, dispute or default which may arise out of the execution and delivery of
this Agreement and the performance of the transactions contemplated hereby shall
be the Circuit Court of the City of Richmond, Virginia, and the proper appellate
courts of the Commonwealth of Virginia, and the United States District Court for
the Eastern District of Virginia, Richmond Division, and proper appellate courts
of the United States, unless the Lender in its sole discretion chooses to bring
suit on its own behalf in some other court of competent jurisdiction. The
Borrower expressly submits and consents to such jurisdiction and venue and
specifically waives any and all rights it may have to contest the jurisdiction
and/or venue of the above mentioned forums and to demand any other forum. The
Borrower waives personal service of any and all legal process upon it and
consents and agrees that all such service may be made by Certified Mail directed
to the Borrower at its address set forth at the beginning of this Agreement,
Attention: President, and service so made shall be deemed to be completed and
effective service of process on the earlier of the date the return receipt
therefor is signed or five Business Days after the same shall have been
deposited in the United States mail, certified and postage prepaid.
12.2 THE BORROWER WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ON ANY MATTER ARISING OUT OF THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED HEREBY.
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THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER,
AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER REPRESENTS THAT IT
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
13. Collection Costs. All costs and expenses, including, without
limitation, reasonable attorneys' fee and legal expenses and the cost of annual
financing statement, judgment and tax lien searches, incurred by the Lender in
connection with obtaining or enforcing payment of any of the Obligations or
foreclosing the Lender's security interest in any of the Collateral or lien
against the Borrower's real estate, whether through judicial proceedings or
otherwise, or in collecting, enforcing or protecting its interests under this
Agreement, or under any other instruments or documents delivered pursuant
hereto, or in defending or prosecuting any actions or proceedings arising out of
or relating to the Lender's transactions with the Borrower, shall be paid by the
Borrower to the Lender, upon demand, and the Lender may take judgment against
the Borrower for all such costs, expenses and fees in addition to all other
amounts due from Borrower hereunder.
14. Expenses. The Borrower shall pay to the Lender all reasonable expenses
of the Lender incurred in connection with the preparation of this Agreement
(including all Exhibits and any and all amendments or modifications hereto) and
the closing and making of the Revolving Loans, including reasonable fees and
expenses of the Lender's counsel, and all filing, recording and other costs
connected with the perfection of the Lender's security interests and liens
pursuant to Section 3 hereof. All such costs and expenses until paid shall be
included in the Obligations or deducted from any amount due the Borrower. The
Borrower agrees that the attorneys retained by the Lender shall represent only
the interests of the Lender.
15. Waivers and Releases. The Borrower and each endorser, guarantor and
surety for any of the Obligations hereby (a) waives notice of nonpayment,
demand, presentment, protest and notice of protest with respect to any of the
Obligations, the Collateral, or notice of acceptance hereof, or of any other
action taken in reliance hereon, notice and opportunity to be heard before
exercise by the Lender of the remedies of self-help, set-off, or other summary
procedures permitted by law or by any agreement with the Borrower, and all other
demands and notices of any description, except such as are expressly provided
for herein, and (b) releases the Lender from all claims for loss or damage
caused by any act or failure to act on the part of the Lender, its officers,
attorneys, agents and employees, except any such act or failure to act which
arises out of the gross negligence or willful misconduct of the Lender, its
officers, attorneys, agents or employees.
16. Miscellaneous.
16.1 All notices, consents, requests, demands, or other communications
provided for in this agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) by facsimile or sent by the United States mail, certified, postage
prepaid, return receipt requested, to the Lender or the Borrower, as the case
may be, at their respective addresses set forth at the beginning of this
agreement and to the attention of LOAN ADMINISTRATION DIVISION in the case of
the Lender and to the attention of the person as set forth in Schedule A
attached hereto, in the case of the Borrower. Any notice, request, demand or
other communication delivered or sent in the foregoing manner shall be deemed
given or made (as the case may be) upon the earliest of (a) the date it is
actually received, (b) on the Business Day after the day on which it is
delivered by hand, (c) on the Business Day after the day on which it is properly
delivered to Federal Express (or a comparable overnight
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delivery service), or (d) on the third Business Day after the day on which it is
deposited in the United States mail. The Borrower or the Lender may change its
address by notifying the other party of the new address in any manner permitted
herein. Rejection or other refusal to accept or the inability to deliver because
of a changed address of which no notice was given shall not affect the date of
such notice, election or demand sent in accordance with the foregoing
provisions.
