HYBRID NETWORKS INC, S-4, 1998-05-07

HYBRID NETWORKS INC
S-4, 1998-05-07

Previous: AT&T CAPITAL CORP /DE/, 424B5, 1998-05-07

Next: REXALL SUNDOWN INC, 424B4, 1998-05-07

<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

HYBRID NETWORKS, INC.

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3661 77-0252931
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification no.)
</TABLE>

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

10161 BUBB ROAD
CUPERTINO, CALIFORNIA 95014
(408) 725-3250

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------

CARL S. LEDBETTER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HYBRID NETWORKS, INC.
10161 BUBB ROAD
CUPERTINO, CALIFORNIA 95014
(408) 725-3250

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

EDWIN N. LOWE, ESQ. JAMES N. STRAWBRIDGE, ESQ.
JOHN W. KASTELIC, ESQ. BETSEY SUE, ESQ.
ROBERT A. FREEDMAN, ESQ. WILSON SONSINI GOODRICH & ROSATI
FENWICK & WEST LLP PROFESSIONAL CORPORATION
TWO PALO ALTO SQUARE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94304
(415) 494-0600 (415) 493-9300

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger described herein.
------------------------------

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, please check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(3) OFFERING PRICE(3) FEE(4)
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.................... 2,417,794(1) $1.763177508 $4,263,000 $1,258
Warrants to purchase Common Stock, $0.001 par
value........................................... Included above(2) Included above Included above Included above
</TABLE>

(1) Represents the maximum number of shares of the Common Stock of the
Registrant that may be issued pursuant to the merger described herein (the
"Merger"), consisting of (i) 2,016,055 shares of the Registrant's Common
Stock, (ii) 281,558 shares of the Registrant's Common Stock subject to
options and (iii) 120,181 shares of the Registrant's Common Stock subject to
warrants.

(2) The maximum number of shares of Common Stock of the Registrant that may be
issued upon the exercise of warrants that will, pursuant to the Merger, be
assumed by the Registrant and converted from warrants to purchase shares of
Common Stock, no par value, of Pacific Monolithics, Inc. ("Pacific"), is
included above (see subpart (iii) in note (1) above).

(3) Inasmuch as there is no market for the securities of Pacific to be received
by the Registrant or cancelled in the Merger, the maximum offering price per
unit and the maximum aggregate offering price are calculated, pursuant to
Rule 457(f)(2), using the book value of such securities computed as of the
latest practicable date: $4,263,000 which was the book value of Pacific as
of March 31, 1998.

(4) The amount of the registration fee includes $1,151.00 previously paid
pursuant to Section 14(g) of the Securities Exchange Act of 1934, as
amended, in connection with the filing by the Registrant of a Preliminary
Joint Proxy Statement/Prospectus related to the proposed Merger.
------------------------------

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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]

HYBRID NETWORKS, INC.

10161 Bubb Road
Cupertino, CA 95014

May [ ], 1998

Dear Hybrid Stockholder:

On behalf of the Board of Directors, I cordially invite you to attend the
1998 Annual Meeting of Stockholders (the "ANNUAL MEETING") of Hybrid Networks,
Inc. ("HYBRID") to be held at Hybrid's headquarters located at 10161 Bubb Road,
Cupertino, California 95014 on May 28, 1998 at 10:00 A.M.

Each of the matters expected to be acted upon at the Annual Meeting is
described in detail in the following Notice of Annual Meeting of Stockholders
and Joint Proxy Statement/Prospectus.

At the Annual Meeting, Hybrid stockholders will be asked to approve the
acquisition by Hybrid of Pacific Monolithics, Inc. ("PACIFIC") pursuant to an
Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") dated as
of March 19, 1998 whereby a wholly-owned subsidiary of Hybrid ("MERGER SUB")
will merge (the "MERGER") with and into Pacific.

Upon completion of the Merger:

- Pacific, as the surviving corporation in the Merger, will thereby become a
wholly-owned subsidiary of Hybrid;

- Each outstanding share of Pacific Common Stock and each outstanding share
of Pacific Preferred Stock will be converted into between 0.0688078 and
0.1117959 of a share of Hybrid Common Stock (the exact number will be
determined at the time of closing of the Merger and will be derived from
the "Closing Price" of Hybrid Common Stock as defined in the
Reorganization Agreement (the "EXCHANGE RATIO"));

- Ten percent of the shares of Hybrid Common Stock issuable to each of the
Pacific shareholders pursuant to the Merger will be deposited in escrow as
collateral for the indemnification obligations of the Pacific shareholders
under the Reorganization Agreement; and

- Each outstanding option or warrant to purchase Pacific Common Stock will
be assumed by Hybrid and adjusted according to the Exchange Ratio.

See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION" in
the accompanying Joint Proxy Statement/Prospectus.

A detailed description of the Reorganization Agreement and the proposed
Merger is set forth in the accompanying Joint Proxy Statement/Prospectus, which
you should read carefully.

AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF HYBRID HAS DETERMINED
THAT THE TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION AGREEMENT ARE IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF HYBRID. ACCORDINGLY, THE HYBRID BOARD OF
DIRECTORS HAS APPROVED THE REORGANIZATION AGREEMENT AND THE MERGER AND
RECOMMENDS THAT ALL HYBRID STOCKHOLDERS VOTE FOR THE ADOPTION AND APPROVAL OF
THE REORGANIZATION AGREEMENT AND THE APPROVAL OF THE MERGER.
<PAGE>
At the Annual Meeting, you also will be asked to (i) elect two Class I
directors of Hybrid, to serve from the time of their election and qualification
until the earlier of (A) their resignation, which will occur upon the
consummation of the Merger (whereupon the Hybrid Board will appoint two
directors of Pacific to replace such directors as Class I directors on the
Hybrid Board of Directors), or (B) the third annual meeting of stockholders
following election and until their respective successors have been elected and
duly qualified or until their respective earlier resignations or removals, (ii)
approve an amendment to Hybrid's 1997 Equity Incentive Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 500,000
shares, (iii) approve an amendment to Hybrid's 1997 Employee Stock Purchase Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 100,000 shares and (iv) ratify the selection of Coopers & Lybrand
L.L.P. as independent accountants for Hybrid for the fiscal year ending December
31, 1998.

The effectiveness of any of the proposals to be voted upon at the Annual
Meeting is not conditioned upon the approval of any of the other proposals by
the Hybrid stockholders.

Your vote on the business to be considered at the Annual Meeting is
important, regardless of the number of shares you own. WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE PRIOR TO THE ANNUAL
MEETING SO THAT YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING. Returning
the proxy does not deprive you of your right to attend the Annual Meeting and to
vote your shares in person.

We look forward to seeing you at the Annual Meeting.

Sincerely,

/s/ Carl S. Ledbetter

Carl S. Ledbetter

CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
HYBRID NETWORKS, INC.
10161 BUBB ROAD
CUPERTINO, CA 95014

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of Hybrid Networks, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "ANNUAL
MEETING") of Hybrid Networks, Inc., a Delaware corporation (the "COMPANY"), will
be held at the Company's headquarters located at 10161 Bubb Road, Cupertino,
California 95014 on May 28, 1998 at 10:00 A.M., local time, for the following
purposes:

1. To consider and vote upon the approval and adoption of (i) an Agreement and
Plan of Reorganization, dated as of March 19, 1998 (the "REORGANIZATION
AGREEMENT"), by and among the Company, HN Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company ("MERGER SUB"), and
Pacific Monolithics, Inc., a California corporation ("PACIFIC"), and (ii) an
Agreement of Merger between Merger Sub and Pacific (the "AGREEMENT OF
MERGER"). The Reorganization Agreement contemplates, among other things,
that (a) Merger Sub will merge (the "MERGER") with and into Pacific with the
result that Pacific will become a wholly-owned subsidiary of the Company,
(b) each outstanding share of Pacific Common Stock, no par value ("PACIFIC
COMMON STOCK"), and each outstanding share of Pacific Preferred Stock, no
par value ("PACIFIC PREFERRED STOCK"), will be converted into between
0.0688078 and 0.1117959 of a share of Hybrid Common Stock, par value $0.001
per share ("HYBRID COMMON STOCK") (the exact number will be determined at
the time of closing of the Merger and will be derived from the "Closing
Price" of Hybrid Common Stock as defined in the Reorganization Agreement
(the "EXCHANGE RATIO")), (c) ten percent of the shares of Hybrid Common
Stock issuable to each of the Pacific shareholders will be deposited in
escrow as collateral for the indemnification obligations of the Pacific
shareholders under the Reorganization Agreement and (d) each outstanding
option or warrant to purchase shares of Pacific Common Stock will be assumed
by Hybrid and adjusted according to the Exchange Ratio;

2. To elect two Class I directors of the Company, to serve from the time of
their election and qualification until the earlier of (i) their resignation,
which will occur upon the consummation of the Merger (whereupon the Board of
Directors will appoint two directors of Pacific to replace such directors as
Class I directors on the Board of Directors), or (ii) the third annual
meeting of stockholders following election and until their respective
successors have been elected and duly qualified or until their respective
earlier resignations or removals;

3. To approve an amendment to the Company's 1997 Equity Incentive Plan to
increase the number of shares of Hybrid Common Stock reserved for issuance
thereunder by 500,000 shares;

4. To approve an amendment to the Company's 1997 Employee Stock Purchase Plan
to increase the number of shares of Hybrid Common Stock reserved for
issuance thereunder by 100,000 shares;

5. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the fiscal year ending December 31, 1998;
and

6. To transact such other business as may properly come before the Meeting or
any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice. To ensure that your vote will be
counted, please complete, date and sign the enclosed proxy card and return it
promptly in the enclosed postage-paid envelope, whether or not you plan to
attend the Annual Meeting. You may revoke your proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus at any time before it is voted
at the Annual Meeting.
<PAGE>
In the event that there are not sufficient votes to approve and adopt the
Reorganization Agreement and to approve the Merger, it is expected that the
Annual Meeting will be postponed or adjourned in order to permit further
solicitation of proxies by Hybrid.

Only stockholders of record at the close of business on April 30, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof.

By Order of the Board of Directors,
/s/ Carl S. Ledbetter
Carl S. Ledbetter
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER

Cupertino, California
May [ ], 1998

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE PRIOR TO THE ANNUAL MEETING SO THAT YOUR SHARES MAY BE REPRESENTED AT
THE ANNUAL MEETING.
<PAGE>
PACIFIC MONOLITHICS, INC.
1308 Moffett Park Drive
Sunnyvale, CA 94089

May [ ], 1998

Dear Pacific Shareholder:

On behalf of the Board of Directors, I cordially invite you to attend a
Special Meeting of Shareholders (the "SPECIAL MEETING") of Pacific Monolithics,
Inc. ("PACIFIC") to be held at Pacific's headquarters located at 1308 Moffett
Park Drive, Sunnyvale, California 94089 on May 28, 1998 at 10:00 A.M.

At the Special Meeting, Pacific shareholders will be asked to approve the
acquisition by Hybrid Networks, Inc. ("HYBRID") of Pacific pursuant to an
Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") dated as
of March 19, 1998 whereby a wholly-owned subsidiary of Hybrid ("MERGER SUB")
will merge (the "MERGER") with and into Pacific.

Upon completion of the Merger:

- Pacific will become a wholly-owned subsidiary of Hybrid;

- Each outstanding share of Pacific Common Stock and each outstanding share
of Pacific Preferred Stock will be converted into between 0.0688078 and
0.1117959 of a share of Hybrid Common Stock (the exact number will be
determined at the time of the closing of the Merger and will be derived
from the "Closing Price" of Hybrid Common Stock as defined in the
Reorganization Agreement (the "EXCHANGE RATIO"));

- Each outstanding option or warrant to purchase Pacific Common Stock will
be assumed by Hybrid and adjusted according to the Exchange Ratio.

See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION" in
the accompanying Joint Proxy Statement/Prospectus.

It is a condition to Hybrid's obligation to complete the Merger that the
holders of no more than 5% of the outstanding shares of Pacific capital stock be
eligible to exercise dissenters' rights.

A detailed description of the Reorganization Agreement and the proposed
Merger is set forth in the accompanying Joint Proxy Statement/Prospectus, which
you should read carefully. If the Merger is approved and consummated, you will
receive detailed information on how to transmit your Pacific share certificates
to obtain your shares of Hybrid Common Stock.

AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF PACIFIC HAS
DETERMINED THAT THE TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION AGREEMENT
ARE FAIR AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF PACIFIC. ACCORDINGLY,
THE BOARD OF DIRECTORS OF PACIFIC HAS APPROVED THE REORGANIZATION AGREEMENT AND
RECOMMENDS THAT ALL PACIFIC SHAREHOLDERS VOTE FOR THE ADOPTION AND APPROVAL OF
THE REORGANIZATION AGREEMENT AND THE APPROVAL OF THE MERGER.

Your vote on the business to be considered at the Special Meeting is
important, regardless of the number of shares you own. WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE PRIOR TO THE
SPECIAL MEETING, SO THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING.
Returning the proxy does not deprive you of your right to attend the Special
Meeting and to vote your shares in person.

We look forward to seeing you at the Special Meeting.

Sincerely,
/s/ Matthew D. Miller
Matthew D. Miller
CHAIRMAN OF THE BOARD OF DIRECTORS
<PAGE>
PACIFIC MONOLITHICS, INC.
1308 Moffett Park Drive
Sunnyvale, CA 94089

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of Pacific Monolithics, Inc.:

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "SPECIAL
MEETING") of Pacific Monolithics, Inc., a California corporation ("PACIFIC"),
will be held at Pacific's headquarters located at 1308 Moffett Park Drive,
Sunnyvale, California 94089 on May 28, 1998 at 10:00 A.M. for the following
purposes:

1. To consider and vote upon a proposal to approve and adopt (i) an Agreement
and Plan of Reorganization, dated as of March 19, 1998 (the "REORGANIZATION
AGREEMENT"), by and among Pacific, Hybrid Networks, Inc., a Delaware
corporation ("HYBRID") and HN Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Hybrid ("MERGER SUB"), and (ii) an Agreement of
Merger between Merger Sub and Pacific. The Reorganization Agreement
contemplates, among other things, that (a) Merger Sub will be merged with
and into Pacific with the result that Pacific will become a wholly-owned
subsidiary of Hybrid, (b) each outstanding share of Pacific Common Stock, no
par value ("PACIFIC COMMON STOCK"), and each outstanding share of Pacific
Preferred Stock, no par value per share ("PACIFIC PREFERRED STOCK"), will be
converted into between 0.0688078 and 0.1117959 of a share of Hybrid Common
Stock, par value $0.001 per share ("HYBRID COMMON STOCK") (the exact number
will be determined at the time of the closing of the Merger and will be
derived from the "Closing Price" of Hybrid Common Stock as defined in the
Reorganization Agreement (the "EXCHANGE RATIO")), (c) ten percent of the
shares of Hybrid Common Stock issuable to each of the Pacific shareholders
will be deposited in escrow as collateral for the indemnification
obligations of the Pacific shareholders under the Reorganization Agreement
and (d) each outstanding option or warrant to purchase shares of Pacific
Common Stock will be assumed by Hybrid and adjusted according to the
Exchange Ratio; and

2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.

Only shareholders of record at the close of business on April 30, 1998 are
entitled to notice of and to vote at the Special Meeting or any adjournment or
postponement thereof. The affirmative vote of holders of a majority of the
outstanding shares of Pacific Common Stock and at least 60% of the outstanding
shares of Pacific Preferred Stock is required to approve and adopt the
Reorganization Agreement and to approve the Merger.

A summary of the provisions of Sections 1300-1312 of the California
Corporations Code (the "CALIFORNIA CODE") pertaining to the rights of
shareholders to demand appraisal of the fair value of their shares of Pacific
Common Stock or Pacific Preferred Stock if the Merger is approved and
consummated, including a summary of the requirements with which shareholders
demanding such appraisal must comply, is contained in the Joint Proxy
Statement/Prospectus under the heading "PROPOSAL NO. 1: THE MERGER-- APPROVAL OF
THE MERGER--APPRAISAL AND DISSENTERS' RIGHTS." The entire text of Sections
1300-1312 of the California Code is included as Appendix C to the accompanying
Joint Proxy Statement/Prospectus.

By Order of the Board of Directors,
/s/ Matthew D. Miller
Matthew D. Miller
CHAIRMAN OF THE BOARD OF DIRECTORS
Sunnyvale, California
May [ ], 1998

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE PRIOR TO THE SPECIAL MEETING SO THAT YOUR SHARES MAY BE REPRESENTED AT
THE SPECIAL MEETING.

DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY
<PAGE>
HYBRID NETWORKS, INC. PACIFIC MONOLITHICS, INC.

JOINT PROXY STATEMENT/PROSPECTUS

FOR THE ANNUAL MEETING OF THE
STOCKHOLDERS OF HYBRID NETWORKS, INC., A DELAWARE CORPORATION
AND A SPECIAL MEETING OF THE
SHAREHOLDERS OF PACIFIC MONOLITHICS, INC., A CALIFORNIA CORPORATION
TO BE HELD ON MAY 28, 1998.

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

HYBRID NETWORKS, INC., A DELAWARE CORPORATION

PROSPECTUS

This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Hybrid Networks, Inc., a Delaware corporation ("HYBRID"), in connection with
the solicitation of proxies by the Hybrid Board of Directors (the "HYBRID
BOARD") for use at the Annual Meeting of Hybrid Stockholders (the "HYBRID ANNUAL
MEETING") to be held at 10:00 A.M., local time, on May 28, 1998, at Hybrid's
corporate headquarters, 10161 Bubb Road, Cupertino, California 95014, and at any
adjournments or postponements of the Hybrid Annual Meeting.

This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of Pacific Monolithics, Inc., a California corporation ("PACIFIC"),
in connection with the solicitation of proxies by the Pacific Board of Directors
for use at the Special Meeting of Pacific Shareholders (the "PACIFIC SPECIAL
MEETING" and, together with the Hybrid Annual Meeting, the "MEETINGS") to be
held at 10:00 A.M., local time, on May 28, 1998, at Pacific's corporate
headquarters, 1308 Moffett Park Drive, Sunnyvale, California 94089, and at any
adjournments or postponements of the Pacific Special Meeting.

The Hybrid Annual Meeting has been called to (i) approve and adopt the
Agreement and Plan of Reorganization, dated as of March 19, 1998 (the
"REORGANIZATION AGREEMENT"), by and among Hybrid, HN Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Hybrid ("MERGER SUB"), and
Pacific and the accompanying Agreement of Merger between Pacific and Merger Sub
(the "AGREEMENT OF MERGER") whereby Merger Sub will merge with and into Pacific
(the "MERGER") and to approve the Merger, (ii) to elect two Class I directors of
the Company, to serve from the time of their election and qualification until
the earlier of (A) their resignation, which will occur upon the consummation of
the Merger (whereupon the Hybrid Board of Directors will appoint two directors
of Pacific to replace such directors as Class I directors on the Hybrid Board of
Directors), or (B) the third annual meeting of stockholders following election
and until their respective successors have been elected and duly qualified or
until their respective earlier resignations or removals, (iii) approve an
amendment to the Hybrid's 1997 Equity Incentive Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 500,000 shares, (iv)
approve an amendment to Hybrid's 1997 Employee Stock Purchase Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by 100,000
shares and (v) ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for Hybrid for the fiscal year ending December 31, 1998.

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS AND
SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"PROPOSAL NO. 1: THE MERGER--RISK FACTORS" COMMENCING ON PAGE 32.

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

THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Joint Proxy Statement/Prospectus is May [ ], 1998.
<PAGE>
The Pacific Special Meeting has been called to consider and vote upon a
proposal to approve and adopt the Reorganization Agreement and the Agreement of
Merger and the transactions contemplated thereby and to approve the Merger.

This Joint Proxy Statement/Prospectus constitutes the Prospectus of Hybrid
for use in connection with the offer and issuance of shares of Common Stock of
Hybrid, par value $0.001 per share ("HYBRID COMMON STOCK"), to be issued upon
consummation of the Merger. Each outstanding share of Pacific Common Stock, no
par value (the "PACIFIC COMMON STOCK"), Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, no par value (the Pacific Series
A, B and C Preferred Stock are hereafter collectively referred to as the
"PACIFIC PREFERRED STOCK" and, together with the Pacific Common Stock, the
"PACIFIC CAPITAL STOCK"), outstanding will be converted into an amount of Hybrid
Common Stock equal to a fraction, the numerator of which is obtained by dividing
$12,500,000 by the Closing Price and the denominator of which is the total
number of shares of Pacific Common Stock and Pacific Preferred Stock outstanding
plus the total number of shares of Pacific Common Stock issuable upon exercise
of outstanding Pacific options (the "PACIFIC OPTIONS") and Pacific warrants (the
"PACIFIC WARRANTS") (the "EXCHANGE RATIO"). The "CLOSING PRICE" shall equal the
average of the closing sale prices of one share of Hybrid Common Stock reported
in THE WALL STREET JOURNAL, on the basis of information provided by the Nasdaq
Stock Market for each of the ten trading days ending two trading days preceding
the closing date of the Merger; provided, however, that in no event shall the
Closing Price be greater than $8.40 (resulting in an Exchange Ratio of
0.0688078, assuming the number of Pacific shares as of April 30, 1998 as
indicated below (the "LOW EXCHANGE RATIO")) or less than $5.17 (resulting in an
Exchange Ratio of 0.1117959, assuming the number of Pacific shares as of April
30, 1998 as indicated below (the "HIGH EXCHANGE RATIO")). As of March 19, 1998,
based on Hybrid's ten day average trading price of $6.46 and assuming the number
of shares of Pacific Common Stock, shares of Pacific Preferred Stock and shares
subject to Pacific Options and Pacific Warrants outstanding on April 30, 1998,
the Exchange Ratio would be 0.0894714 of a share of Hybrid Common Stock for each
outstanding share of Pacific Capital Stock (the "ASSUMED EXCHANGE RATIO"). Ten
percent of the shares of Hybrid Common Stock issuable to each of the Pacific
shareholders pursuant to the Merger will be deposited into escrow as collateral
for the indemnification obligations of the Pacific shareholders under the
Reorganization Agreement.

Each outstanding Pacific Option and Pacific Warrant will be assumed and
converted into an option or warrant, respectively, to purchase a number of
shares of Hybrid Common Stock equal to the Exchange Ratio multiplied by the
number of shares purchasable under each Pacific Option or Pacific Warrant,
respectively, rounded down to the nearest whole share, at an exercise price
equal to the exercise price of such Pacific Option or Pacific Warrant, as
applicable, divided by the Exchange Ratio, rounded up to the nearest cent. See
"PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION."

Affiliates of Pacific, including certain directors and executive officers of
Pacific, beneficially owning 3,357,515 shares of Pacific Common Stock and
7,509,644 shares of Pacific Preferred Stock, or approximately 58.8% and 61.0% of
the outstanding shares of Pacific Common Stock and Pacific Preferred Stock,
respectively, have executed Voting Agreements pursuant to which they have agreed
to vote such shares in favor of the adoption and approval of the Reorganization
Agreement and the Agreement of Merger and approval of the Merger. The vote by
these affiliates in accordance with their Voting Agreements will be sufficient
to approve the Merger. However, it is a condition to Hybrid's obligation to
complete the Merger that the holders of no more than 5% of the outstanding
shares of Pacific Capital Stock be eligible to exercise dissenters' rights.

Holders of Pacific Capital Stock may, by complying with Sections 1300
through 1312 of the California Corporations Code (the "CALIFORNIA CODE"), be
entitled to dissenters' rights with respect to the Merger. Under the Delaware
General Corporation Law, holders of Hybrid Common Stock are not entitled to
dissenters' rights or appraisal rights with respect to the Merger. It is a
condition to Hybrid's obligation to close the Merger that holders of no more
than 5% of the outstanding shares of Pacific Capital Stock shall be eligible to
exercise dissenters' rights. See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE
MERGER-- APPRAISAL AND DISSENTERS' RIGHTS."

On May 1, 1998, the closing sale price on the Nasdaq Stock Market of Hybrid
Common Stock was $6.13.

This Joint Proxy Statement/Prospectus and the accompanying form(s) of proxy
are first being mailed to stockholders of Hybrid and shareholders of Pacific on
or about May , 1998. An annual report for Hybrid for the year ended December
31, 1997 is enclosed with this Joint Proxy Statement/Prospectus being delivered
to the stockholders of Hybrid.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 2

TRADEMARKS................................................................................................. 3

FORWARD-LOOKING STATEMENTS................................................................................. 3

SUMMARY.................................................................................................... 4
STOCKHOLDER MEETINGS..................................................................................... 4
Hybrid Annual Meeting.................................................................................. 4
Date, Time, Place and Purpose........................................................................ 4
Record Date and Vote Required........................................................................ 4
Recommendation of the Hybrid Board of Directors...................................................... 5
Pacific Special Meeting................................................................................ 5
Date, Time, Place and Purpose........................................................................ 5
Record Date and Vote Required........................................................................ 6
Recommendation of the Pacific Board of Directors..................................................... 6
PROPOSAL NO. 1: THE MERGER............................................................................... 7
The Companies.......................................................................................... 7
Risk Factors........................................................................................... 8
The Merger............................................................................................. 9
Financial Advisors..................................................................................... 11
Reasons for the Merger................................................................................. 11
Terms of the Merger.................................................................................... 12
Certain Federal Income Tax Considerations.............................................................. 14
Accounting Treatment................................................................................... 15
Appraisal and Dissenters' Rights....................................................................... 15
Regulatory Matters..................................................................................... 15
Escrow Agreement....................................................................................... 15
Certain Related Agreements............................................................................. 16
Market Price and Dividend Data......................................................................... 16
Unaudited Pro Forma Condensed Combined Financial Statements............................................ 18
ADDITIONAL MATTERS FOR CONSIDERATION OF HYBRID STOCKHOLDERS.............................................. 27

INTRODUCTION............................................................................................... 28

THE HYBRID ANNUAL MEETING.................................................................................. 28
Date, Time, Place and Purpose of Hybrid Annual Meeting................................................... 28
Record Date and Outstanding Shares....................................................................... 28
Voting of Proxies........................................................................................ 28
Vote Required............................................................................................ 29
Quorum; Abstentions; Broker Non-Votes.................................................................... 29
Solicitation of Proxies and Expenses..................................................................... 29
Appraisal Rights......................................................................................... 30

THE PACIFIC SPECIAL MEETING................................................................................ 30
Date, Time, Place and Purpose of Pacific Special Meeting................................................. 30
Record Date and Outstanding Shares....................................................................... 30
Voting of Proxies........................................................................................ 30
Vote Required............................................................................................ 31
Quorum; Abstentions...................................................................................... 31
Solicitation of Proxies and Expenses..................................................................... 31
</TABLE>

i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Dissenters' Rights....................................................................................... 31

PROPOSAL NO. 1: THE MERGER................................................................................. 32
RISK FACTORS............................................................................................. 32
Risks Relating to the Merger........................................................................... 32
Risk Relating to Hybrid, Pacific and the Combined Company.............................................. 35
APPROVAL OF THE MERGER................................................................................... 52
General................................................................................................ 52
Hybrid's Reasons for the Merger........................................................................ 52
Pacific's Reasons for the Merger....................................................................... 54
Board Recommendations.................................................................................. 56
Background of the Merger............................................................................... 57
Financial Advisors..................................................................................... 60
Certain Federal Income Tax Considerations.............................................................. 64
Accounting Treatment................................................................................... 65
Governmental and Regulatory Approvals.................................................................. 65
Appraisal and Dissenters' Rights....................................................................... 65
Interests of Certain Persons in the Merger............................................................. 66
TERMS OF THE MERGER...................................................................................... 67
General................................................................................................ 67
Effective Time; Closing Date........................................................................... 68
Conduct of Combined Company Following the Merger....................................................... 68
Merger Consideration................................................................................... 68
Conversion of Shares; Procedures for Exchange of Certificates.......................................... 69
Representations and Warranties......................................................................... 69
No Other Negotiations.................................................................................. 70
Additional Covenants................................................................................... 70
Indemnification Agreements............................................................................. 72
Conditions to the Merger............................................................................... 72
Termination; Termination Fee........................................................................... 73
Expenses............................................................................................... 74
Amendment.............................................................................................. 74
Escrow Agreement....................................................................................... 74
Voting Agreements...................................................................................... 74
Affiliates Agreements.................................................................................. 75
Employment/Non-Competition Arrangements................................................................ 76
Investor Rights Agreement.............................................................................. 76

SELECTED HISTORICAL FINANCIAL DATA OF HYBRID............................................................... 77

HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 78

SELECTED HISTORICAL FINANCIAL DATA OF PACIFIC.............................................................. 86

PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 88

BUSINESS OF HYBRID......................................................................................... 96

BUSINESS OF PACIFIC........................................................................................ 107

MANAGEMENT OF THE COMBINED COMPANY......................................................................... 112

SELECTED INFORMATION WITH RESPECT TO HYBRID................................................................ 114
</TABLE>

ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Executive Compensation................................................................................... 114
Certain Relationships and Related Transactions........................................................... 117
Compensation Committee Report............................................................................ 117
Hybrid Stock Price Performance........................................................................... 120

SELECTED INFORMATION WITH RESPECT TO PACIFIC............................................................... 121
Executive Officers and Directors......................................................................... 121
Executive Compensation................................................................................... 122
Certain Relationships and Certain Transactions........................................................... 125

SECURITY OWNERSHIP OF THE COMBINED COMPANY................................................................. 126

SECURITY OWNERSHIP OF HYBRID............................................................................... 128

SECURITY OWNERSHIP OF PACIFIC.............................................................................. 130

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION................................................ 132

DESCRIPTION OF HYBRID CAPITAL STOCK........................................................................ 133

COMPARATIVE RIGHTS OF HYBRID STOCKHOLDERS AND PACIFIC SHAREHOLDERS......................................... 135

ADDITIONAL MATTERS FOR CONSIDERATION OF HYBRID STOCKHOLDERS:

PROPOSAL NO. 2 FOR HYBRID STOCKHOLDERS: ELECTION OF HYBRID DIRECTORS....................................... 140

PROPOSAL NO. 3 FOR HYBRID STOCKHOLDERS: AMENDMENT OF HYBRID'S 1997 EQUITY INCENTIVE PLAN................... 141

PROPOSAL NO. 4 FOR HYBRID STOCKHOLDERS: AMENDMENT OF HYBRID'S 1997 EMPLOYEE STOCK PURCHASE PLAN............ 145

PROPOSAL NO. 5 FOR HYBRID STOCKHOLDERS: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS............... 149

STOCKHOLDER PROPOSALS...................................................................................... 150

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................... 150

OTHER BUSINESS............................................................................................. 150

EXPERTS.................................................................................................... 150

LEGAL MATTERS.............................................................................................. 150

INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1

APPENDICES
A-1 Agreement and Plan of Reorganization
A-2 Form of Agreement of Merger between Pacific and Merger Sub
B Opinion of NationsBanc Montgomery Securities LLC
C Sections 1300-1312 of California Corporations Code
</TABLE>

iii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF
A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.

NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.

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

AVAILABLE INFORMATION

Hybrid 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"). These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of these materials can also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the World Wide Web site is
http://www.sec.gov.

Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Hybrid and shareholders of Pacific to approve and
adopt the Reorganization Agreement, the Agreement of Merger and the Merger
constitutes an offering of Hybrid Common Stock to be issued in connection with
the Merger. Accordingly, Hybrid has filed with the Commission a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to such offering (together with any amendment
thereto, the "REGISTRATION STATEMENT"). This Joint Proxy Statement/Prospectus
constitutes the prospectus of Hybrid that is filed as part of the Registration
Statement. Other parts of the Registration Statement are omitted from this Joint
Proxy Statement/Prospectus in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected, without charge, at the regional offices of the Commission referred to
above, obtained at the Commission's World Wide Web site set forth above or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth above.

Statements made in this Joint Proxy Statement/Prospectus concerning the
contents of any contract or other document are not necessarily complete. With
respect to each contract or other document filed as an exhibit to the
Registration Statement, reference is hereby made to that exhibit for a more
complete description of the matter involved, and each such statement is hereby
qualified in its entirety by such reference.

All information contained in this Joint Proxy Statement/Prospectus relating
to Hybrid has been supplied by Hybrid, and all information relating to Pacific
has been supplied by Pacific.

2
<PAGE>
TRADEMARKS

This Joint Proxy Statement/Prospectus contains trademarks of Hybrid and
Pacific, and may contain trademarks of others, in the U.S. and other countries.
CyberManager-Registered Trademark- and CyberMaster-Registered Trademark- are
registered trademarks of Hybrid. Hybrid Networks-TM- and CyberCommuter-TM- are
trademarks of Hybrid. Pacific Monolithics-Registered Trademark-,
DigiSite-Registered Trademark-, Fil-Tenna-Registered Trademark-,
CypherPoint-Registered Trademark- and Vagi-Registered Trademark- are registered
trademarks of Pacific.

FORWARD-LOOKING STATEMENTS

This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify those forward looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain factors, including those described in the risk
factors set forth under "PROPOSAL NO. 1: THE MERGER--RISK FACTORS" and reference
is made to the particular discussions set forth under "PROPOSAL NO. 1: THE
MERGER--APPROVAL OF THE MERGER-- HYBRID'S REASONS FOR THE MERGER" and
"--PACIFIC'S REASONS FOR THE MERGER,"; "HYBRID MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; "PACIFIC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"; "BUSINESS OF HYBRID"; and "BUSINESS OF PACIFIC."

Readers are cautioned not to place undue reliance on forward-looking
statements contained herein, which reflect the analysis of the management of
Hybrid and Pacific, as appropriate, only as of the date hereof. Neither Hybrid
nor Pacific undertakes any obligation to release publicly the results of any
revision to these forward-looking statements which may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

3
<PAGE>
SUMMARY

THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/ PROSPECTUS. THE SUMMARY DOES NOT CONTAIN A
COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
APPENDICES HERETO. STOCKHOLDERS OF HYBRID AND SHAREHOLDERS OF PACIFIC ARE URGED
TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR
ENTIRETY.

STOCKHOLDER MEETINGS

HYBRID ANNUAL MEETING

DATE, TIME, PLACE AND PURPOSE

The Hybrid Annual Meeting will be held on May 28, 1998 at 10:00 A.M., local
time, at Hybrid's headquarters located at 10161 Bubb Road, Cupertino, California
95014. See "THE HYBRID ANNUAL MEETING."

At the Hybrid Annual Meeting, stockholders of record of Hybrid on the Hybrid
Record Date (as defined below) will be asked to: (i) approve and adopt the
Reorganization Agreement and the Agreement of Merger and the transactions
contemplated thereby and to approve the Merger, (ii) elect two Class I directors
of Hybrid, to serve from the time of their election and qualification until the
earlier of (A) their resignation, which will occur upon the consummation of the
Merger (whereupon the Hybrid Board will appoint two directors of Pacific to
replace such directors as Class I directors on the Hybrid Board) or (B) the
third annual meeting of stockholders following election and until their
respective successors have been elected and duly qualified or until their
respective earlier resignations or removals, (iii) approve an amendment to
Hybrid's 1997 Equity Incentive Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 500,000 shares, (iv) approve an
amendment to Hybrid's 1997 Employee Stock Purchase Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 100,000 shares and
(v) ratify the selection of Coopers & Lybrand L.L.P. as independent accountants
for Hybrid for the fiscal year ending December 31, 1998.

The Reorganization Agreement and the Agreement of Merger are attached hereto
as Appendices A-1 and A-2, respectively. See "PROPOSAL NO. 1: THE MERGER--TERMS
OF THE MERGER."

RECORD DATE AND VOTE REQUIRED

Only Hybrid stockholders of record at the close of business on April 30,
1998 (the "HYBRID RECORD DATE") have the right to receive notice of and to vote
at the Hybrid Annual Meeting. As of the Hybrid Record Date there were 10,410,050
shares of Hybrid Common Stock outstanding and entitled to vote.

The affirmative vote of the holders of a majority of the outstanding shares
of Hybrid Common Stock is required to approve and adopt the Reorganization
Agreement and the Agreement of Merger and to approve the Merger as set forth in
Proposal No. 1.

Under Proposal No. 2, directors will be elected by a plurality of the votes
of the shares of Hybrid Common Stock present in person or represented by proxy
at the Hybrid Annual Meeting and entitled to vote on the election of the two
Class I directors. The affirmative vote of a majority of the shares of Hybrid
Common Stock represented in person or by proxy and entitled to vote at the
Hybrid Annual Meeting is required to approve each of Proposal No. 3--the
amendment of Hybrid's 1997 Equity Incentive Plan, Proposal No. 4--the amendment
of Hybrid's 1997 Employee Stock Purchase Plan and Proposal No. 5-- ratification
of the selection of Coopers & Lybrand L.L.P. as independent accountants for
Hybrid for the fiscal year ended December 31, 1998.

As of April 30, 1998, directors and executive officers of Hybrid, and their
affiliated entities, as a group beneficially owned 1,395,709 shares of Hybrid
Common Stock, or approximately 13.4% of the shares of Hybrid Common Stock
outstanding as of such date. Affiliates of Hybrid, including certain of such
directors

4
<PAGE>
and executive officers of Hybrid, beneficially owning 1,384,512 shares of Hybrid
Common Stock, or approximately 13.3% of the outstanding shares of Hybrid Common
Stock, have executed Voting Agreements pursuant to which they have agreed to
vote such shares in favor of the adoption and approval of the Reorganization
Agreement and the Agreement of Merger and approval of the Merger.

The effectiveness of any of the proposals to be voted upon at the Hybrid
Annual Meeting is not conditioned upon the approval of any of the other
proposals by the Hybrid stockholders.

RECOMMENDATIONS OF THE HYBRID BOARD OF DIRECTORS

Proposal No. 1: The Merger. Hybrid's Board of Directors (the "HYBRID
BOARD") has adopted and approved the Reorganization Agreement and the Agreement
of Merger and the transactions contemplated thereby and approved the Merger and
has determined that the Merger is fair, from a financial point of view to, and
in the best interests of Hybrid.

After careful consideration, the Hybrid Board recommends a vote FOR the
adoption and approval of the Reorganization Agreement and the Agreement of
Merger and the approval of the Merger. See "PROPOSAL NO. 1: THE MERGER--APPROVAL
OF THE MERGER--HYBRID'S REASONS FOR THE MERGER" AND "-- BACKGROUND OF THE
MERGER."

Proposal No. 2: Election of Hybrid Directors. The Hybrid Board recommends a
vote FOR the election of each of the nominated directors. See "PROPOSAL NO. 2
FOR HYBRID STOCKHOLDERS: ELECTION OF HYBRID DIRECTORS."

Proposal No. 3: Amendment of Hybrid's 1997 Equity Incentive Plan. The
Hybrid Board recommends a vote FOR approval of the amendment of Hybrid's 1997
Equity Incentive Plan to increase the number of shares of Hybrid Common Stock
reserved for issuance thereunder by 500,000 shares. See "PROPOSAL NO. 3 FOR
HYBRID STOCKHOLDERS: AMENDMENT OF THE 1997 EQUITY INCENTIVE PLAN."

Proposal No. 4: Amendment of Hybrid's 1997 Employee Stock Purchase
Plan. The Hybrid Board recommends a vote FOR approval of the amendment of
Hybrid's 1997 Employee Stock Purchase Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 100,000 shares. See "PROPOSAL
NO. 4 FOR HYBRID STOCKHOLDERS: AMENDMENT OF THE 1997 EMPLOYEE STOCK PURCHASE
PLAN."

Proposal No. 5: Ratification of Selection of Independent Accountants. The
Hybrid Board recommends a vote FOR ratification of the selection of Coopers &
Lybrand L.L.P. as independent accountants for Hybrid for the fiscal year ending
December 31, 1998. See "PROPOSAL NO. 5 FOR HYBRID STOCKHOLDERS: RATIFICATION OF
SELECTION OF INDEPENDENT ACCOUNTANTS."

PACIFIC SPECIAL MEETING

DATE, TIME, PLACE AND PURPOSE

The Pacific Special Meeting will be held on May 28, 1998 at 10:00 A.M.,
local time, at Pacific's headquarters located at 1308 Moffett Park Drive,
Sunnyvale, California 94089. See "THE PACIFIC SPECIAL MEETING."

At the Pacific Special Meeting, shareholders of Pacific on the Pacific
Record Date (as defined below) will be asked to consider and vote upon a
proposal to approve and adopt the Reorganization Agreement and the Agreement of
Merger and the transactions contemplated thereby and to approve the Merger. The
Reorganization Agreement and the Agreement of Merger are attached hereto as
Appendices A-1 and A-2, respectively. See "PROPOSAL NO. 1: THE MERGER--TERMS OF
THE MERGER."

5
<PAGE>
RECORD DATE AND VOTE REQUIRED

Pacific shareholders of record at the close of business on April 30, 1998
(the "PACIFIC RECORD DATE") have the right to receive notice of and to vote at
the Pacific Special Meeting. At the close of business on the Pacific Record
Date, there were 5,712,668 shares of Pacific Common Stock and 12,320,681 shares
of Pacific Preferred Stock outstanding, each of which is entitled to one vote on
each matter to be acted upon.

The affirmative vote of the holders of a majority of the outstanding shares
of Pacific Common Stock and 60% of the outstanding shares of Pacific Preferred
Stock is required to approve and adopt the Reorganization Agreement and the
Agreement of Merger and to approve the Merger set forth in Proposal No. 1.

As of April 30, 1998, directors and executive officers of Pacific, and their
affiliated entities, as a group beneficially owned 3,446,092 shares of Pacific
Common Stock and 2,632,965 shares of Pacific Preferred Stock, or approximately
60.3% of the shares of Pacific Common Stock and 21.4% of the shares of Pacific
Preferred Stock, respectively, outstanding as of such date. Affiliates of
Pacific, including certain directors and executive officers of Pacific,
beneficially owning 3,357,515 shares of Pacific Common Stock and 7,509,644
shares of Pacific Preferred Stock, or approximately 58.8% and 61.0% of the
outstanding shares of Pacific Common Stock and Pacific Preferred Stock,
respectively, have executed Voting Agreements pursuant to which they have agreed
to vote such shares in favor of the adoption and approval of the Reorganization
Agreement and the Agreement of Merger and approval of the Merger. The vote by
these affiliates in accordance with their Voting Agreements will be sufficient
to approve the Merger. However, it is a condition to Hybrid's obligation to
complete the Merger that the holders of no more than 5% of the outstanding
shares of Pacific Capital Stock be eligible to exercise dissenters' rights.

RECOMMENDATION OF THE PACIFIC BOARD OF DIRECTORS

Pacific's Board of Directors (the "PACIFIC BOARD") has adopted and approved
the Reorganization Agreement and the Agreement of Merger and the transactions
contemplated thereby and approved the Merger and has determined that the Merger
is fair, from a financial point of view to, and in the best interests of Pacific
and its shareholders.

After careful consideration, the Pacific Board recommends a vote FOR the
adoption and approval of the Reorganization Agreement and the Agreement of
Merger and the approval of the Merger. See "PROPOSAL NO. 1: THE MERGER--
APPROVAL OF THE MERGER--PACIFIC'S REASONS FOR THE MERGER" and "--BACKGROUND OF
THE MERGER."

6
<PAGE>
PROPOSAL NO. 1: THE MERGER

THE COMPANIES

HYBRID NETWORKS, INC.

Hybrid is a broadband access equipment company that designs, develops,
manufactures and markets wireless and cable systems that provide high speed
access to the Internet and corporate intranets for both businesses and
consumers. Hybrid's products remove the bottleneck over the "last mile"
connection to the end-user which causes slow response time for those accessing
bandwidth-intensive information over the Internet or corporate intranets. Hybrid
is currently generating substantially all of its net sales from its Series 2000
product line and related support and networking services. Hybrid's Series 2000
product line consists of secure headend routers, wireless or cable modems and
management software for use with either cable TV or wireless transmission
facilities. The Series 2000 system also features a router to provide corporate
telecommuters and others in remote locations secure access to their files on
corporate intranets. The Series 2000 is capable of supporting a combination of
speeds, media and protocols in a single wireless or cable system, providing
system operators with flexible, scalable and upgradeable solutions that
interoperate with a range of third-party networking products allowing system
operators to offer cost-effective broadband access to their subscribers.

Hybrid's objective is to be a leader in providing cost-effective, high speed
Internet and intranet access solutions to broadband wireless system operators,
cable systems operators, Intranet service providers ("ISPS") and other
businesses. Hybrid markets and sells its products through its direct sales force
and a network of original equipment manufacturers ("OEMS"), value added
resellers ("VARS") and distributors. The Series 2000 product line allows
wireless and cable operators to conserve scarce bandwidth and to utilize a
variety of data return paths, including the public switched telephone network.
The Series 2000 product line enables cable systems operators to offer Internet
access via either one-way or two-way cable systems, thus minimizing the
operators' capital investment and time-to-market pressures. The Series 2000 also
facilitates the entrance of broadband wireless system operators into the high
speed Internet access market. The Series 2000 has been designed to utilize an
array of wireless frequencies, ranging from UHF to MMDS frequencies, and to
minimize commonly experienced interference problems.

Hybrid was incorporated in Delaware in June 1990. Hybrid's principal
executive offices are located at 10161 Bubb Road, Cupertino, California 95014;
its telephone number is (408) 725-3250. See "BUSINESS OF HYBRID."

PACIFIC MONOLITHICS, INC.

Pacific designs, develops, manufactures and markets radio frequency devices
and systems for providers of wireless communication services. Since its
inception in 1984, Pacific has been involved in the development of radio
frequency integrated circuits ("RFIC") employing gallium arsenide for use in a
variety of commercial and military applications. In 1991, Pacific began applying
its RFIC design expertise and radio frequency system engineering skills to the
development of system solutions for the broadband wireless video market. Since
1991, Pacific has produced and sold over one million broadband wireless
antenna/downconverters. Additionally, since the introduction of Pacific's
CypherPoint video encoding system in 1996, Pacific has produced and sold over 50
encoding systems and 100,000 decoders.

Pacific's strategy is to leverage its position in broadband wireless video
communications to address more extensive "wireless last mile" voice, data and
video applications. It has recently begun field trials of a radio frequency
Transverter which, when used in combination with a two-way cable modem, can
provide high-speed wireless Internet access using the radio frequency spectrum.

Pacific was incorporated in California in March 1984. Pacific's principal
executive offices are located at 1308 Moffett Park Drive, Sunnyvale, California
94089; its telephone number is (408) 745-2700. See "BUSINESS OF PACIFIC."

7
<PAGE>
MERGER SUB

Merger Sub, a Delaware corporation, which was incorporated in March 1998, is
a corporation recently organized by Hybrid for the sole purpose of effecting the
Merger. It has no material assets and has not engaged in any activities except
in connection with the proposed Merger. Merger Sub's principal executive offices
are located at 10161 Bubb Road, Cupertino, California 95014; its telephone
number is (408) 725-3250.

RISK FACTORS

The following risk factors, among others set forth under "RISK FACTORS"
below and elsewhere in this Joint Proxy Statement/Prospectus, should be
considered by Hybrid stockholders and Pacific shareholders in evaluating the
matters to be voted on at the Hybrid Annual Meeting and the Pacific Special
Meeting and the acquisition of the securities offered hereby.

Risks related to the Merger include the following: (i) the expected
long-term strategic benefits of the Merger are dependent upon the successful
integration of operations and retention of key personnel, and there can be no
assurance that these objectives will be achieved; (ii) disruption of Hybrid's
and Pacific's sales and marketing activities may result from the Merger and
might not be smoothly or effectively resolved, and such disruption could
materially and adversely affect the combined company's financial results; (iii)
the integration of Hybrid's and Pacific's products, technologies and engineering
teams after the Merger might not be timely accomplished or technically feasible,
which could in turn reduce the expected technological benefits of the Merger and
have an adverse impact upon the combined company's product development; (iv)
Hybrid's stock price may be significantly and adversely affected if the
beneficial synergies that the Merger is intended to generate are not achieved or
do not occur as rapidly or to the extent anticipated by securities analysts and
investors; (v) negative reaction to the Merger on the part of Hybrid's and/or
Pacific's suppliers, resellers and customers could result in reduced revenues
and earnings, which could in turn have a negative effect on the price of
Hybrid's stock; (vi) the Merger is expected to result in substantial direct
transaction costs and operating charges relating to the integration of Pacific's
operations into Hybrid's operations, and the integration of the two companies
may involve substantial additional unexpected costs; (vii) in the past, each of
Hybrid and Pacific has required substantial amounts of capital to design,
develop, market and manufacture its products and has not been able to generate
sufficient cash from operations to meet its cash flow needs; Pacific will need
additional near-term financing; and the combined company may need to raise
additional funds through public or private equity or debt financing or from
other sources; (viii) the Merger will dilute Hybrid stockholders' and Pacific
shareholders' ownership interests, compared to their ownership interests in
their respective companies prior to the Merger; and (ix) if certain restrictions
on the transfer of shares of Hybrid Common Stock and, prior to the Merger,
Pacific Common Stock and Pacific Preferred Stock, are not observed by each
company's respective affiliates, the Merger may fail to qualify as a pooling of
interests for financial reporting purposes. See "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO THE MERGER."