16.2 If, at any time after payment in full by the Borrower of all
Obligations and termination of the Lender's liens, any payments on the
Obligations previously made by the Borrower or any other person must be
disgorged by the Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy, or reorganization of the Borrower or
such other person), this Agreement and the Lender's liens granted hereunder
shall be reinstated as to all disgorged payments as though such payments had not
been made, and the Borrower shall sign and deliver to the Lender all documents
and things necessary to reperfect all terminated liens.
16.3 Unless sooner terminated by the Lender under the terms of this
Agreement, the term of this Agreement (the "Term") shall be the period set forth
on Schedule A attached hereto. The Term shall automatically renew from year to
year thereafter unless the Borrower terminates the Agreement by giving the
Lender 60 days prior written notice. The Borrower shall pay annually to the
Lender a fee (the "Annual Fee") in the amount set forth on Schedule A attached
hereto. If the Borrower elects to terminate this Agreement prior to the end of
the initial or any renewal Term, the Borrower shall pay to the Lender in
addition to the Obligations then due under this Agreement, a prepayment premium
equal to the amount set forth on Schedule A attached hereto. The termination of
this Agreement shall not affect the rights of either party or the Obligations
arising prior to the effective date of such termination, and the provisions
hereof and the security interests granted to the Lender hereunder shall continue
in full force and effect, notwithstanding the fact that the Borrower's account
may from time to time temporarily have a credit balance, until all of the
Obligations and other liabilities of the Borrower, including, without
limitation, the Borrower's liability for F.I.C.A. and withholding taxes, have
been paid in full or the Borrower has furnished the Lender with an
indemnification satisfactory to it with respect thereto. All representations,
warranties, covenants, waivers and agreements contained herein shall survive the
termination hereof unless otherwise provided.
16.4 This Agreement and Schedule A annexed hereto together with any
Addendum hereto shall constitute the entire agreement of the parties hereto and
no provision of this Agreement, including the provisions of this Section, may be
modified, deleted or amended in any manner except by agreement in writing
executed by the parties. All terms of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, provided, however, that the Borrower shall
not assign or transfer its rights hereunder without the prior written consent of
the Lender.
16.5 This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to its rules with respect to
choice of law. All references in this Agreement to the single number and neuter
gender shall be deemed to mean and include the plural number and all genders,
and vice versa, unless the context shall otherwise require.
16.6 The underlined headings contained herein are for convenience only and
shall not affect the interpretation of this Agreement.
16.7 A carbon, photographic or other reproduction of this Agreement or any
financing statement signed by the Borrower in connection with this Agreement
shall be sufficient as a financing statement.
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16.8 This Agreement may be executed in more than one counterpart, each of
which shall be deemed an original.
16.9 All claims, liabilities and obligations of the parties arising out of
or in connection with the Obligations and the transactions contemplated by this
Agreement shall be fully and finally released and extinguished upon payment in
full of all of the Borrower's Obligations hereunder and the termination of this
Agreement.
16.10 The terms and conditions contained in any Addendum hereto shall be
incorporated herein by reference.
The Borrower and the Lender each has caused this Agreement to be duly
executed and delivered by its proper and duly authorized officer as of the day
and year first above written.
ATTEST: ACCESS BEYOND, INC.
Mark Fields By: Ronald A. Howard
- --------------------------- ----------------------------
Title: C.E.O.