Risks relating to Hybrid, Pacific and the combined company include the
following: (i) Pacific is currently in need of immediate additional capital in
an approximate amount of $1.0 million to finance its operations and meet its
short term liquidity needs, which proceeds, if not obtained, will require
Pacific to scale back sales and marketing and research and development efforts
(ii) Hybrid has a limited operating history, having shipped its first product
line in 1994, and Hybrid and Pacific each has a history of losses; (iii) each of
Hybrid and Pacific has experienced, and the combined company expects to continue
to experience, significant fluctuations in its results of operations on a
quarterly and on an annual basis attributable to absence of any significant
backlog and a decline in average selling prices for each of Hybrid's and
Pacific's products; (iv) the sales cycle associated with each of Hybrid's and
Pacific's products is typically lengthy and orders are therefore subject to a
number of significant risks; (v) substantially all of Hybrid's current sales are
dependent upon recently introduced products, and the businesses of each of
Hybrid and Pacific are subject to rapid technological change; (vi) the market
for high speed Internet access

8
<PAGE>
products is characterized by competing technologies, evolving industry standards
and frequent new product introductions; (vii) the inexperience of each of Hybrid
and Pacific in an emerging market may adversely affect the combined company's
competitiveness vis-a-vis more established and larger competitors; (viii) the
market for the combined company's products will be dependent upon cable operator
installations; (ix) the combined company will be dependent on broadband wireless
system operators to purchase the combined company's wireless video and modem
products and sell its wireless modems to end-users; (x) the combined company
will also be dependent on cable system operators to purchase and sell its cable
modems to end users; (xi) a small number of customers account for a substantial
portion of each of Hybrid's and Pacific's net sales; (xii) the market for high
speed network connectivity products and services is intensely competitive and
many of Hybrid's and Pacific's competitors are substantially larger and have
greater financial, technical, marketing, distribution, customer support and
other resources; (xiii) the cost of Hybrid's and Pacific's products are
relatively expensive for the consumer electronics market; (xiv) the combined
company will be dependent on out-sourcing its manufacturing; (xv) each of Hybrid
and Pacific are dependent on key outside suppliers for component availability;
(xvi) the commercial market for products designed for the Internet and the
TCP/IP networking protocol has only recently begun to develop, and the combined
company's success will depend in large part on the increased use of the
Internet; (xvii) the "asymmetric" architecture of Hybrid's products is not
widely used and is relatively unproven in computer networking; (xviii) products
as complex as those offered by Hybrid and Pacific frequently contain undetected
errors, defects or failures that could result in product returns and other
losses to the combined company or its customers; (xix) the combined company's
success will depend in significant part upon the continued services of its key
technical, sales and senior management personnel, competition for such personnel
is intense and there can be no assurance that the combined company will be able
to attract and/ or retain key personnel; (xx) Hybrid, Pacific and their
customers are subject to varying degrees of federal, state and local regulation
that affect their businesses; (xxi) each of Hybrid and Pacific rely on a
combination of patent, trade secret, copyright and trademark laws to establish
and protect proprietary rights in their products and such claims may not be of
sufficient scope or strength to provide meaningful protection or any commercial
advantage to the combined company; (xxii) Hybrid's push to increase its
international sales will expose the combined company to the greater risks
inherent in international sales such as longer payment cycles, unexpected
changes in regulatory requirements, etc.; (xxiii) concentration of ownership by
the combined company's executive officers and directors; (xxiv) Hybrid is
subject to certain restrictive debt covenants which could adversely affect the
combined company's operations; (xxv) sales of substantial amounts of Hybrid
Common Stock in the public market following the acquisition of Pacific by Hybrid
could adversely affect the market price of the combined company's Common Stock
prevailing from time to time and could impair Hybrid's ability to raise capital
through the sale of equity or debt securities; and (xxvi) the market price for
shares of Hybrid's Common Stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a wide variety of factors. See
"PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND
THE COMBINED COMPANY."

THE MERGER

EFFECTS OF THE MERGER

The Reorganization Agreement provides, among other things, for the Merger of
Merger Sub with and into Pacific pursuant to the Reorganization Agreement and
the Agreement of Merger, which will result in Pacific, as the surviving
corporation of the Merger, becoming a wholly-owned subsidiary of Hybrid.

CONVERSION OF PACIFIC SECURITIES

Upon consummation of the Merger, each outstanding share of Pacific Capital
Stock will be converted into an amount of Hybrid Common Stock equal to a
fraction, the numerator of which is obtained by dividing $12,500,000 by the
Closing Price and the denominator of which is the total number of shares of
Pacific Capital Stock outstanding plus the total number of shares of Pacific
Common Stock issuable upon

9
<PAGE>
exercise of outstanding Pacific Options and Pacific Warrants. The Closing Price
will be equal to the average of the closing sale prices of one share of Hybrid
Common Stock reported in THE WALL STREET JOURNAL, on the basis of information
provided by the Nasdaq Stock Market for each of the ten trading days ending two
(2) trading days preceding the Closing Date; provided, however, that in no event
shall the Closing Price be greater than $8.40 or less than $5.17 (resulting in
the Low Exchange Ratio of 0.0688078 and the High Exchange Ratio of 0.1117959,
respectively, assuming the number of Pacific shares as of April 30, 1998 as
indicated below). As of March 19, 1998, based on Hybrid's ten day average
trading price of $6.46 and the number of shares of Pacific Common Stock, shares
of Pacific Preferred Stock and shares subject to Pacific Options and Pacific
Warrants outstanding on April 30, 1998, the Exchange Ratio would be
approximately 0.0895193 of a share of Hybrid Common Stock for each outstanding
share of Pacific Capital Stock (the Assumed Exchange Ratio).

Each outstanding Pacific Option and Pacific Warrant will be assumed and
converted into an option or warrant, respectively, to purchase a number of
shares of Hybrid Common Stock equal to the Exchange Ratio multiplied by the
number of shares of Pacific Common Stock purchasable under each Pacific Option
or Pacific Warrant, as applicable, rounded down to the nearest whole share, at
an exercise price equal to the exercise price of such Pacific Option or Pacific
Warrant, respectively, divided by the Exchange Ratio, rounded up to the nearest
cent. See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--MERGER
CONSIDERATION."

For a summary of the principal differences between the rights of holders of
Hybrid Common Stock and Pacific Capital Stock, see "COMPARATIVE RIGHTS OF HYBRID
STOCKHOLDERS AND PACIFIC SHAREHOLDERS."

Pursuant to the Reorganization Agreement, Pacific and Hybrid will enter into
an Escrow Agreement (the "ESCROW AGREEMENT") whereby 10% of the shares of Common
Stock issuable to each of the Pacific shareholders will be deposited in escrow
as collateral for the indemnification obligations of the Pacific shareholders
under the Reorganization Agreement. See "PROPOSAL NO. 1: THE MERGER--TERMS OF
THE MERGER--ESCROW AGREEMENT."

HOLDERS OF PACIFIC COMMON STOCK OR PACIFIC PREFERRED STOCK SHOULD NOT SEND
ANY CERTIFICATES REPRESENTING PACIFIC COMMON STOCK OR PACIFIC PREFERRED STOCK
WITH THE ENCLOSED PROXY. IF THE MERGER IS APPROVED, A LETTER OF TRANSMITTAL WILL
BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A HOLDER OF
OUTSTANDING PACIFIC COMMON STOCK OR PACIFIC PREFERRED STOCK IMMEDIATELY PRIOR TO
THE EFFECTIVE TIME. CERTIFICATES REPRESENTING PACIFIC COMMON STOCK OR PACIFIC
PREFERRED STOCK SHOULD BE SENT TO THE EXCHANGE AGENT (AS DEFINED BELOW) ONLY
AFTER RECEIPT OF, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE
LETTER OF TRANSMITTAL.

OWNERSHIP OF HYBRID

Based on the Assumed Exchange Ratio and the number of shares of Pacific
Common Stock outstanding or subject to Pacific Options or Warrants as of April
30, 1998, immediately following the Merger, the former shareholders of Pacific
will collectively hold approximately 13.4% of the outstanding shares of Hybrid
Common Stock (15.7% including former optionholders and warrantholders of
Pacific). Based on the High Exchange Ratio, the former shareholders of Pacific
would hold approximately 16.2% of the outstanding shares of Hybrid Common Stock
(18.8% including former optionholders and warrant holders of Pacific); and,
based on the Low Exchange Ratio, the former shareholders of Pacific would hold
approximately 10.7% of the outstanding shares of Hybrid Common Stock (12.5%
including former optionholders and warrant holders of Pacific). In addition,
affiliates of Pacific who currently own approximately 60% of Pacific's
outstanding capital stock, after the consummation of the Merger will own only
8.5% of the outstanding Hybrid Common Stock based on the Assumed Exchange Ratio,
10.4% based on

10
<PAGE>
the High Exchange Ratio and 6.7% based on the Low Exchange Ratio. See "SECURITY
OWNERSHIP OF THE COMBINED COMPANY."

RESALE OF SECURITIES RECEIVED BY PACIFIC SHAREHOLDERS

Shares of Hybrid Common Stock received by holders of Pacific Capital Stock
who are not also affiliates of Pacific will be freely salable following the
Merger. With respect to shares of Hybrid Common Stock issuable upon the exercise
of assumed Pacific Options, Hybrid has agreed that as soon as practicable
following the closing of the Merger that it will file a registration statement
on Form S-8 registering such shares. Upon such registration, shares of Hybrid
Common Stock issued upon the exercise of the assumed Pacific Options will be
freely salable as well.

Shares of Hybrid Common Stock issuable upon the exercise of assumed Pacific
Warrants are not being registered in connection with the Merger. Shares of
Hybrid Common Stock received upon the exercise of the assumed Pacific Warrants
must either be registered for resale or otherwise qualify for an exemption from
registration under applicable federal and state securities laws as, for example,
by the holder of such shares complying with the provisions of Rule 144 under the
Securities Act.

See "--MARKET AND DIVIDEND DATA" BELOW AND "COMPARATIVE PER SHARE MARKET
PRICE AND DIVIDEND INFORMATION."

FINANCIAL ADVISORS

NationsBanc Montgomery Securities LLC ("NATIONSBANC MONTGOMERY") has
delivered its written opinion dated March 19, 1998 stating that the
consideration to be paid by Hybrid in the Merger was fair to Hybrid from a
financial point of view, as of the date of such opinion. The full text of the
opinion of NationsBanc Montgomery, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by NationsBanc
Montgomery is attached as Appendix B to this Joint Proxy Statement/Prospectus.
Hybrid stockholders are urged to read the opinion in its entirety.

In connection with the Merger, UBS Securities LLC ("UBS") acted as financial
advisor to Pacific. UBS orally informed the Pacific Board of Directors on March
19, 1998, that, based upon it's review of the businesses of Hybrid and Pacific
and its experience in the investment banking industry, it concurred with the
Board's views as to the advantages of a business combination with Hybrid. UBS
did not render a formal "fairness opinion" on the Merger. No financial or other
advice was rendered by UBS to Hybrid in connection with the Merger. UBS acted as
one of the two managing underwriters in Hybrid's initial public offering and
currently acts as a market maker for Hybrid's stock.

REASONS FOR THE MERGER

The Hybrid Board authorized the execution and delivery of the Reorganization
Agreement with the expectation that the Merger will produce substantial
benefits, including (i) combining Hybrid's wireless network products and
expertise with Pacific's wireless transmission products and expertise to provide
an opportunity for the combined company (a) to offer a broader and more complete
suite of products and (b) to accelerate development of integrated, end-to-end
system solutions for high speed wireless Internet access; (ii) combining each
company's market presence, customer base and relationships in the broadband
marketplace to provide additional marketing opportunities; (iii) adding
Pacific's international sales and distribution capability to give Hybrid the
opportunity to expand the international distribution of its products; (iv)
increasing the management breadth, engineering, sales and marketing and other
personnel capacity of the combined company; (v) providing the opportunity to
achieve operational efficiencies; and helping the combined company to achieve
critical mass in revenues and resources to meet the increasing challenges in the
markets in which it will participate. See "PROPOSAL NO. 1: THE MERGER-- APPROVAL
OF THE MERGER--HYBRID'S REASONS FOR THE MERGER."

11
<PAGE>
The Pacific Board authorized the execution and delivery of the
Reorganization Agreement with the expectation that the Merger will produce
substantially the same benefits as those envisioned by the Hybrid Board. In
addition, the Pacific Board believes that Hybrid's current reserves of cash and
cash equivalents may enable Pacific to have greater flexibility in managing its
business. Moreover, the Merger will provide a means by which Pacific's
shareholders and optionholders will be able to gain liquidity for their equity
interests. See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE MERGER--PACIFIC'S
REASONS FOR THE MERGER."

TERMS OF THE MERGER

EFFECTIVE TIME

It is anticipated that the Merger will become effective (the "EFFECTIVE
TIME") as promptly as practicable after the requisite shareholder and
stockholder approvals have been obtained and all other conditions to the Merger,
as specified in the Reorganization Agreement, have been satisfied or waived. See
"PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--CONDITIONS TO THE MERGER."

CONDITIONS TO THE MERGER

In addition to the requirement that the Merger be approved by the Hybrid
stockholders and by the Pacific shareholders, the obligations of Hybrid and
Pacific to consummate the Merger are subject to the satisfaction of a number of
other conditions, including, without limitation, effectiveness of and the
absence of any proceedings or stop order commenced or threatened by the
Commission with respect to this Joint Proxy Statement/Prospectus; the absence of
any order, decree or ruling by any court or governmental agency or threat
thereof, or any other fact or circumstance, that would prohibit or render
illegal the transactions contemplated by the Reorganization Agreement; and the
receipt of all permits or authorizations that may be required by regulatory
authorities. Each party's obligations under the Reorganization Agreement are
also conditioned upon the accuracy of the representations and warranties made
therein by the other party; the obtaining of certain third-party consents; the
performance in all material respects by the other party of its covenants
contained therein; the absence of any material adverse effect with respect to
Hybrid or Pacific; and the receipt of certain legal opinions.

Hybrid's obligations to consummate the Merger will be further conditioned
upon the absence of certain legal proceedings concerning the transactions
provided for in the Reorganization Agreement by Pacific; the execution by the
Pacific parties and delivery to Hybrid of the Escrow Agreement, certain
employment arrangements and noncompetition agreements with Richard B. Gold,
Michael D. Morganstern and Allen F. Podell, who are currently officers of
Pacific (the "EMPLOYMENT AND NONCOMPETITION ARRANGEMENTS"), and certain Pacific
affiliates agreements; that the holders of no more than 5% of the aggregate
outstanding shares of Pacific Capital Stock be eligible to exercise dissenters'
rights under the California Code; and the receipt of opinions from Coopers &
Lybrand L.L.P. and Deloitte & Touche LLP to the effect that the Merger will be
treated as a pooling of interests for accounting purposes (the "POOLING
OPINIONS").

Pacific's obligations to consummate the Merger will be further conditioned
upon the execution by Hybrid and delivery to Pacific of an investor rights
agreement (providing for registration rights) with certain Pacific shareholders
and the Employment and Noncompetition Arrangements; the appointment of Richard
B. Gold and Matthew D. Miller to the Hybrid Board of Directors, effective upon
the effectiveness of the Merger, and the execution and delivery of indemnity
agreements with such new directors; and Hybrid's authorization for listing on
the Nasdaq Stock Market of the Hybrid Common Stock to be issued in the Merger,
upon notice of issuance.

At any time on or prior to the Merger, to the extent legally allowed, Hybrid
or Pacific, without approval of the stockholders or shareholders of such
company, as the case may be, may waive compliance with any of the agreements or
conditions contained in the Reorganization Agreement for the benefit of that
company. See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--CONDITIONS TO THE
MERGER."

12
<PAGE>
SURRENDER OF CERTIFICATES

If the Merger becomes effective, Boston Equiserve (the "EXCHANGE AGENT")
will give specific written instructions to all holders of record of Pacific
Common Stock and Pacific Preferred Stock as of the Effective Time as to the
procedure for surrendering their Pacific stock certificates. Upon the Exchange
Agent's receipt of such certificates, each Pacific shareholder will receive a
certificate representing Hybrid Common Stock and a cash payment in lieu of
fractional shares.

CERTIFICATES REPRESENTING SHARES OF PACIFIC COMMON STOCK OR PREFERRED STOCK
SHOULD NOT BE SURRENDERED UNTIL THE EXCHANGE AGENT'S WRITTEN INSTRUCTIONS ARE
RECEIVED.

TERMINATION

The Reorganization Agreement may be terminated by mutual agreement of both
parties or by either party: (i) as a result of a breach by the other party of a
representation, warranty or covenant set forth in the Reorganization Agreement
which breach has or can reasonably be expected to result in a material adverse
effect on such party and which the other party fails to cure within thirty days
after written notice thereof (except that no cure period will be provided for a
breach which by its nature cannot be cured), (ii) if all the conditions for
closing the Merger are not satisfied or waived on or before the Final Date (as
defined below) other than as a result of the breach of the Reorganization
Agreement by the terminating party or the breach of certain affiliates
agreements by such party's affiliates, (iii) if the required approval of the
stockholders or shareholders of Hybrid or Pacific, as applicable, are not
obtained by reason of the failure to obtain the required vote, or (iv) if a
permanent injunction or other order by a federal or state court which would make
illegal or otherwise restrain or prohibit consummation of the Merger is issued
and has become final and nonappealable.

The term "FINAL DATE" is defined in the Reorganization Agreement as July 31,
1998 except that if a temporary, preliminary or permanent injunction or other
order by any federal or state court which would prohibit or otherwise restrain
consummation of the Merger is issued and in effect on July 31, 1998, and such
injunction has not become final and nonappealable, either Hybrid or Pacific may,
upon written notice to the other party on or before July 31, 1998, extend the
time for consummation of the Merger up to and including the earlier of the date
such injunction becomes final and nonappealable or 45 days after July 31, 1998.

If the Reorganization Agreement is terminated by Hybrid because more than 5%
of Pacific Capital Stock are eligible for the exercise of dissenters' rights
under the California Code, or if Coopers & Lybrand L.L.P. does not issue its
Pooling Opinion because of actions taken by Pacific after the date of the
Reorganization Agreement, Pacific would be required to pay Hybrid a termination
payment in the amount of $375,000.

If the Reorganization Agreement is terminated by Pacific because Coopers &
Lybrand L.L.P. does not issue a Pooling Opinion as a result of actions taken by
Hybrid after the date of the Reorganization Agreement, Hybrid would be required
to pay Pacific a termination payment in the amount of $375,000.

MERGER EXPENSES AND FEES AND OTHER COSTS

If the Merger is consummated, Hybrid will bear all costs and expenses in
connection with the Reorganization Agreement and the transactions provided for
therein. Expenses incurred by Pacific for accounting, attorneys and other
professionals' fees and expenses (other than those of its financial advisors,
UBS) in excess of $175,000, if paid by Hybrid, will enable Hybrid to make a
claim under the Escrow. If the Merger is not consummated, each of Pacific and
Hybrid will bear its own costs and expenses with respect to the Reorganization
Agreement and the transactions contemplated thereby.

13
<PAGE>
Hybrid expects to incur a charge of approximately $3.0 million to $3.5
million in the quarter in which the Merger occurs in connection with the
write-off of certain assets, personnel severance costs, the cancellation and
continuation of contractual obligations and transaction fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" below in this
section.

NASDAQ STOCK MARKET LISTING

The shares of Hybrid Common Stock to be issued in the Merger will be traded
on the Nasdaq Stock Market under the symbol "HYBR".

AMENDMENT

The Reorganization Agreement may be amended by Hybrid and Pacific at any
time before or after approval by the Hybrid stockholders or the Pacific
shareholders, except that, after such approval, no amendment may be made which
by law requires the further approval of the Hybrid stockholders or the Pacific
shareholders unless such approval is obtained.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain management personnel of Pacific have entered into or are expected to
enter into employment agreements or arrangements and noncompetition agreements
with Hybrid that will become effective upon consummation of the Merger, as
described below. See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--
EMPLOYMENT/NONCOMPETITION ARRANGEMENTS." Under the employment arrangements, upon
the consummation of the Merger, Richard B. Gold (the Chief Executive Officer,
President and a director of Pacific) will become the President and Chief
Operating Officer of Hybrid, and Michael D. Morganstern (the Vice President,
Engineering of Pacific) and Allen F. Podell (the Chief Technical Officer of
Pacific) will become employees of Hybrid. Pursuant to the terms of the
Reorganization Agreement, it is anticipated that, following the Merger, Mr. Gold
and Matthew D. Miller (the Chairman of the Board of Pacific), will be appointed
directors of Hybrid. Pursuant to the Reorganization Agreement, Hybrid has agreed
to indemnify Messrs. Gold and Miller in their capacity as Hybrid directors. See
"PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--INDEMNIFICATION AGREEMENTS."
In addition, Mr. Miller has been a consultant to Hybrid since October 1994 and
has received options to purchase 18,519 shares of Hybrid Common Stock. A
consulting firm of which Mr. Miller is the President acts as a consultant to
Pacific as well. See "SELECTED INFORMATION WITH RESPECT TO PACIFIC--CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." As a result of the foregoing, the
officers and directors of Pacific referred to above may have personal interests
in the Merger which are not identical to the interests of other Pacific
shareholders. In addition, certain 5% or greater shareholders of Pacific, in May
1996 and September 1997, loaned Pacific an aggregate of $1.0 million and
$750,000, respectively, in connection with bridge loan financings, and such
shareholders received promissory notes and warrants to purchase Pacific Common
Stock. In connection with the Merger, the promissory notes are expected to be
repaid in full, together with accrued interest. James R. Flach, a director of
Hybrid, is an executive partner of Accel Partners. Accel Partners and entities
associated with Accel Partners constitute principal stockholders of Hybrid,
principal shareholders of Pacific and holders of certain of the Pacific
promissory notes that are expected to be repaid following the Merger. See
"PROPOSAL NO. 1: THE MERGER-- APPROVAL OF THE MERGER--INTERESTS OF CERTAIN
PERSONS IN THE MERGER" and "SELECTED INFORMATION WITH RESPECT TO
PACIFIC--CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS."

14
<PAGE>
have the right to receive accelerated vesting of options for up to 26,991 shares
of Hybrid Common Stock, should he leave the Company within 12 months thereafter.
This may give Mr. Fry a personal interest in the Merger which is not identical
to the interest of other Hybrid stockholders. See "PROPOSAL NO. 1: THE
MERGER--APPROVAL OF THE MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER."

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The Merger is expected to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss will be recognized by Hybrid, Pacific,
Hybrid stockholders or Pacific shareholders on the exchange of Pacific Common
Stock or Pacific Preferred Stock, as the case may be, for Hybrid Common Stock,
except to the extent that Pacific shareholders receive cash in lieu of
fractional shares or upon exercise of dissenters' or appraisal rights. The
Reorganization Agreement does not require the parties to obtain a ruling from
the Internal Revenue Service as to the tax consequences of the Merger. As a
condition to Hybrid's and Pacific's obligations to consummate the Merger, Hybrid
and Pacific are to receive opinions at the Effective Time from their respective
legal counsel to the effect that the Merger will be treated as a tax-free
reorganization for federal income tax purposes. Hybrid Stockholders and Pacific
Shareholders are urged to consult their own tax advisors regarding such tax
consequences. See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE MERGER--CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS."

ACCOUNTING TREATMENT

The Merger is intended to be treated as a pooling of interests for
accounting purposes. As a condition to Hybrid's obligations to consummate the
Merger, Hybrid is to receive the Pooling Opinions from Coopers & Lybrand L.L.P.,
independent accountants for Hybrid, and Deloitte & Touche LLP, independent
auditors for Pacific, to the effect that the Merger will be treated as a pooling
of interests for accounting purposes. See "PROPOSAL NO. 1: THE MERGER-- APPROVAL
OF THE MERGER--ACCOUNTING TREATMENT."

APPRAISAL AND DISSENTERS' RIGHTS

If the Merger is approved by the required vote of Pacific's shareholders,
each holder of shares of Pacific Capital Stock who does not vote in favor of the
Merger and who follows the procedures set forth in Sections 1300 through 1312 of
the California Code will be entitled to have shares of Pacific Capital Stock
purchased by Pacific for cash at their fair market value. The fair market value
of shares of Pacific Capital Stock will be determined as of the day before the
first announcement of the terms of the proposed Merger, excluding any
appreciation or depreciation in consequence of the proposed Merger and therefore
valuing the shares of Pacific Capital Stock as if the Merger had not occurred.
The failure of a dissenting Pacific shareholder to timely and properly comply
with the procedures set forth in Sections 1300 through 1312 of the California
Code will result in the termination or waiver of such rights.

Under the Delaware General Corporation Law, Hybrid stockholders are not
entitled to dissenters' rights or appraisal rights with respect to the proposed
Merger.

See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE MERGER--APPRAISAL AND
DISSENTERS' RIGHTS."

REGULATORY MATTERS

The Merger is not subject to notification and review under the Hart Scott
Rodino Antitrust Improvements Act of 1976 (the "HSR ACT") or the rules
promulgated thereunder by the Federal Trade Commission ("FTC").

ESCROW AGREEMENT

In connection with the Merger, Hybrid, State Street Bank and Trust Co., as
Escrow Agent, and Alan F. Dishlip, as representative of the Pacific
shareholders, will enter into the Escrow Agreement. Pursuant to

15
<PAGE>
the Escrow Agreement, upon consummation of the Merger, Hybrid will deposit into
escrow stock certificates representing 10% of the shares of Hybrid Common Stock
issuable to each of the Pacific shareholders pursuant to the Merger. The Escrow
Shares will be held in escrow as collateral for the indemnification obligations
of the Pacific shareholders under the Reorganization Agreement. Pursuant to such
indemnification obligations, the Pacific shareholders will indemnify and hold
harmless Hybrid and its officers, directors, agents, employees and affiliates
from and against all damages arising out of any misrepresentation or breach of
or default in connection with any of the representations, warranties and
covenants given or made by Pacific in the Reorganization Agreement or any
certificate, document or instrument delivered by or on behalf of Pacific
pursuant thereto. Indemnification obligations will not apply unless and until
the "Damages" (as defined) exceed $100,000, in which event such indemnification
obligations will include all Damages. The indemnification obligations of the
Pacific Shareholders with respect to the Pacific financial statements expire
when Hybrid issues its press release regarding its audited financial results for
its fiscal year ending December 31, 1998. The indemnification obligations of the
Pacific Shareholders with respect to all other Pacific representations and
warranties expire on the first anniversary of the Closing Date.

CERTAIN RELATED AGREEMENTS

AFFILIATES AGREEMENTS

To help ensure that the Merger will be accounted for as a "pooling of
interests," affiliates of Hybrid ("HYBRID AFFILIATES") and Pacific ("PACIFIC
AFFILIATES") have executed agreements which prohibit such persons from disposing
of their shares (i) during the 30-day period prior to the closing date of the
Merger and (ii) until Hybrid publicly releases its first report including the
combined financial results of Hybrid and Pacific for a period of at least 30
days of "combined operations," as defined by the Commission. Pursuant to such
agreements, the Pacific Affiliates have also acknowledged the resale
restrictions imposed by Rule 145 promulgated under the Securities Act on shares
received by them in the Merger and have made certain representations pertaining
to the "continuity of interest" requirements for a tax-free reorganization. See
"PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--AFFILIATES AGREEMENTS."

VOTING AGREEMENTS

Certain affiliates of Hybrid who beneficially own approximately 13.4% of the
outstanding shares of Hybrid Common Stock, and certain affiliates of Pacific who
beneficially own approximately 58.8% and 61.0% of the outstanding shares of
Pacific Common Stock and Pacific Preferred Stock, respectively, have entered
into Voting Agreements pursuant to which such affiliates have agreed to vote
their shares of Hybrid Common Stock or Pacific Capital Stock, as applicable, in
favor of the Merger and against any action or agreement that would be in breach
of any representation, warranty, covenant or obligation of Hybrid or Pacific, as
applicable, in the Reorganization Agreement. See "PROPOSAL NO. 1: THE MERGER--
TERMS OF THE MERGER--VOTING AGREEMENTS."

INVESTOR RIGHTS AGREEMENT

Hybrid and certain Pacific shareholders will enter into an Investor Rights
Agreement (the "INVESTOR RIGHTS AGREEMENT") which grants such shareholders the
right to have "piggyback" registration rights with respect to the shares of
Hybrid Common Stock to be received by it in exchange for their Pacific Capital
Stock pursuant to the Merger. See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE
MERGER--INVESTOR RIGHTS AGREEMENT."

16
<PAGE>
MARKET PRICE AND DIVIDEND DATA

Hybrid Common Stock is traded on the Nasdaq National Market under the symbol
"HYBR." The following table sets forth the range of high and low sale prices
reported on the Nasdaq National Market for Hybrid Common Stock for the periods
indicated:

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1998
Second Quarter (through May 1, 1998).......................................................... $ 7.38 $ 6.00
First Quarter................................................................................. $ 13.00 $ 3.88
FISCAL YEAR ENDED DECEMBER 31, 1997
Fourth Quarter (beginning November 12, 1997).................................................. $ 24.25 $ 9.25
</TABLE>

The Pacific Common Stock and Pacific Preferred Stock are not listed on any
exchange and do not trade publicly.

The following table sets forth the closing sales prices per share of Hybrid
Common Stock on the Nasdaq National Market on March 19, 1998, the last trading
day before the announcement of the proposed Merger, and on May 1, and the
equivalent per share price for Pacific Capital Stock. The "equivalent per share
price" for Pacific Common Stock and Pacific Preferred Stock as of such dates
equal the closing sale price per share of Hybrid Common Stock on such dates
multiplied by the Assumed Exchange Ratio of 0.0894714. See "PROPOSAL NO. 1: THE
MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION."

<TABLE>
<CAPTION>
HYBRID COMMON PACIFIC
STOCK EQUIVALENT
--------------- -----------
<S> <C> <C>
March 19, 1998.................................................... $ 7.81 $ 0.70
May 1, 1998....................................................... $ 6.13 $ 0.55
</TABLE>

At March 31, 1998, the closing price per share of Hybrid Common Stock, book
value per share of Pacific Capital Stock, pro forma combined book value per
share and book value per share of Pacific Capital Stock based on the application
of the Assumed Exchange Ratio to the closing price per share of Hybrid Common
Stock were as follows:

<TABLE>
<CAPTION>
HYBRID COMMON PACIFIC CAPITAL PRO FORMA PACIFIC
STOCK STOCK COMBINED EQUIVALENT
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
March 31, 1998........................ $ 7.13 $ 0.24 $ 2.68 $ 0.24
</TABLE>

Pacific shareholders are advised to obtain current market quotations for
Hybrid Common Stock. No assurance can be given as to the market prices of Hybrid
Common Stock at any time before the Effective Time or as to the market price of
Hybrid Common Stock at any time thereafter. In the event the market price of
Hybrid Common Stock decreases or increases prior to the Effective Time, the
value at the Effective Time of the Hybrid Common Stock to be received in the
Merger in exchange for the Pacific Capital Stock would correspondingly increase
or decrease, subject to the range described on the cover page of this Joint
Proxy Statement/Prospectus. See "PROPOSAL NO. 1: THE MERGER--TERMS OF THE
MERGER-- MERGER CONSIDERATION."

Hybrid and Pacific have never paid cash dividends on their respective shares
of Common Stock or Preferred Stock. Pursuant to the Reorganization Agreement,
each of Hybrid and Pacific have agreed not to pay cash dividends pending the
consummation of the Merger without the written consent of the other. Subject to
the completion of the Merger, the Hybrid Board intends to continue a policy of
retaining all earnings to finance the expansion of its business. The terms of an
outstanding $5.5 million debenture (the "$5.5 MILLION DEBENTURE") prevent Hybrid
from paying any cash dividends for so long as the $5.5 Million Debenture remains
outstanding. In addition, in October 1997, Hybrid entered into a $4.0 million
bank credit facility (the "$4.0 MILLION CREDIT FACILITY"), the terms of which
prohibit the declaration of dividends. The Pacific Board currently intends to
retain all earnings for use in the business of the combined company and has no
present intention to pay cash dividends.

17
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS:

The following unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical financial statements of
Hybrid and Pacific, including the notes thereto, which are included herein. See
"SELECTED HISTORICAL FINANCIAL DATA OF HYBRID" and "SELECTED HISTORICAL
FINANCIAL DATA OF PACIFIC."

The unaudited pro forma condensed combined financial statements assume a
business combination between Hybrid and Pacific accounted for on a
pooling-of-interests basis and are based on each company's respective historical
financial statements and notes thereto, which are included herein. The unaudited
pro forma condensed combined balance sheets combine Hybrid's balance sheet as of
March 31, 1998 with Pacific's balance sheet as of March 31, 1998, giving effect
to the Merger as if it had occurred on March 31, 1998. The unaudited pro forma
condensed combined statements of operations combine Hybrid's historical results
for the three years ended December 31, 1997 and the three months ended March 31,
1998 with Pacific's historical results for the three years ended September 30,
1997 and the three months ended March 31, 1998, giving effect to the Merger as
if it had occurred at January 1, 1995, the earliest period presented.

The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results or financial position.

18
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
HYBRID AT PACIFIC AT
MARCH 31, MARCH 31, PRO FORMA FOOTNOTE PRO FORMA
1998 1998 ADJUSTMENTS REFERENCE # COMBINED
------------ ------------- ----------- --------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 7,248 $ 162 $ 7,410
Short-term investments...................... 12,753 -- 12,753
Accounts receivable, net.................... 9,846 7,119 16,965
Inventories................................. 5,582 6,498 12,080
Prepaid expenses and other current assets... 369 347 716
--
------------ ------------- ----------- -----------
Total current assets...................... 35,798 14,126 49,924
Property and equipment, net................... 1,768 2,583 4,351
Intangibles and other assets.................. 1,628 110 1,738
--
------------ ------------- ----------- -----------
Total assets................................ $ 39,194 $ 16,819 $ 56,013
--
--
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank....................... $ -- $ 4,298 $ 4,298
Notes payable to shareholders............... -- 1,750 1,750
Accounts payable............................ 2,080 4,407 6,487
Accrued liabilities......................... 1,278 1,063 1,500 C2 3,841
Current portion of capital lease
obligations............................... 455 465 920
Deferred revenue............................ -- 24 24
--
------------ ------------- ----------- -----------
Total current liabilities................. 3,813 12,007 1,500 17,320
Convertible debenture......................... 5,500 -- 5,500
Capital lease obligations, less current
portion..................................... 587 458 1,045
Other liabilities............................. -- 90 90
--
------------ ------------- ----------- -----------
Total liabilities......................... 9,900 12,555 1,500 23,955
--
------------ ------------- ----------- -----------
Stockholders' equity:
Convertible preferred stock................. -- 14,068 $ (14,068) C1 --
Common stock................................ 10 15,591 (15,589) C1 12
Notes receivable............................ -- (150) (150)
Additional paid-in capital.................. 63,916 -- 29,657 C1 93,573
Accumulated deficit......................... (34,632) (25,245) (1,500) C2 (61,377)
--
------------ ------------- ----------- -----------
Total stockholders' equity................ 29,294 4,264 (1,500) 32,058
--
------------ ------------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $ 39,194 $ 16,819 -- $ 56,013
--
--
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

19
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
HYBRID PACIFIC
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED PRO FORMA PRO FORMA
MARCH 31, 1998 MARCH 31, 1998 ADJUSTMENT COMBINED
-------------- -------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net Sales.............................................. $ 3,528 $ 5,018 $ 8,546
Cost of goods sold..................................... 2,897 4,140 7,037
------- ------- ----------- -----------
Gross profit......................................... 631 878 1,509
Costs and expenses:
Research and development............................. 2,042 1,059 3,101
Sales and marketing.................................. 977 633 1,610
General and administrative........................... 1,390 453 1,843
------- ------- ----------- -----------
Total operating expenses........................... 4,409 2,145 6,554
------- ------- ----------- -----------
Loss from operations................................... (3,778) (1,267) (5,045)
Interest income and other expenses, net................ 78 (229) (151)
------- ------- ----------- -----------
Net loss............................................... $ (3,700) $ (1,496) $ (5,196)
------- ------- ----------- -----------
------- ------- ----------- -----------
Basic and diluted loss per share....................... $ (0.36) $ (0.28) $ (0.48)
------- ------- -----------
------- ------- -----------
Shares used in basic and diluted per share
calculation.......................................... 10,353 5,285 (4,812) 10,826
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

20
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
HYBRID PACIFIC
FOR THE YEAR FOR THE YEAR
ENDED DEC. ENDED SEPT. PRO FORMA PRO FORMA
31, 1997 30, 1997 ADJUSTMENT COMBINED
------------ ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................................. $ 14,270 $ 35,369 $ 49,639
Cost of goods sold........................................ 12,258 26,014 38,272
------------ ------------- ----------- -----------
Gross profit............................................ 2,012 9,355 11,367
Costs and expenses:
Research and development................................ 7,108 4,824 11,932
Sales and marketing..................................... 4,319 3,690 8,009
General and administrative.............................. 3,606 1,649 5,255
------------ ------------- ----------- -----------
Total operating expenses.............................. 15,033 10,163 25,196
------------ ------------- ----------- -----------
Loss from operations.................................. (13,021) (808) (13,829)
Interest income and other expenses, net................... (569) (599) (1,168)
------------ ------------- ----------- -----------
Net loss.............................................. $ (13,590) $ (1,407) $ (14,997)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Basic and diluted loss per share.......................... $ (3.84) $ (0.29) $ (3.77)
------------ ------------- -----------
------------ ------------- -----------
Shares used in basic and diluted per share calculation.... 3,541 4,866 (4,431) 3,976
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

21
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
HYBRID PACIFIC
FOR THE YEAR FOR THE YEAR
ENDED DEC. ENDED SEPT. PRO FORMA PRO FORMA
31, 1996 30, 1996 ADJUSTMENT COMBINED
------------ ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................................. $ 2,962 $ 29,141 $ 32,103
Cost of goods sold........................................ 3,130 23,246 26,376
------------ ------------- ----------- -----------
Gross profit (loss)....................................... (168) 5,895 5,727
Costs and expenses:
Research and development................................ 5,076 5,421 10,497
Sales and marketing..................................... 1,786 3,104 4,890
General and administrative.............................. 1,714 2,839 4,553
------------ ------------- ----------- -----------
Total operating expenses.............................. 8,576 11,364 19,940
------------ ------------- ----------- -----------
Loss from operations.................................. (8,744) (5,469) (14,213)
Interest income and other expenses, net................... 229 (474) (245)
------------ ------------- ----------- -----------
Net loss.............................................. $ (8,515) $ (5,943) $ (14,458)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Basic and diluted loss per share.......................... $ (3.36) $ (1.42) $ (4.97)
------------ ------------- -----------
------------ ------------- -----------
Shares used in basic and diluted per share calculation.... 2,535 4,184 (3,810) 2,909
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

22
<PAGE>
HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
HYBRID PACIFIC
FOR THE YEAR FOR THE YEAR
ENDED DEC. ENDED SEPT. PRO FORMA PRO FORMA
31, 1995 30, 1995 ADJUSTMENT COMBINED
------------ ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................................. $ 630 $ 24,925 $ 25,555
Cost of goods sold........................................ 761 15,964 16,725
------------ ------------- ----------- -----------
Gross profit (loss)....................................... (131) 8,961 8,830
Costs and expenses:
Research and development................................ 3,862 3,169 7,031
Sales and marketing..................................... 390 2,514 2,904
General and administrative.............................. 748 2,434 3,182
------------ ------------- ----------- -----------
Total operating expenses.............................. 5,000 8,117 13,117
------------ ------------- ----------- -----------
Income (loss) from operations......................... (5,131) 844 (4,287)
Interest income and other expenses, net................... (138) (300) (438)
------------ ------------- ----------- -----------
Income (loss) before income taxes......................... (5,269) 544 (4,725)
Provision for income taxes................................ 3 3
------------ ------------- ----------- -----------
Net income (loss)..................................... $ (5,269) $ 541 $ (4,728)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Basic income (loss) per share............................. $ (2.37) $ 0.15 $ (1.85)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Shares used in basic per share calculation................ 2,223 3,701 (3,370) 2,554
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Diluted income (loss) per share........................... $ (2.37) $ 0.03 $ (1.85)
------------ ------------- -----------
------------ ------------- -----------
Shares used in diluted per share calculation.............. 2,223 15,553 (15,222) 2,554
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

23
<PAGE>
HYBRID AND PACIFIC
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL STATEMENTS

NOTE A: The Hybrid condensed combined statements of operations for the three
years ended December 31, 1997 have been combined with Pacific condensed combined
statements of operations for the three years ended September 30, 1997.
Additionally, the Hybrid statement of operations for the three months ended
March 31, 1998 has been combined with Pacific's statement of operations for the
three months ended March 31, 1998. This method of combining the two companies is
for the presentation of unaudited pro forma condensed combined financial
statements only. The unaudited pro forma condensed combined financial
statements, including the notes thereto, should be read in conjunction with the
historical financial statements of Hybrid and Pacific which are included
elsewhere in this document. The selected historical unaudited financial data for
Pacific as of and for the three months and six months ended March 31, 1998
reflect, in the opinion of the management of Pacific, all adjustments consisting
only of normal recurring accruals, necessary for the fair presentation of the
results of operations for such period. These interim operating results of
Pacific are not necessarily indicative of the results that may be expected for
their fiscal year ending September 30, 1998.

NOTE B: The unaudited pro forma combined statements of operations for Hybrid
and Pacific have been prepared as if the Merger was completed at the beginning
of the earliest period presented. Intercompany transactions between Hybrid and
Pacific have not been significant. The initiation date for the transaction was
February 12, 1998 and the expected consummation date is May 29, 1998. The
unaudited pro forma combined basic and diluted net loss per share is based on
the combined weighted average number of common shares of Hybrid Common Stock and
Pacific Common Stock for each period, based upon the Assumed Exchange Ratio of
0.0894714 shares of Hybrid Common Stock for each share of Pacific Common Stock.
The unaudited pro forma condensed combined financial statements assume that all
Pacific Preferred Stock and Pacific Common Stock will convert into shares of
Hybrid Common Stock based on the Exchange Ratio. Potentially dilutive shares
from Pacific Options, Pacific Warrants and Pacific Preferred Stock are excluded
from the computation of combined diluted loss per share because their effect is
antidilutive.

NOTE C:

1. PRO FORMA BASIS OF PRESENTATION

These unaudited pro forma combined financial statements reflect the issuance
of 1,611,680 shares of Hybrid Common Stock in exchange for an aggregate of
12,320,681 shares of Pacific Preferred Stock and 5,692,668 shares of Pacific
Common Stock (outstanding as of March 31, 1998) in connection with the Merger
based on the Assumed Exchange Ratio of 0.0894714 share of Hybrid Common Stock
for every 1.0 share of Pacific Common Stock and Pacific Preferred Stock.

The following table details the pro forma share issuances in connection with
the Merger:

<TABLE>
<CAPTION>
NUMBER OF
PREFERRED COMMON SHARES OF
SHARES SHARES EXCHANGE HYBRID COMMON
OUTSTANDING OUTSTANDING RATIO STOCK
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Number of Shares of Pacific Common and
Preferred Stock Outstanding at March 31, 1998........ 12,320,681 5,692,668 0.0894714 1,611,680
Number of Shares of Hybrid Common Stock Outstanding at
March 31, 1998....................................... 10,364,000
--------------
Total Number of Shares of Hybrid Common
Stock Outstanding After Completion of Merger......... 11,975,680
--------------
--------------
</TABLE>

24
<PAGE>
HYBRID AND PACIFIC
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL STATEMENTS (CONTINUED)

The actual number of shares of Hybrid Common Stock to be issued will be
determined at the Effective Time of the Merger based on the number of shares of
Pacific Common Stock and Pacific Preferred Stock outstanding at such time.

2. TRANSACTION COSTS

Hybrid and Pacific estimated they will incur direct transaction costs of
approximately $1.5 million associated with the Merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. At March 31, 1998, none of the transaction related costs
had been incurred. These nonrecurring transaction costs will be charged to
operations through the quarter ending June 30, 1998.

The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to
estimated direct transaction costs and merger related expenses to be incurred
for the Merger. Estimated costs and expenses are not reflected in the Unaudited
Pro Forma Condensed Combined Statements of Operations.

NOTE D: As the companies have historically adopted similar accounting policies,
no adjustments have been made to conform the accounting policies of the combined
companies.

NOTE E: If more than 5% of Pacific capital stock is eligible for the exercise
of dissenters' rights the planned transaction does not have to be consummated by
Hybrid. Hybrid and Pacific anticipate dissenters' rights to be less than 5%.

NOTE F: Pacific's net revenue, and net income were $13,150,000 and $332,000
respectively for the three months ended December 31, 1996 as compared to net
sales of $6,963,000 and net loss of $819,000 for the three months ended December
31, 1997. The decreases in net sales and net income are due primarily to
reductions in shipments to a major customer due to declined demand.

The Pro Forma Condensed Combined Statements of Operations of Hybrid and
Pacific for the year ended December 31, 1997, exclude Pacific's operations for
the three months ended December 31, 1997. Had they been included, the Pro Forma
Combined Net loss for the year ended December 31, 1997 would have been increased
by $1,151,000 to a combined total net loss of $16,149,000 or $4.06 diluted net
loss per share.

COMPARATIVE PER SHARE DATA

The following tables set forth certain historical per share data of Hybrid
and Pacific and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis assuming that
0.0894714 of a share of Hybrid Common Stock is issued in exchange for each share
of Pacific Common Stock and Pacific Preferred Stock in the Merger. This data
should be read in conjunction with the Selected Historical Financial Data, the
Unaudited Pro Forma Combined Financial Statements and the separate historical
financial statements of Hybrid and Pacific and the notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the combined financial position or results of future periods or the results that
actually would have been realized had the entities been a single entity during
the periods presented.

25
<PAGE>
HYBRID AND PACIFIC
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- --------- AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical--Pacific
Basic net income (loss) per share......................... $ (0.29) $ (1.42) $ 0.15 $ (0.28) $ (0.04)
Diluted net income (loss) per share....................... (0.29) (1.42) 0.03 (0.28) (0.04)
Book value per share (1).................................. 0.37 0.24
</TABLE>

<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- --------- AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unaudited Pro forma combined per share data (2):
Pro forma basic and diluted loss per Hybrid share........ $ (3.77) $ (4.97) $ (1.85) $ (0.48) $ (1.50)
Pro forma book value per Hybrid share.................... 3.20 2.68
Unaudited Equivalent pro forma combined per share data (3):
Equivalent pro forma basic and diluted loss per Pacific
share:
- at Low Ratio of .0688078............................ $ (0.26) $ (0.35) $ (0.13) $ (0.03) $ (0.11)
- at High Ratio of .1117959........................... (0.41) (0.54) (0.20) (0.05) (0.16)
- at Assumed Ratio of .0894714........................ (0.34) (0.44) (0.17) (0.04) (0.13)
Equivalent pro forma book value per Pacific share:
- at Low Ratio of .0688078............................ 0.23 0.19
- at High Ratio of .1117959........................... 0.35 0.31
- at Assumed Ratio of .0894714........................ 0.29 0.24
</TABLE>

(1) The historical book value per share for Hybrid is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of the period. The historical book value per share for Pacific is
computed by dividing shareholders' equity by the number of shares of common
stock and preferred stock outstanding at the end of each period.

(2) For purposes of this presentation, pro forma combined net loss per share
data reflects Hybrid's per share data for the three years ended December 31,
1997 and three months ended March 31, 1998 and Pacific's per share data for
the three years ended September 30, 1997 and three months ended March 31,
1998. The pro forma combined basic and diluted net loss per share data is
based on the combined weighted average number of shares outstanding of
Hybrid and Pacific for each period based on the Assumed Exchange Ratio of
0.0894714 shares of Hybrid Common Stock for each share of Pacific Common
Stock.

26
<PAGE>
HYBRID AND PACIFIC
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL STATEMENTS (CONTINUED)

(3) The Pacific equivalent pro forma basic and diluted per share amounts are
calculated by multiplying the combined pro forma per share data amounts by
the Assumed Exchange Ratio of 0.0894714 shares of Hybrid Common Stock for
each share of Pacific Capital Stock as well as the low and high range of
0.0688078 and 0.1117959, respectively.

ADDITIONAL MATTERS FOR CONSIDERATION OF HYBRID STOCKHOLDERS

At the Hybrid Annual Meeting, the stockholders of Hybrid will also be asked
to (i) elect two Class I directors of Hybrid, each to serve from the time of
their election and qualification until the earlier of (A) their resignation,
which will occur upon the consummation of the Merger (whereupon the Hybrid Board
will appoint two directors of Pacific to replace such directors as Class I
directors on the Hybrid Board) or (B) the third annual meeting of stockholders
following election and until their successors have been elected and duly
qualified or until their respective earlier resignations or removal, (iii)
approve an amendment to Hybrid's 1997 Equity Incentive Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 500,000
shares, (iv) approve an amendment to Hybrid's 1997 Employee Stock Purchase Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 100,000 shares and (v) ratify the selection of Coopers & Lybrand
L.L.P. as independent accountants for Hybrid for the fiscal year ending December
31, 1998.