- --------------------------- ----------------------------
FOOTHILL CAPITAL CORPORATION
By: David Nelson
----------------------------
Title: Vice President
----------------------------
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SCHEDULE A TO LOAN AND SECURITY AGREEMENT BETWEEN
ACCESS BEYOND, INC. AND FOOTHILL CAPITAL CORPORATION
DATED OCTOBER 2, 1997
Invoice Eligibility Days (Section 1.7): 60 days from invoice due date up to a
maximum of 90 days from invoice date
Guarantors (Section 1.15): N/A
Limit on Purchase of Equipment (Section 1.24(b)): $25,000.00
Eligible Receivables Percentage (Section 2.1(a)): . In the event the
Borrower's merger with Hayes does not occur by on or before January 31, 1998,
under the same or substantially similar terms as set forth in the Borrower's
press release dated July 30, 1997, the Eligible Receivable Percentage shall be
reduced to 70% effective on February 1, 1998.
Eligible Inventory Percentage (Section 2.1(b)): N/A
Eligible Government Accounts Percentage (Section 2.1(c)): N/A
Revolving Loan Secured By Eligible Inventory (Section 2.2(b)): N/A
Revolving Loans Maximum Principal (Section 2.2(c)): $3,000,000.00
Interest Rate on Revolving Loans (Section 2.2(e)): one-half percent (1/2%) over
the Reference Rate.
Interest Payment Date on Revolving Loans (Section 2.2(e)): _____________, 1997
Default Rate of Interest on Revolving Loans (Section 2.2(f)): N/A
Float Days (Section 2.2(g)): four (4) Business Days
Service Fee (Section 2.2(h)): The greater of $2,000.00 or 1/3% times the
average principal amount of Revolving Loans outstanding during each calendar
month.
Principal Amount of Other Loans (Section 2.3): $ N/A
Use of Proceeds of Other Loans (Section 2.3(a)): N/A
Maturity Date of Other Loans (Section 2.3(b)): N/A
Interest Rate on Other Loans (Section 2.3(c)): N/A
Interest Payment Date on Other Loans (Section 2.3(c)): N/A
Default Rate of Interest on Other Loans (Section 2.3(d)): N/A
Service Fee on Other Loans (Section 2.3(e)): N/A
Appraisal Fee on Other Loans (Section 2.3(f)): N/A
<PAGE> 29
Prepayment Fee on Other Loans (section 2.3(g)): N/A
Letter of Credit Limit (section 2.4): N/A
Location of Collateral (section 5.12 & section 6.1): 1300
Quince Orchard Boulevard, Gaithersburg, Maryland, 20878 and One Palmer Terrace,
Carlstadt, New Jersey, 07072
Location of Books of Account and Records (section 5.12 & section 6.1): 1300
Quince Orchard Boulevard, Gaithersburg, Maryland, 20878
Field Examination and Audit Fees: (section 6.28): $500.00 per day
Executive Management (section 7.8): Ronald A. Howard, James Gallagher, Mark
Field
Funding Fee (section 8.1(a)): $30,000.00
Notification Designee (section 16.1): Ronald A. Howard
Term (section 16.3): two (2) years
Prepayment Premium (section 16.3): In the event the Borrower's merger with
Hayes occurs on or before January 31, 1998 under the same or substantially
similar terms as set forth in the Borrower's press release dated July 30,
1997, the prepayment premium shall be the Service Fee times the remaining
months of the Term, provided, however, in the event the Borrower's merger with
Hayes does not occur by on or before January 31, 1998, under the same or
substantially similar terms as set forth in the Borrower's press release dated
July 30, 1997, then the prepayment premium shall be three percent (3%) of the
maximum principal amount of the Revolving Loans, if the Borrower elects to
terminate this Agreement during the first year after the date hereof or two
percent (2%) of the maximum principal amount of the Revolving Loans, if the
Borrower elects to terminate this Agreement during the second year after the
date hereof.
Annual Fee (section 16.3): one percent (1%) times the maximum aggregate
principal amount of Revolving Loans.
ATTEST: ACCESS BEYOND, INC.
By: Ronald A. Howard
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Its: C.E.O.
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FOOTHILL CAPITAL CORPORATION
By: David Nelson
- ----------------------------- -----------------------------
Its: Vice President
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