27
<PAGE>
INTRODUCTION

This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies to be used at the Hybrid Annual Meeting and the Pacific
Special Meeting. This Joint Proxy Statement/ Prospectus is also furnished by
Hybrid to Pacific shareholders in connection with the issuance of shares of
Hybrid Common Stock in connection with the Merger described herein.

The information set forth herein concerning Hybrid and Merger Sub has been
furnished by Hybrid and the information set forth herein concerning Pacific has
been furnished by Pacific.

THE HYBRID ANNUAL MEETING

DATE, TIME, PLACE AND PURPOSE OF HYBRID ANNUAL MEETING

The Hybrid Annual Meeting will be held at Hybrid's headquarters located at
10161 Bubb Road, Cupertino, California 95014 on May 28, 1998 at 10:00 A.M.,
local time.

At the Hybrid Annual Meeting, stockholders of Hybrid will be asked to: (i)
approve and adopt the Reorganization Agreement and the Agreement of Merger,
attached hereto as Appendices A-1 and A-2, respectively, and the transactions
contemplated thereby and to approve the Merger, (ii) elect two Class I directors
of Hybrid, to serve from the time of their election and qualification until the
earlier of (A) their resignation, which will occur upon the consummation of the
Merger (whereupon the Hybrid Board will appoint two directors of Pacific to
replace such directors as Class I directors on the Hybrid Board of Directors),
or (B) the third annual meeting of stockholders following election and until
their respective successors have been elected and duly qualified or until their
respective earlier resignations or removals, (iii) approve an amendment to
Hybrid's 1997 Equity Incentive Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 500,000 shares, (iv) approve an
amendment to Hybrid's 1997 Employee Stock Purchase Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 100,000 shares and
(v) ratify the selection of Coopers & Lybrand L.L.P. as independent accountants
for Hybrid for the fiscal year ending December 31, 1998.

RECORD DATE AND OUTSTANDING SHARES

Only holders of record of Hybrid Common Stock at the close of business on
the Hybrid Record Date are entitled to notice of and to vote at the Hybrid
Annual Meeting. As of the close of business on the Hybrid Record Date, there
were 10,410,050 shares of Hybrid Common Stock outstanding and entitled to vote,
held of record by 192 stockholders (although Hybrid has been informed that there
are in excess of 2,000 beneficial holders). Each Hybrid stockholder is entitled
to one vote for each share of Hybrid Common Stock held as of the Hybrid Record
Date.

VOTING OF PROXIES

The Hybrid proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of Hybrid for use at the Hybrid
Annual Meeting. Hybrid stockholders are requested to complete, date and sign the
accompanying proxy and promptly return it in the enclosed envelope or otherwise
mail it to Hybrid. All properly executed proxies received by Hybrid prior to the
vote at the Hybrid Annual Meeting that are not revoked will be voted at the
Hybrid Annual Meeting in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to approve and adopt the proposals
discussed above. A Hybrid stockholder who has given a proxy may revoke it at any
time before it is exercised at the Hybrid Annual Meeting, by (i) delivering to
the Secretary of Hybrid (by any means, including facsimile) a written notice,
bearing a date later than the date of the proxy, stating that the proxy is
revoked, (ii) signing and so delivering a proxy relating to the same shares and
bearing a date later than the proxy previously delivered, or (iii) attending the
Hybrid Annual Meeting and voting in person (although attendance at the Hybrid
Annual Meeting will not, by itself, revoke a proxy). Please note,

28
<PAGE>
however, that if a stockholder's shares are held of record by a broker, bank or
other nominee and that stockholder wishes to vote at the Hybrid Annual Meeting,
the stockholder must bring to the Hybrid Annual Meeting a letter from the
broker, bank or other nominee confirming that stockholder's beneficial ownership
of the shares.

It is not anticipated that any matter not referred to herein will be
presented for action at the Hybrid Annual Meeting. If any other matters are
properly brought before the Hybrid Annual Meeting, the persons named in the
proxies will have discretion to vote on such matters in accordance with their
best judgment.

VOTE REQUIRED

For Proposal No. 2, directors will be elected by a plurality of the votes of
the shares of Hybrid Common Stock present in person or represented by proxy at
the Hybrid Annual Meeting and entitled to vote on the election of the two Class
I directors. The affirmative vote of a majority of the shares of Hybrid Common
Stock represented in person or by proxy and entitled to vote at the Hybrid
Annual Meeting is required to approve each of Proposal No. 3--the amendment of
Hybrid's 1997 Equity Incentive Plan, Proposal No. 4--the amendment of Hybrid's
1997 Employee Stock Purchase Plan, and Proposal No. 5-- ratification of the
selection of Coopers & Lybrand L.L.P. as independent accountants for Hybrid for
the fiscal year ended December 31, 1998. The effectiveness of any of the
proposals to be voted upon at the Hybrid Annual Meeting is not conditioned upon
the approval of any of the other proposals by the Hybrid stockholders.

On the Hybrid Record Date, directors and executive officers of Hybrid, and
their affiliated entities, as a group beneficially owned 1,395,709 shares of
Hybrid Common Stock or approximately 13.4% of the outstanding shares of Hybrid
Common Stock on such date. Affiliates of Hybrid, including certain of such
directors and executive officers of Hybrid, beneficially owning 1,384,512 shares
or 13.3% of the outstanding Hybrid Common Stock, have executed Voting
Agreements, pursuant to which they have agreed to vote such shares in favor of
the Merger and have executed irrevocable proxies with respect thereto. See
"PROPOSAL NO. 1: THE MERGER--TERMS OF THE MERGER--VOTING AGREEMENTS."

In addition, under the Reorganization Agreement, it is a condition to
Hybrid's obligation to complete the Merger that the holders of no more than 5%
of the outstanding shares of Pacific Capital Stock be eligible to exercise
dissenters' rights under the California Code.

QUORUM; ABSTENTIONS; BROKER NON-VOTES

The required quorum for the transaction of business at the Hybrid Annual
Meeting is a majority of the shares of Hybrid Common Stock outstanding on the
Hybrid Record Date. Abstentions will be included in determining the number of
shares present and voting at the Hybrid Annual Meeting and will have the same
effect as votes against the proposals. With respect to Proposal No. 1, broker
non-votes will have the same effect as votes against the proposal. With respect
to Proposal Nos. 2, 3, 4 and 5 broker non-votes will not be counted for any
purpose in determining whether a proposal has been approved.

SOLICITATION OF PROXIES AND EXPENSES

Hybrid will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to solicitation by mail, the directors,
officers and employees of Hybrid may solicit proxies from stockholders by
telephone, telegram, letter or in person. Following the original mailing of the
proxies and other soliciting materials, Hybrid will request brokers, custodians,
nominees and other record holders to

29
<PAGE>
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Hybrid Common Stock and to request authority for the
exercise of proxies. In such cases, Hybrid, upon the request of the record
holders, will reimburse such holders for their reasonable expenses.

APPRAISAL RIGHTS

Under the Delaware General Corporation Law, Hybrid stockholders are not
entitled to dissenters' rights or appraisal rights with respect to the proposed
Merger. See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE MERGER--APPRAISAL AND
DISSENTERS' RIGHTS."

THE PACIFIC SPECIAL MEETING

DATE, TIME, PLACE AND PURPOSE OF PACIFIC SPECIAL MEETING

The Pacific Special Meeting will be held at 10:00 A.M., local time, on May
28, 1998 at Pacific's headquarters located at 1308 Moffett Park Drive,
Sunnyvale, California 94089. At the Pacific Special Meeting, shareholders of
Pacific on the Pacific Record Date will be asked to consider and vote upon a
proposal to approve and adopt the Reorganization Agreement, the Agreement of
Merger and the Merger. The Reorganization Agreement and the Agreement of Merger
are attached hereto as Appendices A-1 and A-2, respectively. See "PROPOSAL NO.
1: THE MERGER--TERMS OF THE MERGER."

RECORD DATE AND OUTSTANDING SHARES

Only holders of record of Pacific Common Stock and Pacific Preferred Stock
at the close of business on the Pacific Record Date are entitled to notice of
and to vote at the Pacific Special Meeting. As of the close of business on the
Pacific Record Date, there were 5,712,668 shares of Pacific Common Stock
outstanding and entitled to vote, held of record by 255 shareholders and
12,320,681 shares of Pacific Preferred Stock outstanding and entitled to vote,
held of record by 35 shareholders. Each Pacific shareholder is entitled to one
vote for each share of Pacific Common Stock and one vote for each share of
Pacific Preferred Stock held as of the Pacific Record Date.

VOTING OF PROXIES

The Pacific proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of Pacific for use at the Pacific
Special Meeting. Pacific shareholders are requested to complete, date and sign
the accompanying proxy and promptly return it in the enclosed envelope or
otherwise mail it to Pacific. All properly executed proxies received by Pacific
prior to the vote at the Pacific Special Meeting that are not revoked will be
voted at the Pacific Special Meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve and adopt
the Reorganization Agreement, the Agreement of Merger and the Merger. A Pacific
shareholder who has given a proxy may revoke it at any time before it is
exercised at the Pacific Special Meeting, by (i) delivering to the Secretary of
Pacific (by any means, including facsimile) a written notice, bearing a date
later than the date of the proxy, stating that the proxy is revoked, (ii)
signing and so delivering a proxy relating to the same shares and bearing a date
later than the proxy previously delivered, or (iii) attending the Pacific
Special Meeting and voting in person (although attendance at the Pacific Special
Meeting will not, by itself, revoke a proxy).

It is not anticipated that any matter not referred to herein will be
presented for action at the Pacific Special Meeting. If any other matters are
properly brought before the Pacific Special Meeting, the persons named in the
proxies will have discretion to vote on such matters in accordance with their
best judgment.

30
<PAGE>
VOTE REQUIRED

Pursuant to the California Code and Pacific's Articles of Incorporation,
approval of the Merger requires the affirmative vote of at least a majority of
the outstanding shares of the Pacific Common Stock entitled to vote at the
Pacific Special Meeting, voting as a class, and at least 60% of the shares of
the Pacific Preferred Stock entitled to vote at the Special Meeting, voting as a
separate class. Since the required vote of the Pacific shareholders is based
upon the number of outstanding shares of Pacific Common Stock and Pacific
Preferred Stock rather than upon the shares actually voted in person or by proxy
at the Pacific Special Meeting, the failure by the holder of any such shares to
submit a proxy or to vote in person at the Pacific Special Meeting (including
abstentions) will have the same effect as a vote against approval and adoption
of the Reorganization Agreement, the Agreement of Merger and the Merger.

Shareholders of Pacific beneficially owning 3,357,515 shares or 58.8% of the
outstanding Pacific Common Stock and 7,509,644 shares or 61.0% of the
outstanding Pacific Preferred Stock have executed Voting Agreements, pursuant to
which they have agreed to vote all such shares in favor of adoption and approval
of the Reorganization Agreement, the Agreement of Merger and for the Merger.
Accordingly, approval of the Reorganization Agreement, the Agreement of Merger
and the Merger at the Pacific Special Meeting is assured. However, it is a
condition to Hybrid's obligation to complete the Merger that the holders of no
more than 5% of the outstanding shares of Pacific Capital Stock be eligible to
exercise dissenters' rights.

QUORUM; ABSTENTIONS

The required quorum for the transaction of business at the Pacific Special
Meeting is a majority of the shares of Pacific Common Stock and Pacific
Preferred Stock outstanding on the Pacific Record Date, either present in person
or represented by proxy. Abstentions will be included in determining the number
of shares present and voting at the Pacific Special Meeting and will have the
same effect as votes against the proposal. If an executed Pacific proxy is
returned and the shareholder has specifically abstained from voting on any
matter, the shares represented by such proxy will be considered present at the
Pacific Special Meeting for purposes of determining a quorum. Since the required
vote of the Pacific shareholders is based upon the number of outstanding shares
of Pacific Capital Stock, any abstentions will have the same effect as a vote
against approval and adoption of the Reorganization Agreement and the Agreement
of Merger and approval of the Merger.

SOLICITATION OF PROXIES AND EXPENSES

Pacific will bear the cost of the solicitation of proxies in the enclosed
form from its shareholders. In addition to solicitation by mail, the directors,
officers and employees of Pacific may solicit proxies from shareholders by
telephone, telegram, letter or in person. Following the original mailing of the
proxies and other soliciting materials, Pacific will request custodians,
nominees and other record holders to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Pacific Common
Stock and/or Pacific Preferred Stock and to request authority for the exercise
of proxies. In such cases, Pacific, upon the request of the record holders, will
reimburse such holders for their reasonable expenses.

DISSENTERS' RIGHTS

If the Merger is approved by the required vote of Pacific shareholders and
is not abandoned or terminated, each holder of Pacific Capital Stock who does
not vote in favor of the Merger and also follows the procedures set forth in
Sections 1300 through 1312 of the California Code, attached hereto as Appendix
C, will be entitled to have shares of Pacific Capital Stock purchased by Pacific
at their fair market value, determined as of the day before the first
announcement of the terms of the Merger and excluding any appreciation or
depreciation in consequence of the Merger and therefore valuing the shares

31
<PAGE>
as if the Merger had not occurred. The failure of a dissenting Pacific
shareholder to timely and properly comply with such procedures will result in
the termination or waiver of such rights. See "PROPOSAL NO. 1: THE
MERGER--APPROVAL OF THE MERGER--APPRAISAL AND DISSENTERS' RIGHTS."

PROPOSAL NO. 1: THE MERGER
RISK FACTORS

THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
MATTERS TO BE VOTED ON AT THE HYBRID ANNUAL MEETING AND THE PACIFIC SPECIAL
MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY. THIS JOINT PROXY
STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WORDS SUCH AS "EXPECTS", "ANTICIPATES", "INTENDS", "PLANS",
"BELIEVES", "SEEKS", VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING
STATEMENTS REFLECT THE BEST JUDGMENT OF THE MANAGEMENT OF HYBRID AND PACIFIC
BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.

RISKS RELATING TO THE MERGER

GENERAL RISKS ASSOCIATED WITH INTEGRATION OF OPERATIONS. Hybrid and Pacific
have entered into the Reorganization Agreement with the expectation that the
proposed Merger will result in long-term strategic benefits. These anticipated
benefits will depend in part on whether the companies' operations can be
integrated in an efficient and effective manner. There can be no assurance that
this will occur. The successful integration of Pacific with Hybrid will require,
among other things, integration of the companies' respective product offerings
and coordination of the companies' management, sales and marketing and research
and development efforts. It is possible that this integration will not be
accomplished smoothly or successfully, and that efforts to achieve integration
may require more time, expense and management attention than anticipated. The
diversion of the attention of management from day-to-day operations and any
difficulties encountered in the transition process could have an adverse impact
on the combined company's business, operating results or financial condition.
Disruption of the combined company's business might result from employee
uncertainty or lack of focus, as well as from customer or supplier confusion,
following announcement of the Merger. The process of combining the operations of
the two organizations could cause the interruption of, or a loss of momentum in,
the activities of either or both of the companies' businesses, which could have
an adverse effect on their combined operations. In addition, during the
pre-Merger and integration phase, competitors may try to recruit key employees
of Hybrid or Pacific and to gain a competitive advantage with Hybrid's or
Pacific's prospective and existing customers. Despite the efforts of the
combined company, it might not be able to retain key management, technical and
sales personnel.

EXECUTION BY COMBINED SALES AND MARKETING FORCES. The combined company may
experience disruption in sales and marketing as a result of attempting to
integrate Hybrid's and Pacific's sales force with its own, and may be unable to
effectively correct such disruption, or to successfully execute on its sales and
marketing objectives, even after the companies' respective sales and marketing
forces have been combined. In addition, sales models for the various products
that will make up the combined company's new product line may vary significantly
from product to product. Sales personnel not accustomed to the different
approaches required for products newly added to their portfolio may experience
delays and difficulties in selling these newly added products. Furthermore, it
may be difficult to retain key sales personnel during the period prior to and
after the effectiveness of the Merger. As a result, the combined company may be
unable to take full advantage of the combined sales forces' efforts, and the
sales approach and distribution channels of one company may be ineffective in
promoting the products of the other. Hybrid and Pacific also use a number of
distribution channels in the various geographic locations in which their
respective products are sold, and channel conflicts may develop following the
Merger.

32
<PAGE>
INTEGRATION OF PRODUCTS AND ENGINEERING TEAMS; DELAY IN DEVELOPMENT OF
INTEGRATED PRODUCTS. After the Merger, the combined company plans to combine
its product offerings and to develop products to work together in integrated
suites. It is possible that such integration and development efforts will not be
accomplished in a timely manner or prove to be technologically infeasible. There
can be no assurance that either company will retain its key technical personnel,
that the engineering teams of the two companies will successfully cooperate and
realize any technological benefits, or that the focus on product integration and
extension efforts will not have an adverse effect on the development,
introduction or delivery of new or enhanced Hybrid or Pacific products. Any
delays that occur in the development and introduction of the integrated,
end-to-end, system solutions for high speed Internet access that Hybrid plans to
pursue following the Merger could have a materially adverse effect upon the
combined company's business, operating results or financial condition.

FINANCIAL IMPACT OF FAILURE TO ACHIEVE SYNERGIES. If the integration of
Hybrid's and Pacific's operations is not successful, or the combined company
does not achieve the operational efficiencies and other business synergies that
are anticipated or if such synergies are not achieved as quickly as may be
expected by financial analysts or at the level expected by financial analysts,
or if the effect of the Merger on earnings per share is not in line with the
expectation of financial analysts, the market price of Hybrid's Common Stock
will be significantly and adversely affected. See "RISKS RELATED TO HYBRID,
PACIFIC AND THE COMBINED COMPANY--POSSIBLE VOLATILITY OF STOCK PRICE."

RISKS ASSOCIATED WITH EFFECT OF MERGER ON SUPPLIERS, RESELLERS AND
CUSTOMERS; UNCERTAINTIES OF THE WIRELESS MARKET. The announcement and
consummation of the Merger could cause suppliers, resellers and present and
potential customers of either company to delay or cancel orders for products as
a result of concerns and uncertainty over evolution, integration and support of
Hybrid's and Pacific's products following the Merger. The combined company's
combination of products and creation of integrated suites could cause present
and potential customers of Hybrid and Pacific to delay or cancel orders for
products. Such delays or cancellations of orders could have a material adverse
effect on the business, operating results or financial condition of Hybrid,
Pacific or the combined company. In particular, such delays or cancellations
could be expected to disrupt revenue and earnings, which in turn would have a
negative effect on the market price of Hybrid Common Stock. In addition,
Hybrid's focus on the broadband wireless market may increase following the
Merger, and there are uncertainties regarding the general economic condition of
that market. There is a risk that the financial condition of increasing numbers
of customers for the combined company's wireless products will adversely affect
such customers' ability or willingness to purchase or pay for those products,
thereby adversely affecting the combined company's business, results of
operation and financial condition.

COSTS OF INTEGRATION; TRANSACTION EXPENSES. Hybrid expects to incur a
charge of approximately $3.0 million to $3.5 million in the quarter in which the
Merger occurs in connection with the write-off of certain assets, personnel
severance costs, the cancellation and continuation of contractual obligations
and direct transaction fees for investment bankers, attorneys, accountants,
financial printing and other related charges. Actual costs may substantially
exceed such estimates, unanticipated expenses associated with the integration of
the two companies may arise, or Hybrid may incur additional material charges in
subsequent quarters to reflect additional costs associated with the integration
of the two companies. In addition, upon consummation of the Merger, the Company
will pay Pacific's indebtedness of approximately $2.0 million in bridge loans
(inclusive of accrued interest) made by principal shareholders of Pacific. Total
costs associated with the Merger are anticipated to result in an operating loss
and a net loss for Hybrid's quarter ending June 30, 1998 and for its fiscal year
ending December 31, 1998, and could negatively affect financial results in
future periods for the reasons discussed above.

POSSIBLE NEED FOR ADDITIONAL FINANCING. In the past, each of Hybrid and
Pacific has required substantial amounts of capital to design, develop, market,
sell and manufacture its products and to finance customer purchases by providing
extended payment terms and other accommodations and to fund continuing
operations. It is anticipated that these costs will continue. The combined
company's future

33
<PAGE>
capital requirements will depend on many factors, including, but not limited to,
the evolution of the market for broadband access systems, the market acceptance
of the combined company's products, competitive pressure on the price of the
combined company's products, the levels at which the combined company maintains
inventory, the levels of promotion and marketing required to launch such
products and attain a competitive position in the marketplace, the extent to
which the combined company invests in new technology and improvements on its
existing technology, and the response of competitors to the combined company's
products. While Hybrid believes that available bank borrowings, existing cash
balances and funds generated from operations, if any, will provide the combined
company with sufficient funds to pay the costs referred to in "--COSTS OF
INTEGRATION; TRANSACTION EXPENSES" above and to finance its operations for at
least the next 12 months, to the extent that existing resources are insufficient
to fund the combined company's activities over the long-term, the combined
company may need to raise additional funds through public or private equity or
debt financing or from other sources. The sale of additional equity or
convertible debt may result in additional dilution to Hybrid's stockholders, and
such securities may have rights, preferences or privileges senior to those of
the Hybrid Common Stock. To the extent that the combined company relies upon
debt financing, the combined company will incur the obligation to repay the
funds borrowed with interest and may become subject to covenants and
restrictions that restrict operating flexibility. No assurance can be given that
additional equity or debt financing will be available or that, if available, it
can be obtained on terms favorable to the combined company or its stockholders.
See "HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES" and "PACIFIC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES."

SHORT TERM DILUTION OF INTEREST. A number of shares and shares subject to
options and warrants equal to approximately 15.7% of Hybrid's outstanding Common
Stock (based on the Assumed Exchange Ratio of 0.0894714) will be issued or
subject to issuance to the securityholders of Pacific upon consummation of the
Merger and will cause a dilution of earnings per share which may negatively
impact Hybrid's stock price in the near term. If the Closing Price is less than
$6.46 (the assumed Closing Price used in computing the Assumed Exchange Ratio),
then more shares of Hybrid Common Stock will be issued or issuable in the
Merger; and if the Closing Price is more than $6.46, fewer shares of Hybrid
Common Stock will be issued or issuable in the Merger. At the Low Exchange
Ratio, approximately 14.3% of Hybrid's outstanding Common Stock would be issued
or issuable in the Merger, and at the High Exchange Ratio, approximately 23.2%
would be issued or issuable. Further, as a result of the antidilution provisions
of the $5.5 Million Debenture, the number of shares of Hybrid Common Stock
issuable upon conversion of the debenture (currently 513,433 shares) will be
increased by virtue of the Merger, and the amount of the increase depend upon
the per share market price of Hybrid Common Stock at the time of the Merger (the
lower the market price, the greater number of shares will be issuable upon
conversion of the debenture). For example, if the market price were $6.46 at the
time of the Merger, the number of shares issuable upon conversion of the
debenture would increase by approximately 338,000 shares; and if the market
price were $5.00, the number of shares issuable upon conversion would increase
by approximately 587,000 over the current amount. While Hybrid believes that the
dilution resulting from the Merger will be temporary and that the Merger will
ultimately be accretive to the combined company's earnings per share, there can
be no assurance that this will be the case or that Hybrid's stock price will not
continue to be negatively affected, or that actual results will be as expected.

POOLING OF INTERESTS. In order to qualify the Merger as a pooling of
interests for accounting and financial reporting purposes, affiliates of Hybrid
and Pacific have agreed not to sell, or otherwise reduce their risk with respect
to, any shares of stock, except for a de minimus number as defined by certain
SEC rules and regulations, of either Hybrid or Pacific during the period
beginning 30 days preceding the Effective Time and continuing until the day that
Hybrid publicly announces financial results covering at least 30 days of
combined operations of Hybrid and Pacific. If the Merger is completed and the
Effective Time occurs after May 1998, it is not expected that such combined
financial results would be published until mid to late October. If affiliates of
Hybrid or Pacific sell their Hybrid Common Stock despite their

34
<PAGE>
contractual obligation not to do so, the Merger may not qualify for accounting
as a pooling of interests for financial reporting purposes in accordance with
generally accepted accounting principles, which would in turn materially and
adversely affect Hybrid's reported earnings and, potentially, its stock price.
See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE MERGER--ACCOUNTING TREATMENT."

RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED COMPANY

PACIFIC'S NEED FOR IMMEDIATE ADDITIONAL FINANCING. Pacific is currently in
need of immediate additional capital to finance its operations and to meet its
short term liquidity needs. While Pacific is seeking additional financing up to
an approximate amount of $1.0 million, there can be no assurance that the
additional required financing will be available through equity offerings, bank
borrowings or otherwise, or that, if such financing is available, it will be
available on terms favorable to Pacific or its shareholders. If Pacific is
unable to secure financing prior to the consummation of the Merger, Pacific will
have to scale back sales and marketing and research and development efforts and
Pacific's business, financial condition and operating results will be materially
adversely affected.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES. Hybrid was organized in 1990
and has experienced operating losses each year since that time. As of March 31,
1998, Hybrid had an accumulated deficit of approximately $34.6 million. Because
Hybrid and the market for broadband access through wireless and cable modems are
still in an emerging stage, there can be no assurance that the combined company
will ever achieve profitability on a quarterly or an annual basis or will
sustain profitability once achieved. Hybrid began shipment of its first
products, the Series 1000 product line in 1994 and sold only minimal quantities
before replacing them with its Series 2000 product line, which was first shipped
in October 1996. The revenue and profit potential of Hybrid's business and the
industry is unproven, and Hybrid's limited operating history makes the combined
company's future operating results difficult to predict. Pacific also has a
history of losses, and as of March 31, 1998, Pacific had an accumulated deficit
of $25.2 million. The growth and future success of the combined company will be
substantially dependent upon broadband wireless system operators, cable system
operators and ISPs adopting its technologies, purchasing its products and
selling its client modems to wireless, cable and ISP subscribers. Hybrid has had
limited experience selling its products to broadband wireless system operators,
cable system operators, ISPs and other businesses, and there are many
impediments to its being able to do so. See "--INEXPERIENCE IN EMERGING MARKET."
The market for Hybrid's products has only recently begun to develop, is rapidly
changing and is characterized by an increasing number of competitors and
competing technologies. Certain competitors of Hybrid and Pacific currently
offer more price competitive products. In the event that Hybrid's or Pacific's
current or future competitors release new products or technologies with more
advanced features, better performance or lower prices than Hybrid's or Pacific's
current or future products, demand for the combined company's products would
decline. See "--COMPETITION." Failure of the combined company's products to
achieve market acceptance could have a material adverse effect on the combined
company's business, operating results or financial condition. Although Hybrid
has experienced significant growth in net sales in the past year , Hybrid does
not believe that its growth rate during the past year is sustainable or
indicative of future operating results. For the three months ended March 31,
1998, Hybrid's net sales declined by 31% from its net sales for the three months
ended December 31, 1997. In addition, Hybrid has had negative gross margins in
past periods, and there can be no assurance that any growth in net sales will
result in positive gross profits or operating profits. Pacific's revenue
declined from the first quarter of fiscal 1997 to the first quarter of fiscal
1998 due to a decline in customer demand for its broadband wireless video
downconverts and decoders. Future operating results of the combined company will
depend on many factors, including the growth of the wireless and cable modem
system markets, demands for the Series 2000 and future product lines, demand for
Pacific's product lines, purchasing decisions by wireless and cable companies
and their subscribers, the level of product and price competition, market
acceptance of competing technologies to deliver high speed Internet access,
evolving industry standards, the ability of the combined company to develop and
market new products and control costs, general economic conditions and other
factors. The combined company believes that it will continue to

35
<PAGE>
experience net losses for the foreseeable future. See "HYBRID MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

FLUCTUATIONS IN OPERATING RESULTS; ABSENCE OF SIGNIFICANT BACKLOG;
CONTINUING DECLINE OF AVERAGE SELLING PRICES. Each of Hybrid and Pacific has
experienced, and the combined company expects to continue to experience,
significant fluctuations in its results of operations on a quarterly and an
annual basis. Historically, Hybrid's and Pacific's quarterly net sales have been
unpredictable due to a number of factors. Factors that have influenced Hybrid
and Pacific and that will continue to influence the combined company's results
of operations in a particular period include: the size and timing of customers
orders and subsequent shipments, particularly with respect to Hybrid's headend
equipment and Pacific's downconverters and antennas; customer order deferrals in
anticipation of new products or technologies; timing of product introductions or
enhancements by the combined company or its competitors; market acceptance of
new products; technological changes in the cable, wireless and
telecommunications industries; competitive pricing pressures; the effects of
extended payment terms, promotional pricing, service, marketing or other terms
offered to customers; accuracy of customer forecasts of end-user demand; changes
in the combined company's operating expenses; personnel changes; quality control
of products sold; regulatory changes; customers' capital spending; delays of
orders by customers; customers' delay in or failure to pay accounts receivable;
and general economic conditions. For example, for the three months ended March
31, 1998, Hybrid's net sales declined 31% from its net sales for the three
months ended December 31, 1997, and Hybrid recorded a $800,000 sales return
reserve. Further, Hybrid increased its reserves for doubtful accounts in the
fourth quarter of 1997 and the first quarter of 1998 by $500,000 and $450,000,
respectively. See "HYBRID'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." In addition, the inability to obtain
components from suppliers or manufacturers has adversely affected Hybrid's and
Pacific's operating results in the past and may materially adversely affect the
combined company's operating results in the future. For example, in the second
quarter and a portion of the third quarter of 1997, Hybrid did not receive the
full shipment of modems anticipated from Sharp Corporation ("SHARP"), its
primary modem manufacturer, because of technical delays in product integration.
As a result, Hybrid was unable to fill all customer orders for the second
quarter. While such problems have since been resolved, there can be no assurance
that the combined company will not experience similar supply problems in the
future with respect to Sharp or any other supplier or manufacturer.

The timing and volume of customer orders are difficult to forecast because
wireless and cable companies typically require delivery of products within 30
days, thus a substantial majority of Hybrid's and Pacific's net sales are
typically booked and shipped in the same quarter. Accordingly, net sales for
Hybrid and Pacific for any future quarter are difficult to predict. Hybrid, at
any given time, has a limited backlog of orders and currently has no backlog.
Further, sales are generally made pursuant to purchase orders, which can be
rescheduled, reduced or canceled with little or no penalty. Historically, a
substantial majority of Hybrid's and Pacific's net sales in a given quarter have
been recorded in the third month of the quarter, with a concentration of such
net sales in the last two weeks of the quarter. Because of the relatively large
dollar size of Hybrid's and Pacific's typical transaction, any delay in the
closing of a transaction can have a significant impact on the combined company's
operating results for a particular period. See "--LENGTHY SALES CYCLE."

Historically, average selling prices ("ASPS") in the wireless and cable
systems industry have decreased over the life of individual products and
technologies. In the past, each of Hybrid and Pacific has experienced decreases
in unit ASPs of each of its products. The combined company anticipates that unit
ASPs of its products will continue to decrease, which would cause continuing
downward pressure on the gross margins for these products. Hybrid's gross
margins are also impacted by the sales mix of points of presence headend
equipment ("POPS" or "HEADENDS") and modems. Hybrid's single-user modems
generally have lower margins than its multi-user modems, both of which have
lower margins than Hybrid's headends. Due to current customer demand, Hybrid
anticipates that the sales mix of modems will continue to be weighted toward
lower-margin single-user modems in the foreseeable future. See "--NEED TO REDUCE
COST

36
<PAGE>
OF CLIENT MODEMS, DOWN CONVERTERS, ANTENNAS AND VIDEO DECODERS" below and
"HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."

LENGTHY SALES CYCLE. The sale of Hybrid's and Pacific's products typically
involves a significant technical evaluation and commitment of capital and other
resources, with the delays frequently associated with customers' internal
procedures to approve large capital expenditures, to engineer deployment of new
technologies within their networks and to test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with Hybrid's and Pacific's products is typically lengthy, generally lasting
three to nine months and is subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews, that are
beyond control of Hybrid or Pacific, as the case may be. Because of the lengthy
sales cycle and the large size of customers' orders, if orders forecasted for a
specific customer for a particular quarter are not realized in that quarter or
any significant customer delays payment or fails to pay, the combined company's
operating results for that quarter could be materially adversely affected. See
"--FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; ABSENCE OF SIGNIFICANT BACKLOG;
CONTINUING DECLINE OF AVERAGE SELLING PRICES" above, and "HYBRID MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and
"PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."

DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT;
RAPID TECHNOLOGICAL CHANGE. The market for high speed Internet access products
is characterized by rapidly changing technologies and short product life cycles.
Prior to October 1996, substantially all of Hybrid's product sales were
attributable to its Series 1000 product line. In October 1996, Hybrid introduced
its Series 2000 product line (which replaced the Series 1000 product line).
Hybrid is currently generating, and expects to continue to generate in the near
term, substantially all of its net sales from its Series 2000 product line and
related support and networking services. To date, substantially all products
sold have been for telephone return based systems and have involved single-user
modems. Since the Series 2000 products have been subject to only limited
single-user testing, the reliability, performance and market acceptance of
Hybrid's products are uncertain, and there is increased risk that the products
will be affected by problems beyond those that are generally associated with new
products. The failure of the current generation of products to perform
acceptably in certain beta test situations has caused Hybrid to make engineering
changes to such products, and Hybrid continues to modify the designs of its
products in an attempt to increase their reliability and performance. From time
to time, Pacific has also been required to make engineering changes to its
products and to modify the designs of its products in an attempt to increase
their reliability and performance. There can be no assurance that engineering
and product design efforts of the combined company will be successful. The
combined company's future success will depend in part upon its ability to
develop, introduce and market new products or enhancements to existing products
in a timely manner and to respond to competitive pressures, changing industry
standards or technological advances. For example, in the quarter ended March 31,
1998, Hybrid began offering products for two-way cable transmission using QPSK
technology in response to customer requirements. In addition, Hybrid and Pacific
are developing products for two-way broadband wireless transmission. There can
be no assurance that the combined company will successfully develop or introduce
new products, or that any new products will achieve market acceptance. Any
failure to release new products or to fix, upgrade or redesign existing products
on a timely basis could have a material adverse effect on the combined company's
business, operating results and financial condition. In addition, as the
combined company introduces new products that cause existing products to become
obsolete, the combined company could experience inventory writeoffs, which could
have a material adverse effect on the combined company's business, operating
results and financial condition. For example, to the extent that customers
demand two-way products, demand for the combined company's wireless and cable
systems that utilize telephone return could be adversely affected. See "BUSINESS
OF HYBRID--PRODUCTS, TECHNOLOGY AND SERVICES" and "--RESEARCH AND DEVELOPMENT".

37
<PAGE>
COMPETING TECHNOLOGIES AND EVOLVING INDUSTRY STANDARDS. The market for high
speed Internet access products is characterized by competing technologies,
evolving industry standards and frequent new product introductions. Market
acceptance of alternative wired technologies, such as Integrated Services
Digital Network ("ISDN") or Digital Subscriber Line ("XDSL"), or wireless
technologies, such as DBS, could decrease the demand for the combined company's
products or render such products obsolete if such alternatives are viewed as
providing faster access, greater reliability or improved cost-effectiveness. In
particular, it is possible that the perceived high speed access advantage
provided by broadband wireless and cable systems may be undermined by the need
to share bandwidth, which results in the reduction in individual throughput
speeds. In addition, the emergence or evolution of industry standards, through
either adoption by official standards committees or widespread use by broadband
wireless system operators, cable system operators or telephone companies
("TELCOS"), could require the combined company to redesign its products to meet
such standards, resulting in delays in the introduction of such products. For
instance, Hybrid's products are not in full compliance with the DAVIC
specifications that are supported in Europe or the versions of the MCNS
specifications or IEEE standards. Cable customers and competitors are giving
increased emphasis to the value of compliance with MCNS specifications. If such
standards do become widespread and Hybrid's products are not in compliance,
Hybrid's customers and potential customers may refuse to purchase Hybrid's
products, materially adversely affecting the combined company's business,
operating results and financial condition. Further, Hybrid's products are not
compatible with headend equipment and modems of other suppliers of broadband
Internet access products. As a result, potential customers who wish to purchase
broadband Internet access products from multiple suppliers may be reluctant to
purchase Hybrid's products. The rapid development of new competing technologies
and standards increases the risk that current or new competitors could develop
products that would reduce the competitiveness of the combined company's
products. Market acceptance of new technologies or the failure of the combined
company to develop and introduce new products or enhancements directed at new
industry standards could have a material adverse effect on the combined
company's business, operating results or financial condition. See "BUSINESS OF
HYBRID--COMPETITION."

INEXPERIENCE IN EMERGING MARKET. Broadband wireless system operators, cable
system operators, distributors and other customers may prefer to purchase
products from larger, more established manufacturing companies, including
certain of Hybrid's or Pacific's competitors, that can demonstrate the
capability to supply large volumes of products on short notice. In addition,
many broadband wireless system operators, cable system operators and other
customers may be reluctant to adopt technologies that have not gained wide
acceptance among their industry peers. Certain competitors of Hybrid and Pacific
have already established relationships in the market, further limiting Hybrid's
and Pacific's ability to sell products to such potential customers. While each
of Hybrid and Pacific has sold products to certain broadband wireless system
operators, cable system operators and other customers, most of these sales are
not based on long-term contracts and such customers may terminate their
relationships with Hybrid or Pacific, as the case may be, at any time. Further,
Hybrid's and Pacific's contracts generally do not contain significant minimum
purchase requirements. In addition, in order to address the needs and
competitive factors facing the broadband access market sales, each of Hybrid and
Pacific has offered, and in the future the combined company may need to offer,
extended payment, pricing, service, marketing or other promotional terms which
could have a material adverse effect on the combined company's business,
operating results or financial condition. For example, Hybrid increased its
reserves for doubtful accounts in the fourth quarter of 1997 due to the
assessment of the risk associated with the slow pay of several customers, which
adversely affected operating results. If the combined company is unable to
market and sell its products to a significant number of cable system operators,
broadband wireless system operators and other customers, or if such entities
should cease doing business with Hybrid or Pacific, as the case may be, the
combined company's business, operating results or financial condition could be
materially adversely affected. See "BUSINESS OF HYBRID--CUSTOMERS."

LIMITED PENETRATION OF TWO-WAY CABLE; DEPENDENCE ON CABLE OPERATOR
INSTALLATIONS. Although wired cable systems pass a significant percentage of
U.S. households, very few of those households are currently

38
<PAGE>
served by cable plants that support two-way data access. Further, a limited
number of businesses, a major target market for Hybrid, currently have cable
access. To support upstream data on existing Hybrid fiber coax ("HFC") cable
plants, a cable operator must install two-way amplifiers in the cable network to
use the portion of the cable spectrum allocated for upstream use. There can be
no assurance that cable system operators will choose to upgrade existing cable
systems or provide new cable systems with two-way capability. In particular,
certain large cable system operators have announced their intention to slow or
halt plans to upgrade existing cable systems. Adding upstream capabilities to
new or existing cable systems is expensive and generally requires portions of
existing systems to be unavailable during the installation process. Cable system
operators may decide to wait for the next generation of wire infrastructure,
such as optical fiber, before deciding whether to provide two-way communication.
The Federal Communications Commission ("FCC") has required cable system
operators to dedicate the frequency spectrum from 5 MHz to 42 MHz for upstream
transmissions, but this portion of spectrum is more susceptible to ingress noise
and other impairments and, because it is small in comparison to the downstream
portion, it can support only a more limited bandwidth. Due to a scarcity of
channels, cable system operators have been and may continue to be reluctant to
dedicate a portion of their frequency spectrum to new uses such as those for
which Hybrid's products are designed. Consequently, Hybrid expects that upstream
data traffic on cable systems will be limited to narrow or congested parts of
the spectrum, thus limiting the number of potential simultaneous users. If cable
system operators do not install two-way capability on their cable systems in a
timely fashion or if such operators do not dedicate sufficient frequency
spectrum for upstream traffic, the use of cable for upstream data traffic will
be limited. Any such limitation could have a material adverse effect on the
combined company's business, operating results and financial condition. See
"BUSINESS OF HYBRID--CUSTOMERS."

DEPENDENCE ON BROADBAND WIRELESS SYSTEM OPERATORS. Hybrid depends on
broadband wireless system operators to purchase its wireless modem products and
to sell its client wireless modems to end-users. Pacific also depends on
broadband wireless system operators to purchase its downconverters, antennas and
video encoding systems. Approximately 50.6% and 27.8% of Hybrid's net sales in
1997 and the first quarter of 1998, respectively, were attributable to customers
in the broadband wireless industry. Many broadband wireless system companies are
in the early stage of development or are in need of significant capital to
upgrade and expand their services in order to compete effectively with cable
system operators, satellite TV and telcos. Many of these broadband wireless
system companies in need of such significant capital have had difficulties
financing their businesses and are under-capitalized. Accordingly, to address
the needs of and competitive factors facing these customers, each of Hybrid and
Pacific on occasion has provided certain broadband wireless system operators and
other customers extended payment, promotional pricing or other terms which could
have, and in the case of Hybrid have had, a material adverse effect on the
combined company's business, operating results and financial condition. See
"HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS." The principal disadvantage of wireless cable is that it requires
a direct line of sight between the wireless cable system operator's antenna and
the customer's location. Therefore, despite a typical range of up to 35 miles, a
number of factors, such as buildings, trees or uneven terrain, can interfere
with reception, thus limiting broadband wireless system operators' customer
bases. It is estimated that there are only approximately 1.0 million wireless
cable customers in the United States today. In addition, current technical and
legislative restrictions have limited the number of analog channels that
wireless cable companies can offer to 33. In order to better compete with cable
system operators, satellite TV and telcos, broadband wireless system operators
have begun to examine the implementation of both digital TV and Internet access
to create new revenue streams. To the extent that such operators choose to
invest in digital TV, such decision will limit the amount of capital available
for investment in deploying other services, such as Internet access. Broadband
wireless system operators will require substantial capital to introduce and
market Internet access products. There can be no assurance that broadband
wireless system operators will have the capital or be able to obtain the
financing necessary to supply Internet services in a competitive environment. In
addition, there can be no assurance that the broadband wireless system
operators' current customer bases have significant interest in high speed
Internet connectivity at a price greater than that offered by telcos or that
broadband wireless

39
<PAGE>
system operators can attract customers, particularly in the business community,
which have not traditionally subscribed to wireless cable services. Moreover, to
the extent that broadband wireless systems operators shift their focus and
spending from video delivery to high speed Internet access, sales of Pacific's
current products could be materially adversely impacted. While broadband
wireless system operators are currently utilizing telephone return for upstream
data transmission, Hybrid believes that wireless operators will demand two-way
wireless transmission as more of these entities obtain licenses for additional
frequencies. Currently, Hybrid and Pacific are developing products to satisfy
the two-way transmission needs of the broadband wireless system operators. There
can be no assurance that the combined company will be successful in such
development efforts, or if successful, that the product will be developed on a
timely basis. The failure of the combined company's products to gain market
acceptance could have a material adverse effect on the combined company's
business, operating results or financial condition. See "BUSINESS OF HYBRID" and
"BUSINESS OF PACIFIC."

DEPENDENCE ON CABLE SYSTEM OPERATORS. Hybrid depends on cable system
operators to purchase its cable modem systems and to sell its client cable
modems to end-users. Cable system operators have a limited number of programming
channels over which they can offer services, and there can be no assurance that
they will choose to provide Internet access. Even if cable system operators
choose to provide Internet access, there can be no assurance that they would
provide such access over anything other than that portion of their cable system
that has two-way cable transmission capabilities. In addition, there can be no
assurance that if such cable system operators provide Internet access, they
would use Hybrid's products. Hybrid began selling in the first quarter of 1998 a
two-way cable transmission solution utilizing the QPSK technology required by
cable system operators, but there can be no assurance that Hybrid will be
successful in such efforts or that once introduced such products will gain
market acceptance. While many cable system operators are in the process of
upgrading, or have announced their intention to upgrade, their HFC cable
infrastructures to provide increased quality and speed of transmission and, in
certain cases, two-way transmission capabilities, some cable operators have
delayed their planned upgrades indefinitely. Cable system operators have limited
experience with these upgrades, and investments in upgrades have placed a
significant strain on the financial, managerial, operational and other resources
of the cable system operators, most of which are already highly leveraged and
facing intense competition from telcos, satellite TV and broadband wireless
system operators. Because of the substantial capital cost of upgrading cable
systems for high quality and two-way data transmission, it is uncertain whether
such cable upgrades and additional services, such as Internet access, will be
offered in the near term, or at all. For example, to increase television
programming capacity to compete with other modes of multichannel entertainment
delivery systems, cable system operators may choose to roll out digital set-top
boxes, which do not support high speed Internet access. Cable system operators
may not have the capital required to upgrade their infrastructure or to offer
new services that require substantial start-up costs. In addition, Hybrid is
highly dependent on cable system operators to continue to maintain their cable
infrastructure in such a manner that Hybrid will be able to provide consistently
high performance and reliable service. Therefore, the success and future growth
of the combined company's business is subject to economic and other factors
affecting the cable television industry generally, particularly the industry's
ability to finance substantial capital expenditures. See "BUSINESS OF
HYBRID--INDUSTRY BACKGROUND" and "--CUSTOMERS."

CUSTOMER CONCENTRATION. To date, a small number of customers has accounted
for a substantial portion of each of Hybrid's and Pacific's net sales. Hybrid
expects that net sales from the sale of its Series 2000 products to a small
number of customers will continue to account for a substantial portion of its
net sales for the foreseeable future. Pacific also expects that sales to a small
number of customers will continue to account for a substantial portion of its
net sales. Each of Hybrid and Pacific expect that its largest customers in
future periods could be different from its largest customers in prior periods
due to a variety of factors, including customers' deployment schedules and
budget and regulatory considerations. In addition, the mix of Hybrid's
customers, whether cable, wireless, ISPs or distributors, has changed from
quarter to quarter. As a result, each of Hybrid and Pacific has experienced, and
expects to continue to experience, significant fluctuations in its results of
operations on a quarterly and annual basis. Because

40
<PAGE>
limited numbers of cable system operators and broadband wireless system
operators account for a majority of capital equipment purchases in their
respective markets, the combined company's future success will depend upon its
ability to establish and maintain relationships with these companies. Further,
during the latter part of 1997 and the first quarter of 1998 Hybrid has
increased its sales through distributors and value added resellers. During the
first quarter of 1998, Hybrid recorded an $800,000 sales return reserve for
potential adjustments to inventory held by distributors and value added
resellers. While these customers do not have the contractual right to require
product returns or stock rotation, Hybrid considered it prudent to reserve for
requested returns which it would consider accepting in light of current market
weakness. See "HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." In addition, as the market for high speed
Internet and corporate intranet access over broadband wireless and cable systems
continues to evolve, the composition of companies participating in this market
will continue to change. For instance, in 1994, 1995 and 1996, Intel Corporation
("INTEL") accounted for 59.6%, 51.6% and 20.7%, respectively, of Hybrid's net
sales. From 1994 to 1996, Intel manufactured certain products based on Hybrid's
design and jointly marketed Hybrid's products with its own. However, in 1996
Intel stopped purchasing products from Hybrid as it scaled back its direct
participation in the wireless and cable market, though it continues to be a
significant stockholder of Hybrid and maintains certain licensing and
manufacturing rights to certain of Hybrid's products. Should Intel decide to
purchase or support designs or products from competitors of Hybrid it could have
a material adverse effect on the combined company's business, operating results
and financial condition. In the year ended September 30, 1996, two customers
accounted for 35.7% and 12.4% of Pacific's net sales, respectively, and in the
year ended September 30, 1997, two customers accounted for 30.4% and 21.5%,
respectively, of Pacific's net sales. In the six months ended March 31, 1998,
four customers accounted for 31.3%, 13.6%, 11.5% and 10.1%, respectively, of
Pacific's net sales. The loss of any one of Hybrid's or Pacific's major
customers could have a material adverse effect on the combined company's
business, financial condition and results of operations. Further, Hybrid's and
Pacific's customers include companies in the early stage of development or in
need of capital to upgrade or expand their services. Accordingly, in order to
address the needs of and competitive factors facing the emerging broadband
access markets, each of Hybrid and Pacific on occasion has provided customers
extended payment, promotional pricing or other terms. The provision of extended
payment terms, or the extension of promotional payment, pricing or other terms
can have a material adverse effect on the combined company's business, operating
results or financial condition. For example, Hybrid increased its reserves for
doubtful accounts in the fourth quarter of 1997 and first quarter of 1998 by
$500,000 and $450,000, respectively, due to the assessment of the risk
associated with the slow pay of several customers which adversely affected
operating results. Two of Hybrid's customers accounted for 16.7% and 13.2%,
respectively, of Hybrid's accounts receivable for the three months ended March
31, 1998, and one of Pacific's customers accounted for 35.8% for the three
months ended March 31, 1998. The combined company's future success will depend
in significant part upon the decision of Hybrid's and Pacific's current and
prospective customers to continue to purchase products from the combined
company. There can be no assurance that Hybrid's or Pacific's current customers
will continue to place orders with the combined company or that the combined
company will be able to obtain orders from new customers. If orders from current
customers of Hybrid or Pacific are canceled, decreased or delayed, or the
combined company fails to obtain significant orders from new customers, or any
significant customer delays payment or fails to pay, the combined company's
business, operating results or financial condition could be materially adversely
affected. Further, Hybrid's headend equipment does not operate with other
companies' models and, accordingly, Hybrid is typically a sole source provider
to its customers. As a result, the combined company's operating results could be
materially and adversely affected if a major customer of Hybrid or Pacific were
to implement other technologies that impact the future utilization of Hybrid's
and Pacific's products. See "BUSINESS OF HYBRID--CUSTOMERS" and "BUSINESS OF
PACIFIC--CUSTOMERS."

COMPETITION. The market for high speed network connectivity products and
services is intensely competitive. The principal competitive factors in this
market include product performance and features (including speed of transmission
and upstream transmission capabilities), reliability, price, size and stability

41
<PAGE>
of operations, breadth of product line, sales and distribution capability,
technical support and service, relationships with broadband wireless system
operators, cable system operators and ISPs, standards compliance and general
industry and economic conditions. Certain of these factors are outside of
Hybrid's and Pacific's control. The existing conditions in the high speed
network connectivity market could change rapidly and significantly as a result
of technological changes, and the development and market acceptance of
alternative technologies could decrease the demand for Hybrid's or Pacific's
products or render them obsolete. Similarly, the continued emergence or
evolution of industry standards or specifications may put the combined company
at a disadvantage in relation to its competitors.

Hybrid's current and potential competitors include providers of asymmetric
cable modems, other types of cable modems and other broadband access products.
Most of Hybrid's competitors are substantially larger and have greater
financial, technical, marketing, distribution, customer support and other
resources, as well as greater name recognition and access to customers than
Hybrid. In addition, many of Hybrid's competitors are in a better position to
withstand any significant reduction in capital spending by cable or broadband
wireless system operators. Certain of Hybrid's competitors have established
relationships with cable system operators and telcos and, based on these
relationships, may have more direct access to the personnel of such cable system
operators and telcos that are responsible for making purchasing decisions. In
addition, Hybrid could face potential competition from certain of its suppliers,
such as Sharp if it were to develop or license modems for sale to others. In
addition, suppliers such as Cisco Systems, which manufactures routers, could
become competitors should they decide to enter Hybrid's market directly.
Stanford Telecom, which manufacturers QPSK components and is the sole supplied
for certain components used in Hybrid's products, has become a competitor for at
least one of Hybrid's products in the broadband wireless market. There can be no
assurance that Hybrid will be able to compete effectively in its target markets.

The principal competitors in the wireless modem market are Bay Networks,
Harmonic Lightwaves through its acquisition of New Media Communications,
Motorola, NextLevel Systems and Stanford Telecom.

The principal competitors in the cable modem market include Bay Networks,
Motorola, NextLevel Systems and 3Com and its subsidiary U.S. Robotics. Other
cable modem competitors include Cisco Systems, Com21, Hayes Microcomputer
Products, Phasecom, Scientific-Atlanta, Terayon, Toshiba and Zenith Electronics,
as well as a number of smaller, more specialized companies. Certain competitors
have entered into partnerships with computer networking companies that may give
such competitors greater visibility in this market. For example, Cisco Systems
has announced intentions to develop solutions based on the Multimedia Cable
Network System ("MCNS") standard with several cable modem vendors and in
December 1997 announced an MCNS-compliant integrated router and cable modem to
offer high-speed Internet access. Certain of Hybrid's competitors have already
introduced or announced high speed connectivity products that are priced lower
than Hybrid's, and certain other competitors are more focused on and experienced
in selling and marketing two-way cable transmission products. There can be no
assurance that additional competitors will not introduce new products that will
be priced lower, provide superior performance or achieve greater market
acceptance than Hybrid's products.

Pacific's current competitors include other providers of downconverters,
antennas and video encoding systems such as California Amplifier, Inc., Conifer
Corporation, Trans-Systems, Inc. and TeleLynx, Inc. Pacific's potential
competitors include providers of cable modems, such as Motorola, Inc., General
Instrument, Scientific-Atlanta, Bay Networks and 3Com. Most of Pacific's future
and potential competitors are substantially larger and have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than Pacific, as well as greater name recognition and access to
customers than Pacific. In addition, many of Pacific's competitors are in a
better position to withstand any significant reduction in capital spending by
cable or broadband wireless system operators. Certain of Pacific's competitors
have established relationships with current and potential customers of Pacific's
products, and based on those relationships, may have more direct access to the
personnel of such current and potential customers that are responsible for
making purchasing decisions. There can be no assurance that current or potential
competitors will not introduce new products that will be priced lower, provide
superior performance or achieve greater market acceptance than Pacific's
products. Accordingly, there can be no assurance that Pacific will be able to
compete effectively in its target markets, even after the Merger.

42
<PAGE>
To be successful, Hybrid's Series 2000 products must achieve market
acceptance, and the combined company must respond promptly and effectively to
the challenges of new competitive products and tactics, alternate technologies,
technological changes and evolving industry standards. The combined company must
continue to develop products with improved performance over two-way cable
transmission facilities and with the ability to perform over two-way wireless
transmission facilities. There can be no assurance that the combined company
will meet these challenges, that it will be able to compete successfully against
current or future competitors, or that the competitive pressures faced by the
combined company will not materially and adversely affect the combined company's
business, operating results or financial condition. Further, as a strategic
response to changes in the competitive environment, the combined company may
make certain promotional pricing, service, marketing or other decisions or enter
into acquisitions or new ventures that could have a material adverse effect on
the combined company's business, operating results or financial condition.

Broadband wireless and cable system operators face competition from
providers of alternative high speed connectivity systems. In the wireless high
speed access market, broadband wireless system operators compete with satellite
TV providers. In telephony networks, xDSL technology enables high speed data to
be transmitted through existing telephone lines to the home. Recently, several
companies, including Compaq, Intel, Microsoft, 3Com, Alcatel, Lucent, several
RBOCs, MCI and others announced the formation of a group focused on accelerating
the pace of ADSL service. In the event that any competing architecture or
technology were to limit or halt the deployment of coaxial or HFC systems, the
combined company's business, operating results and financial condition would be
materially adversely affected. See "BUSINESS OF HYBRID--COMPETITION" and
"BUSINESS OF PACIFIC--COMPETITION."

NEED TO REDUCE COST OF CLIENT MODEMS, DOWNCONVERTERS, ANTENNAS AND VIDEO
DECODERS. The list prices for the Series 2000 client modems currently range
from approximately $440 to $795, depending upon features and volume purchased.
Customers wishing to purchase client modems generally must also purchase an
Ethernet adapter for their computer. These prices make Hybrid's products
relatively expensive for the consumer electronics and the small office or home
office markets. Market acceptance of Hybrid's products, and the combined
company's future success, will depend in significant part on reductions in the
unit cost of Hybrid's client modems. Certain of Hybrid's competitors currently
offer products at prices lower than those for Hybrid's modems. While Hybrid has
initiated cost reduction programs to offset pricing pressures on its products,
there can be no assurance that these cost reduction efforts will keep pace with
competitive pricing pressures or lead to improved gross margins. If the combined
company is unable to obtain cost reductions, its gross margins and profitability
will be adversely affected. To address continuing competitive and pricing
pressures, Hybrid expects that it will have to reduce the cost of manufacturing
client modems significantly through design and engineering changes. Such changes
may involve redesigning Hybrid's products to utilize more highly integrated
components and more automated manufacturing techniques. Hybrid has entered into
high-volume purchase and supply agreements with Sharp and Itochu Corporation
("ITOCHU") and may evaluate the use of low-cost third party suppliers and
manufacturers to further reduce costs. There can be no assurance that the
combined company will be successful in redesigning its products or using more
automated manufacturing techniques, that a redesign can be made on a timely
basis and without introducing significant errors and product defects, or that a
redesign will result in sufficient cost reductions to allow the combined company
to reduce the list price of Hybrid's client modems. Moreover, there can be no
assurance that additional volume purchase or manufacturing agreements will be
available to the combined company on terms that the combined company considers
acceptable. To the extent that the combined company enters into a high-volume or
long-term purchase or supply agreement and then decides that it cannot use the
products or services provided for in the agreement, the combined company's
business, operating results or financial condition could be materially adversely
affected. See "HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS OF HYBRID--MANUFACTURING."

43
<PAGE>
The list price for Pacific's downconverter, antenna and video decoder
products also make those products relatively expensive for the consumer
electronics markets. Market acceptance of Pacific's products, and the combined
company's future success, will depend in significant part on reductions in the
unit costs of Pacific's downconverters, antennas and video decoders. Certain of
Pacific's competitors currently offer products at prices lower than those for
Pacific's downconverters, antennas and video decoders. If the combined company
is unable to obtain cost reductions with respect to Pacific's downconverters,
antennas and video decoders, the combined company's gross margins and
profitability will be adversely affected. To address continuing competitive and
pricing pressures, Pacific expects that it will have to continue to
significantly reduce the cost of manufacturing its products through design and
engineering changes. There can be no assurance that the combined company will be
successful in redesigning Pacific's downconverters, antennas and video decoders
or that a redesign can be made on a timely basis and without introducing
significant errors or product defects, or that the redesign will result in
significant cost reductions to allow the combined company to reduce the list
price of Pacific's products. Failure to accomplish any of the foregoing could
have a material adverse effect on the combined company's business, operating
results or financial condition. See "PACIFIC MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and "BUSINESS OF
PACIFIC--MANUFACTURING."

LIMITED MANUFACTURING EXPERIENCE; SOLE SOURCE MANUFACTURING. The combined
company's future success will depend, in significant part, on its ability to
manufacture, or have others manufacture, its products successfully,
cost-effectively and in sufficient volumes. Hybrid maintains a limited in-house
manufacturing capability at its headquarters in Cupertino for performing system
integration and testing on all headend products and for manufacturing small
quantities of modems. Hybrid entered into an agreement pursuant to which Sharp
to date has been the exclusive OEM supplier through Itochu of certain of
Hybrid's client modems, including the substantial majority of those utilized in
the Series 2000. In the second quarter and a portion of the third quarter of
1997, Hybrid did not receive the full shipment of modems anticipated from Sharp
because of technical delays in product integration. While these problems have
since been resolved, there can be no assurance that the combined company will
not experience similar supply problems in the future from Sharp or any other
manufacturer. Hybrid is exploring the possibility of entering into supply
arrangements with other manufacturers to provide additional or alternative
sources of supply for certain of Hybrid's products, although there can be no
assurance that such arrangements will be entered into or that they will provide
for the prompt manufacture of products or subassemblies in quantities or on
terms required to meet the needs of Hybrid's customers. Hybrid has had only
limited experience manufacturing its products to date, and there can be no
assurance that the combined company or Sharp or any other manufacturer of
Hybrid's products will be successful in increasing the volume of its
manufacturing efforts. The combined company may need to procure additional
manufacturing facilities and equipment, adopt new inventory controls and
procedures, substantially increase its personnel and revise its quality
assurance and testing practices, and there can be no assurance that any of these
efforts will be successful. Failure to do so could have a material adverse
effect on the combined company's business, operating results or financial
condition. See "BUSINESS OF HYBRID--MANUFACTURING" and "BUSINESS OF
PACIFIC--MANUFACTURING."

The list price for Pacific's downconverter, antenna and video decoder
products also make those products relatively expensive for the consumer
electronics markets. Market acceptance of Pacific's products, and the combined
company's future success, will depend in significant part on reductions in the
unit costs of Pacific's downconverters, antennas and video decoders. Certain of
Pacific's competitors currently offer products at prices lower than those for
Pacific's downconverters, antennas and video decoders. If the combined company
is unable to obtain cost reductions with respect to Pacific's downconverters,
antennas and video decoders, the combined company's gross margins and
profitability will be adversely affected. To address continuing competitive and
pricing pressures, Pacific expects that it will have to continue to
significantly reduce the cost of manufacturing its products through design and
engineering changes. There can be no assurance that the combined company will be
successful in redesigning Pacific's downconverters, antennas and video decoders
or that a redesign can be made on a timely basis and without introducing

44
<PAGE>
significant errors or product defects, or that the redesign will result in
significant cost reductions to allow the combined company to reduce the list
price of Pacific's products. Failure to accomplish any of the foregoing could
have a material adverse effect on the combined company's business, operating
results or financial condition. See "PACIFIC MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and "BUSINESS OF
PACIFIC--MANUFACTURING."

DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS. Hybrid is dependent
upon certain key suppliers for a number of the components for its products. For
example, Hybrid currently only has one vendor, Broadcom Corporation, for the 64
QAM demodulator semiconductors that are used in Hybrid's server and client modem
products, and in past periods these semiconductors have been in short supply.
Recently, Broadcom announced a program to develop with certain of Hybrid's
competitors high-speed cable data modems and equipment based on Broadcom's MCNS
compliant semiconductors. As a result of such program, certain of Broadcom's
technological and product enhancements may be made available to certain of
Hybrid's competitors before making them available to Hybrid. This could have the
effect of putting Hybrid at a competitive disadvantage with regard to time to
market or cause Hybrid to have to redesign its products if competitors influence
changes in Broadcom's products. Hitachi is the sole supplier of components used
in the processors used in certain of Hybrid's modems. In addition, certain other
components for products that Hybrid has under development are currently only
available from a single source. For example, Stanford Telecom, which is a
competitor for at least one of Hybrid's broadband wireless products, is
currently the sole supplier for certain components used in Hybrid's products,
although Hybrid is in the process of developing one or more alternative sources.
Pacific is also dependent on certain key suppliers for a number of components in
its products and is dependent on Sun Denki (HK) Limited for most of its
manufacturing needs. Specifically, Pacific is dependent upon Triquint
Semiconductor for gallium arsenide semiconductors, Microchip Corp. for micro
controller integrated circuit semiconductors, General Electric Corp. for printed
circuit board material and Murata Inc. for RF filters. There can be no assurance
that delays in key components or product deliveries will not occur in the future
for Hybrid or Pacific due to shortages resulting from a limited number of
suppliers, the financial or other difficulties of such suppliers or the possible
limitation in component product capacities due to significant worldwide

45
<PAGE>
demand for such components. Any significant interruption or delay in the supply
of components for Hybrid's or Pacific's products or significant increase in the
price of components due to short supply or otherwise could have a material
adverse effect on the combined company's ability to manufacture its products
and, therefore, could have a material adverse effect on its business, operating
results or financial condition. See "BUSINESS OF HYBRID--MANUFACTURING" and
"BUSINESS OF PACIFIC--MANUFACTURING."

DEPENDENCE ON THE INTERNET AND INTERNET INFRASTRUCTURE DEVELOPMENT. The
commercial market for products designed for the Internet and the TCP/IP
networking protocol has only recently begun to develop, and the combined
company's success will depend in large part on increased use of the Internet.
Critical issues concerning the commercial use of the Internet, including
security, reliability, cost, ease of access and quality of service, remain
unresolved and are likely to affect the development of the market for the
combined company's products. The adoption of the Internet for commerce and
communications, particularly by enterprises that have historically relied upon
alternative means of commerce and communications, generally requires the
acceptance of a new way of conducting business and exchanging information. In
addition, Hybrid is and the combined company will be dependent on the growth of
the use of the Internet by business, particularly for applications that utilize
multimedia content and thus require high bandwidth. If the Internet as a
commercial or business medium fails to develop or develops more slowly than
expected, the combined company's business, operating results and financial
condition could be materially adversely affected. The recent growth in the use
of the Internet has caused frequent periods of performance degradation,
requiring the upgrade of routers, telecommunications links and other components
forming the infrastructure of the Internet by ISPs and other organizations with
links to the Internet. Any perceived degradation in the performance of the
Internet as a whole could undermine the benefits of the combined company's
products. Potentially increased performance provided by the products of the
combined company and others is ultimately limited by and reliant upon the speed
and reliability of the Internet backbone itself. Consequently, the emergence and
growth of the market for the combined company's products are dependent on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.

DEPENDENCE ON ACCEPTANCE OF ASYMMETRIC NETWORKING. Hybrid's products are
designed to transmit data from the Internet in the downstream direction (i.e.,
to the end-user) much more quickly than data is transmitted in the upstream
direction (i.e., from the end-user). This "asymmetric" architecture has not been
widely used and is relatively unproven in computer networking. Certain
networking protocols and standards, including the TCP/IP protocol, were designed
with the expectation that the network would be symmetric, and Hybrid has spent
considerable engineering resources to enable its products to work with such
protocols. There can be no assurance that Hybrid's current products or the
combined company's future products will be compatible with symmetric standards
or that errors will not occur in connecting the symmetric protocols with
Hybrid's asymmetric design. Because of this asymmetric design, certain
applications do not benefit from the connection to a high bandwidth cable
system. Computer applications that need to transmit data as quickly to the
Internet as from the Internet will not exhibit the performance improvements that
are only available to downstream data traffic, particularly if the upstream
traffic is sent via Plain Old Telephone Service ("POTS"). Certain applications
will not run fast enough in the upstream direction to be acceptable for some
users. As a result, some end-users may not perceive a significant benefit from
the greater downstream performance of Hybrid's products. There can be no
assurance that potential customers will consider the downstream performance
benefits sufficient to justify the purchase and installation costs of Hybrid's
asymmetric products. Failure of asymmetric networking to gain market acceptance,
or any delay in such acceptance, could have a material adverse effect on the
combined company's business, operating results or financial condition.

RISK OF PRODUCT DEFECTS, PRODUCT RETURNS AND PRODUCT LIABILITY. Products as
complex as those offered by Hybrid and Pacific frequently contain undetected
errors, defects or failures, especially when first introduced or when new
versions are released. In the past, such errors have occurred in Hybrid's and
Pacific's products, and there can be no assurance that errors will not be found
in Hybrid's or Pacific's

46
<PAGE>
current products or the combined company's future products. The occurrence of
such errors, defects or failures could result in product returns and other
losses to the combined company or its customers. Such occurrence could also
result in the loss of or delay in market acceptance of the combined company's
products, which could have a material adverse effect on the combined company's
business, operating results or financial condition. Hybrid's products generally
carry a one year warranty which includes factory and on-site repair services as
needed for replacement of parts. In addition, Hybrid's third party manufacturer
provides a 15 month warranty period on all cable modems manufactured by it. The
warranty period begins on the date the modems are completely assembled. Pacific
typically provides a two-year warranty on its broadband wireless downconverters
and decoders. Due to the relatively recent introduction of the Series 2000
products, Hybrid has limited experience with the problems that could arise with
this generation of products. In addition, each of Hybrid's and Pacific's
purchase agreements with its customers typically contain provisions designed to
limit exposure to potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in such purchase
agreements may not be effective as a result of federal, state or local laws or
ordinances or unfavorable judicial decisions. Although neither Hybrid nor
Pacific has experienced any product liability claims to date, the sale and
support of Hybrid's and Pacific's products entails the risk of such claims. A
successful product liability claim brought against the combined company could
have a material adverse effect on the combined company's business, operating
results or financial condition. See "BUSINESS OF HYBRID--MANUFACTURING" and
"BUSINESS OF PACIFIC--MANUFACTURING."

DEPENDENCE ON KEY PERSONNEL. The combined company's success will depend in
significant part upon the continued services of its key technical sales and
senior management personnel, including the combined company's Chairman and Chief
Executive Officer, Carl S. Ledbetter, and the combined company's President and
Chief Operating Officer, Richard B. Gold. Hybrid carries a $1.5 million "key
man" life insurance policy on Mr. Ledbetter as required under the terms of the
$5.5 Million Debenture but does not have an employement agreement with Mr.
Ledbetter. Mr. Gold will be party to an employment agreement with the combined
company. See "SELECTED INFORMATION WITH RESPECT TO HYBRID--EXECUTIVE
COMPENSATION-- EMPLOYMENT AGREEMENTS." Any officer or employee of the combined
company will be able to terminate his or her relationship with the combined
company at any time. The combined company's future success will also depend on
its ability to attract, train, retain and motivate highly qualified technical,
marketing, sales and management personnel. Competition for such personnel is
intense, and there can be no assurance that the combined company will be able to
attract and retain key personnel. The loss of the services of one or more of the
combined company's executive officers or key employees or the combined company's
failure to attract additional qualified personnel could have a material adverse
effect on the combined company's business, operating results or financial
condition. See "BUSINESS OF HYBRID--EMPLOYEES" and "--MANAGEMENT."

REGULATION OF THE COMMUNICATIONS INDUSTRY. Hybrid, Pacific and their
customers are subject to varying degrees of federal, state and local regulation.
For instance, the jurisdiction of the FCC extends to high speed Internet access
products such as those of Hybrid. The FCC has promulgated regulations that,
among other things, set installation and equipment standards for communications
systems. Further regulation of the combined company's customers may adversely
impact its business, operating results and financial condition. For example, FCC
regulatory policies affecting the availability of cable, wireless and telco
services, and other terms on which cable, wireless and telco companies conduct
their business, may impede the combined company's penetration of certain
markets. Changes in current or future laws or regulations which negatively
impact the combined company's products and technologies, in the United States or
elsewhere, could materially and adversely affect the combined company's
business, operating results and financial condition.

In March 1997, the FCC was petitioned to grant broadband wireless operators
the right to use their spectrum for two-way access. Two-way access would enable
voice, video and data over that spectrum. Failure to obtain FCC clearance of
two-way authorization for such spectrum would materially adversely

47
<PAGE>
affect sales of Hybrid's and Pacific's products and would materially adversely
affect the combined company's business, operating results and financial
condition. In addition, international regulatory authorities for broadband
wireless communications are currently conducting spectrum auctions. Failure to
complete these auctions in a timely manner would have a material adverse effect
on sales of Pacific's downconverter, antenna and video encoding products and
would materially adversely affect the combined company's business, operating
results and financial condition.

PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS. Each of Hybrid
and Pacific relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its products. Hybrid currently has two patents issued in the United
States, as well as pending patent applications in the United States, Europe and
Japan that relate to its network and modem technology and the communication
processes implemented in those devices. Pacific currently has 23 patents issued
in the United States, as well as pending patent applications in the United
States, Mexico, Europe and Japan that relate to the design features for its
broadband wireless products. In the future, the combined company will likely to
seek additional United States and foreign patents on its technology. There can
be no assurance any of these patents will issue from any of Hybrid's or
Pacific's pending applications or applications in preparation or that any claims
allowed will be of sufficient scope or strength, or issue in sufficient
countries where the combined company's products can be sold, to provide
meaningful protection or any commercial advantage to the combined company.
Moreover, any patents that have been or may be issued might be challenged, as is
the case with the patent litigation recently initiated by Hybrid discussed
below. Any such challenge could result in time consuming and costly litigation
and result in the combined company's patents being held invalid or
unenforceable. Furthermore, even if the patents are not challenged or are
upheld, third parties might be able to develop other technologies or products
without infringing any such patents.

Each of Hybrid and Pacific has entered into confidentiality and invention
assignment agreements with its employees, and non-disclosure agreements with
certain of its suppliers, distributors and customers in order to limit access to
and disclosure of its proprietary information. There can be no assurance that
these contractual arrangements or the other steps taken by Hybrid and Pacific to
protect its intellectual property will prove sufficient to prevent
misappropriation of its technology or to deter independent third-party
development of similar technologies. The laws of certain foreign countries may
not protect Hybrid's, Pacific's or the combined company's products or
intellectual property rights to the same extent as do the laws of the United
States.

In the past, each of Hybrid and Pacific has received, and in the future may
receive, notices from third parties claiming that its products or proprietary
rights infringe the proprietary rights of third parties. Hybrid expects that
developers of wireless and cable modems will be increasingly subject to
infringement claims as the number of products and competitors in the combined
company's industry segment grows. Any such claim, whether meritorious or not,
could be time consuming, result in costly litigation, cause product shipment
delays or require the combined company to enter into royalty or licensing
agreements. Such royalty or licensing agreements may not be available on terms
acceptable to the combined company or at all, which could have a material
adverse effect upon the combined company's business, operating results and
financial condition.

Each of Hybrid and Pacific has and in the future may license its patents or
proprietary rights for commercial or other reasons, to parties who are
competitors of Hybrid or Pacific, or who may become competitors of the combined
company. Further the combined company may also elect to initiate claims or
litigation against third parties for infringement of Hybrid's, Pacific's or the
combined company's patents or proprietary rights or to establish the validity of
Hybrid's, Pacific's or the combined company's patents or proprietary rights.
Hybrid recently initiated patent infringement litigation against two companies,
and in response one company is seeking a declaration of invalidity,
unenforceability and non-infringement of Hybrid's patents and attorneys fees,
and the other company is seeking to be dismissed from the litigation. Hybrid has
not yet determined if it will initiate litigation against other parties as well.
In addition, Hybrid

48
<PAGE>
has sent notices to certain third parties offering to license its patents for
products that may be infringing its patent rights. There can be no assurance
that such notifications will not lead to potential litigation initiated by the
combined company or related countersuits by third parties seeking to challenge
Hybrid's, Pacific's or the combined company patents or asserting infringement by
the combined company. Such litigation could be time consuming and costly and
have a material adverse effect on the combined company's business, operating
results and financial condition. See "BUSINESS OF HYBRID--INTELLECTUAL PROPERTY"
and "BUSINESS OF PACIFIC--INTELLECTUAL PROPERTY."

RISKS OF INTERNATIONAL SALES. To date, sales of Hybrid's products outside
of the United States have represented an insignificant portion of net sales.
While Hybrid intends to expand its operations in North America and Europe, this
will require significant management attention and financial resources. In order
to gain market acceptance internationally, Hybrid's products will have to be
designed to meet industry standards of foreign countries, such as the DAVIC
specifications that are supported in Europe. Hybrid has committed and continues
to commit resources to developing international sales and support channels.
Sales to customers of Pacific outside the United States have accounted for a
significant portion of net sales. Pacific's international sales accounted for
30.4%, 28.5% and 36.7% of net sales in the years ended September 30, 1997, 1996
and 1995, respectively, and 53.8% of net sales for the six months ended March
31, 1998. International sales are subject to a number of risks, including longer
payment cycles, export and import restrictions and tariffs, including existing
United States restrictions on the export of certain high technology products
that could limit the combined company's sales abroad, unexpected changes in
regulatory requirements, the burden of complying with a variety of foreign laws,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences, currency fluctuations and political and economic instability.
Sales to international customers are typically made in U.S. dollars to minimize
the risks associated with fluctuating foreign currency exchange rates. To date,
substantially all of Pacific's international sales have been denominated in U.S.
currency, however, Pacific expects that, in the future, more international sales
may be denominated in local currencies. Pacific has not engaged in foreign
currency hedging activities. Fluctuations in currency exchange rates could cause
Pacific's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. To the extent that international revenues increase as a percentage of
total revenues in the future, foreign currency fluctuation exposure may also
increase. In addition, Pacific has in the past experienced a decline in sales to
Mexico due to the devaluation of the Mexico peso. There can be no assurance that
future economic or political instability in countries where Pacific sells its
products will not have a material adverse effect on Pacific's sales in such
countries, and consequently, on the business financial condition or results of
operations of Pacific. Additionally, the protection of intellectual property may
be more difficult to enforce outside of the United States. In the event the
combined company is successful in expanding its international operations,
particularly sales of Hybrid's products, the imposition of exchange or price
controls or other restrictions on foreign currencies could materially adversely
affect the combined company's business, operating results and financial
condition. If the combined company increases its international sales, its net
sales may also be affected to a greater extent by seasonal fluctuations
resulting from lower sales that typically occur during the summer months in
Europe and other parts of the world.

CONCENTRATION OF OWNERSHIP BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND
DIRECTORS. Upon completion of the Merger at the Assumed Exchange Ratio, the
combined company's executive officers, directors and greater than 5%
stockholders (and their affiliates) will, in the aggregate, beneficially own
approximately 37.1% of Hybrid's outstanding Common Stock. As a result, such
persons, acting together, will have the ability to significantly influence all
matters submitted to stockholders of Hybrid for approval (including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of Hybrid's assets) and to significantly influence the
management and affairs of Hybrid. Accordingly, such concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
Hybrid, impede a merger, consolidation, takeover or other business combination
involving Hybrid or discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of

49
<PAGE>
Hybrid, which in turn could have an adverse effect on the market price of
Hybrid's Common Stock. See "SECURITY OWNERSHIP OF THE COMBINED COMPANY."

RESTRICTIVE DEBT COVENANTS. Under the terms of the outstanding $5.5 Million
Debenture, Hybrid is subject to certain restrictive covenants which could
adversely affect the combined company's operations, including limitations on the
amount of capital expenditures it may incur in any 12-month period and
prohibitions against declaring dividends, retiring any subordinated debt other
than in accordance with its terms or distributing assets to any stockholder, as
long as the $5.5 Million Debenture remains outstanding. In October 1997, Hybrid
entered into the $4.0 Million Credit Facility, which contains a number of
restrictive covenants, including covenants prohibiting the declaration of
dividends. The $5.5 Million Debenture and the Credit Facility are collateralized
by substantially all of Hybrid's assets. In addition, the $5.5 Million Debenture
contains "full ratchet" antidilution provisions under which the number of shares
of Hybrid's Common Stock into which the $5.5 Million Debenture is convertible,
at the option of the holder, may be increased if Hybrid issues any shares (with
certain exceptions for employee stock options and the like) prior to October
1998 for consideration less that $10.71 per share. Commencing with October 1998,
any such issuance would be subject to certain "weighted average" antidilution
provisions. See "HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "DESCRIPTION OF HYBRID CAPITAL
STOCK--CONVERTIBLE $5.5 MILLION DEBENTURE" and Notes 6 and 7 of Notes to
Financial Statements. Pacific has an $8 million bank line of credit with Coast
Business Credit ("COAST"). Coast may terminate the line of credit at any time
upon the occurrence of certain events of default, including Pacific's failure to
pay any amounts under the line of credit when due. In the event of any such
termination, an amount equal to $240,000 will be payable by Pacific to Coast as
an early termination fee. As of April 30, 1998, the amount outstanding under the
line of credit was $3,733,000. See "PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL
RESOURCES."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Hybrid's
Common Stock (including shares issued upon the exercise of outstanding options
and warrants and upon the conversion of the $5.5 Million Debenture) in the
public market could adversely affect the market price of Hybrid Common Stock
prevailing from time to time and could impair the combined company's ability to
raise capital through the sale of equity or debt securities. There are
approximately 7,180,307 shares of Common Stock outstanding that are restricted
shares ("RESTRICTED SHARES") under the Securities Act. Currently, no Restricted
Shares are eligible for sale in the public market. The 7,180,307 Restricted
Shares became available for sale in the public market on May 12, 1998, although
approximately 2,601,792 of such shares are held by affiliates of Hybrid and are
subject to a pooling lock-up associated with the Merger that prevents them from
selling such shares before July 1998. In addition, upon consummation of the
Merger, the $5.5 Million Debenture could be converted at any time at the option
of the holder into 851,393 shares of Common Stock, assuming that Hybrid Common
Stock is valued at the closing of the Merger at $6.46 per share, the ten day
average price before the execution of the Reorganization Agreement (the number
of shares into which the debenture could be convertible would be greater if the
closing price is lower than $6.46) (see "RESTRICTIVE DEBT COVENANTS" above).
Furthermore, the holders of warrants for 1,340,656 shares of Hybrid Common Stock
can exercise such warrants at any time, but only 158,137 of such shares could
not be sold until the expiration of the 180-day lock-up period on May 12, 1998
and the remaining 1,179,865 cannot be sold until July 1998 due to the pooling
lock-up and the holding period restrictions imposed by Rule 144 of the
Securities Act. NationsBanc Montgomery, the underwriter for Hybrid's initial
public offering, also may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. Shares of Hybrid Common Stock issued in the Merger will be freely
tradeable following the closing of the Merger, but shares held by affiliates may
not be sold until the expiration of the pooling lock-up. See "DESCRIPTION OF
HYBRID CAPITAL STOCK--WARRANTS" and "--CONVERTIBLE $5.5 MILLION DEBENTURES." If
such holders sell in the public market, such sales could have a material adverse
effect on the market price of Hybrid's Common Stock.

50
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the shares of
Hybrid's Common Stock is likely to be highly volatile and could be subject to
wide fluctuations in response to factors such as actual or anticipated
variations in the combined company's results of operations, announcements of
technological innovations, new products introduced by the combined company or
its competitors, developments with respect to patents, copyrights or proprietary
rights, changes in financial estimates by securities analysts, conditions and
trends in the Internet and modem systems industries, general market conditions
and other factors. Further, the stock markets, and in particular the Nasdaq
National Market, have experienced extreme price and volume fluctuations that
have particularly affected the market prices of equity securities of many
technology companies and that often have been unrelated or disproportionate to
the operating performance of such companies. There can be no assurance that
these trading prices and price earnings ratios will be sustained. These broad
market factors may adversely affect the market price of Hybrid's Common Stock.
These market fluctuations, as well as general economic, political and market
conditions such as recessions, interest rates or international currency
fluctuations, may adversely affect the market price of Hybrid's Common Stock. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such company. Such litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which would have a
material adverse effect on the combined company's business, operating results
and financial condition.

51
<PAGE>
APPROVAL OF THE MERGER

GENERAL

THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE REORGANIZATION AGREEMENT AND RELATED AGREEMENTS. DETAILED
TERMS OF AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE REORGANIZATION
AGREEMENT AND AGREEMENT OF MERGER OF WHICH IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS APPENDICES A-1 AND A-2, RESPECTIVELY. REFERENCE IS ALSO
MADE TO THE OTHER APPENDICES HERETO. STATEMENTS MADE IN THIS JOINT PROXY
STATEMENT/ PROSPECTUS WITH RESPECT TO THE TERMS OF THE MERGER ARE QUALIFIED IN
THEIR RESPECTIVE ENTIRETIES BY REFERENCE TO THE MORE DETAILED INFORMATION SET
FORTH IN THE AGREEMENT AND THE ANNEXES HERETO.

THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING
STATEMENTS REFLECT THE BEST JUDGMENT OF THE MANAGEMENT OF HYBRID AND PACIFIC
BASED ON FACTORS CORRECTLY KNOWN AND RISKS AND UNCERTAINTIES. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THE JOINT PROXY STATEMENT/ PROSPECTUS.

The Reorganization Agreement provides, among other things, for the Merger of
Merger Sub (a wholly-owned subsidiary of Hybrid) with and into Pacific, whereby
Pacific, as the surviving corporation of the Merger, will become a wholly-owned
subsidiary of Hybrid.

Pursuant to the Reorganization Agreement, Hybrid has agreed that, upon
consummation of the Merger, Richard B. Gold, the President and Chief Executive
Officer of Pacific, and Matthew D. Miller, the Chairman of the Board of Pacific,
will be appointed to Hybrid's Board of Directors and that Stephen E. Halprin and
Douglas M. Leone, two of Hybrid's current directors (who are nominated for
re-election at the Hybrid Annual Meeting pursuant to Proposal No. 2 below) will
resign as directors (assuming they are re-elected at the meeting). Accordingly,
upon the Merger, Hybrid's Board of Directors will consist of Messrs. Gold and
Miller and Hybrid's three continuing directors, James R. Flach, Gary M. Lauder
and Carl S. Ledbetter. The executive officers of Hybrid will remain in their
current positions, except that Mr. Gold will become Hybrid's President and Chief
Operating Officer. See "MANAGEMENT OF THE COMBINED COMPANY." The shareholders of
Pacific will become stockholders of Hybrid (as described in "PROPOSAL NO. 1: THE
MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION"), and their rights will be
governed by Hybrid's Certificate of Incorporation and Bylaws, as well as the
Delaware General Corporation Law.

HYBRID'S REASONS FOR THE MERGER

Hybrid believes that the combination of Hybrid's wireless network products,
technology and expertise with Pacific's wireless transmission products,
technology and expertise will provide an opportunity for the combined company to
offer a more complete suite of products and to accelerate development of
integrated, end-to-end system solutions for high speed wireless Internet access.
In addition, combining Hybrid's current products and network capabilities with
Pacific's wireless transmission product capability will allow the combined
company to offer broader high speed Internet access solutions, including
products that provide two-way wireless access, two-way cable access, wireless
downstream and phone-up access and cable downstream and phone-up access. The
ability to provide a more complete and broader product offering may give the
combined company increased leverage with customers who enter into volume
purchase arrangements.

Pacific's market presence, customer base and relationships in the broadband
wireless marketplace should provide additional marketing opportunities for the
products the of the combined company. In addition, Pacific's international sales
and distribution capability will give Hybrid the opportunity to expand the
international distribution of its products.

52
<PAGE>
The Merger will increase the management breadth and organization
infrastructure of the combined company by adding Pacific's key executives.
Hybrid's engineering capacity and expertise will be strengthened and expanded by
the addition of Pacific's engineering team and its technical expertise in RF
(radio frequency)/analog product design and engineering. Pacific's engineers are
expected to help Hybrid satisfy a need it had previously identified for hiring a
substantial number of technical personnel in this important area, a difficult
goal to achieve in the current labor market. The Merger will enable Hybrid to
combine its technology with Pacific's technology and should increase the
research and development capacity of the combined company to improve product
offerings. Integrating the sales and marketing staffs and manufacturing and
support functions of the two companies should significantly expand the combined
company's capabilities and provide for greater efficiencies in there areas.

Hybrid anticipates that the combined company may be able to achieve
significant operational efficiencies in the future. Hybrid will gain access to
Pacific's low cost, off-shore volume manufacturing relationships. The combined
company may achieve cost savings by consolidating existing facilities, and by
consolidating or realigning internal and outside administration and operational
functions.

The Merger may help the combined company achieve critical mass in revenues
and resources to meet increasing challenges from larger companies already in or
expected to enter the markets in which the combined company will participate.
The increased size of the combined company may enable it to pursue new
technological and market opportunities by way of internal development and,
possibly, through future acquisitions of new products and technologies.

In the course of its deliberations, the Hybrid Board reviewed with Hybrid's
management and financial advisors a number of factors relevant to the Merger in
addition to the benefits outlined above. The Hybrid Board considered, among
other things, (i) the terms of the Merger; (ii) the likelihood of realizing
superior benefits through alternative business strategies; (iii) information
concerning Hybrid's and Pacific's respective businesses, prospects, financial
positions, results of operations, operations, products, product development and
technologies, based in the case of Pacific on information provided by Pacific
and on Hybrid management's due diligence investigation; (iv) information
regarding comparable companies in the wireless Internet access industry,
including market prices of the companies' stock, market capitalizations,
earnings per share, price earnings ratios, revenues and other results of
operations, based on reported historical information and analysts' reports and
earnings estimates; (v) information regarding reported acquisitions of over the
last three years of other companies in the wireless Internet access industry and
other comparable acquisitions; (vi) an analysis of the relative value that
Pacific might contribute to the future business and prospects of the combined
company; (vii) current financial market conditions and historical market prices,
volatility and trading information with respect to Hybrid Common Stock; (viii)
the number of shares of Hybrid that might be issued by Hybrid under the terms of
the Reorganization Agreement, based on varying assumptions as to the Closing
Price of Hybrid Common Stock as determined in accordance with those terms; (ix)
estimates made by Hybrid's management (based in part upon estimates provided by
Pacific as to its prospective operating results) as to the potential effect of
the Merger upon Hybrid's prospective operating results for 1998 and 1999 before
giving effect to potential cost reduction synergies that might be achieved as a
result of the Merger, indicating that the Merger might have a dilutive effect on
earnings per share (increasing losses) for 1998 and 1999 (recognizing that the
estimates were subject to substantial uncertainties and that actual operating
results would likely be materially different than those estimated); (x)
estimates as to the potential effect of cost reduction synergies that might
possibly be achieved from the Merger, indicating that such synergies, if
achieved to the maximum extent postulated (see "--OPINION OF FINANCIAL
ADVISORS--PRO FORMA ANALYSIS" below), would improve slightly the combined
company's estimated results of operations for 1998, so that the Merger might not
have a significant effect on earnings per share for that year, and would improve
to a greater extent the combined company's estimated results of operations for
1999, so that the Merger might be accretive for that year (recognizing that
achievement of such synergies was subject to substantial uncertainty and that
the actual cost reductions, if any, might be materially less than the maximum
amount postulated);

53
<PAGE>
(xi) advice and detailed financial analysis of NationsBanc Montgomery, including
its oral opinion on March 19, 1998, subsequently confirmed in writing, that as
of such date the consideration to be paid by Hybrid in the Merger was fair to
Hybrid from a financial point of view, as of the date of such opinion; (xii) the
compatibility of the businesses products, technologies, management and the
administrative, sales and marketing and technical organizations of Hybrid and
Pacific; (xiii) the expectation that the Merger will qualify for pooling of
interests treatment for financial reporting purposes; (xiv) the expectation that
the Merger will be a tax-free reorganization for federal income tax purposes;
and (xv) reports from management and legal advisors on the results of Hybrid's
due diligence analysis of Pacific. For a discussion of many of the foregoing
factors, see "--OPINION OF FINANCIAL ADVISORS" below.

The Hybrid Board also considered a variety of potentially negative factors
concerning the Merger, including: (i) the risk that, despite the intentions and
efforts of the parties, the benefits sought to be achieved in the Merger might
not be achieved, or that integration of the technologies, products,
organizations or other operations of the two companies might not be accomplished
smoothly and might require more time, expense and management attention than
anticipated; (ii) the potential disruption of the combined company's business
that might result from employee uncertainty or lack of focus, as well as
customer and supplier confusion, following announcement of the Merger; (iii) the
uncertainty of the market's acceptance of Hybrid's combined product offerings
following the Merger; (iv) the risk that delays may occur in the development and
introduction of the integrated, end-to-end, system solutions for high speed
wireless Internet access that Hybrid expects to develop following the Merger;
(v) uncertainties regarding the economic condition of the broadened wireless
market and the risk that the financial condition of many actual and potential
customers for the combined company's wireless products will be such that their
ability to purchase or pay for those products is limited, thereby adversely
affecting the combined company's results of operations; (vi) the risk that the
combination of Hybrid and Pacific, each of which have a history of operating
losses, may result in increased operating losses that Hybrid's current capital
resources may diminish at an accelerated rate resulting in the need to raise
additional capital on terms that might be unfavorable to Hybrid and its
stockholders, (vii) the estimated charges of $3.0 million to $3.5 million to be
incurred due to the Merger in the quarter in which it closes, (viii) the risk
that, during the period prior to consummation of the Merger, Pacific will be
unable to obtain additional funds for its continuing operations and its short
term liquidity needs, during such interim (and the risk that, if the Merger is
not consummated, Pacific will not be able to repay the loan); (ix) the
possibility that the operational efficiencies and other benefits anticipated
from the Merger might not achieved or might not occur as rapidly or to the
extent currently anticipated, so that the initially dilutive effect of the
Merger on Hybrid stock may be greater or continue longer than expected; (x) the
risk that, despite the efforts of the combined company, key technical,
management and sales personnel of Pacific and Hybrid might not be retained by
the combined company; (xi) the risk that the combined company's ability to
increase or maintain revenues might be diminished by intensified competition
among suppliers of similar or related products; (xii) the risk that the public
market price of Hybrid stock might be adversely affected by announcement of the
Merger; and (xiii) the other risks described above in "PROPOSAL NO. 1: THE
MERGER-- RISK FACTORS." The Hybrid Board believed that these risks were
outweighed by the potential benefits of the Merger.

In view of the wide variety of factors, both positive and negative,
considered by the Hybrid Board, the Board did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. After taking into consideration all of the factors set forth above,
the Hybrid Board determined that the Merger was in the best interests of Hybrid
and its stockholders, and the Board continues to recommend approval and adoption
of the Merger by the Hybrid stockholders.

PACIFIC'S REASONS FOR THE MERGER

Pacific believes that the combined company has the opportunity to be a
worldwide leader in broadband access equipment.

54
<PAGE>
As the wireless data business has become increasingly important, many of
Pacific's customers have expressed interest in integrated, end-to-end system
solutions, and the combination of Pacific's product line with Hybrid's product
line allows the combined company to offer such an end-to-end solution. In
particular, the combination of Hybrid's wireless network equipment with
Pacific's wireless transmission equipment will enable the combined company to
offer an integrated product offering for wireless high speed Internet access.
The combined company's broader, more complete product offering should provide
increased leverage with customers who enter into volume purchase orders.

The combination of Hybrid and Pacific will create a combined company with
significantly greater resources than those of Pacific alone, and may enable
Pacific to compete more effectively in the market. In particular, Hybrid's
significant cash and cash equivalents will enable Pacific to have greater
flexibility in managing its business. Moreover, Hybrid's market presence,
customer base and relationships with existing broadband access providers offer
expanded sales and marketing opportunities for Pacific's products. Additionally,
Hybrid has relationships with global telecommunications companies which are
synergistic with Pacific's business.

There is the potential for significant operating synergies during 1998 and
1999. Hybrid's technical strength in digital hardware and software design
complements Pacific's technical strength in RF/analog product design. Hybrid's
operational strength in system design and integration complements Pacific's
operational strength in product engineering, manufacturing and customer support.
Additionally, Pacific's management team will be bolstered by the addition of key
executive personnel of Hybrid.

Finally, the Merger will be a means by which Pacific's shareholders and
optionholders will be able to obtain liquidity for their equity interests. In
addition, the Merger is expected to be accomplished as a tax-free exchange under
Section 368 of the Code.

In the course of its deliberations, the Pacific Board reviewed with
Pacific's management and financial advisors a number of factors relevant to the
Merger in addition to the benefits outlined above. The Pacific Board considered,
among other things, (i) the terms of the Merger; (ii) Pacific management's view
as to the prospects of Pacific as an independent company; (iii) historical
information concerning Pacific's and Hybrid's respective businesses, financial
performances and condition, results of operations, operations, products, product
development and technologies, management and competitive position, based in the
case of Hybrid on information provided by Hybrid and on Pacific management's due
diligence investigation; (iv) Pacific management's view as to the historical
financial condition, results of operations and businesses of Pacific and Hybrid
before and after giving effect to the Merger based on management due diligence
and publicly available financial information; (v) estimates made by Pacific's
management as to Pacific's prospective operating results for calendar years 1998
and 1999 as a stand alone entity, indicating potential operating losses for both
years (recognizing that the estimates were subject to substantial uncertainties
and that actual operating results would likely be materially different than
those estimated); (vi) estimates (based in part on publicly available analysts'
estimates and on information provided by Hybrid), as to the combined company's
prospective operating results for calendar years 1998 and 1999 before giving
effect to potential cost reduction synergies that might be achieved as a result
of the Merger, indicating that the Merger might have a dilutive effect on
earnings per share (increasing losses) for 1998 and an accretive effect for 1999
(recognizing that the estimates were subject to substantial uncertainties and
that actual operating results would likely be materially different than those
estimated); (vii) estimates as to the potential effect of cost reduction
synergies that might possibly be achieved from the Merger, indicating that such
synergies, if achieved to the maximum extent postulated (see "--OPINION OF
FINANCIAL ADVISORS-- PRO FORMA ANALYSIS" below), would improve the combined
company's estimated results of operations slightly for 1998 and to a greater
extent for 1999 (recognizing that achievement of such synergies was subject to
substantial uncertainty and that the actual cost reductions, if any, might be
materially less than the maximum amount postulated); (viii) Pacific management's
view as to the potential for other third parties to enter into strategic
relationships with or to acquire Hybrid or Pacific; (ix) current financial
market conditions and historical market prices, volatility and trading
information with respect to Hybrid

55
<PAGE>
Common Stock; (x) the impact of the Merger on Pacific's customers and employees;
(xi) the number of shares of Hybrid that might be issued by Hybrid under the
terms of the Reorganization Agreement, based on varying assumptions as to the
Closing Price of Hybrid Common Stock as determined in accordance with those
terms; (xii) the compatibility of the businesses products, technologies,
management and the administrative, sales and marketing and technical
organizations of Pacific and Hybrid; (xiii) reports from management on the
results of Pacific's due diligence analysis of Hybrid; and (xiv) advice of UBS,
Pacific's financial advisor with respect to the Merger (UBS was not asked to
render a fairness opinion with respect to the Merger). The Pacific Board also
considered the possible effects of the provisions regarding the termination
fees. In addition, the Pacific Board also took into account that Pacific would
be represented on the Board of Directors of the combined company following the
Merger.

The Pacific Board also considered a variety of potentially negative factors
concerning the Merger, including: (i) the risk that, despite the intentions and
efforts of the parties, the benefits sought to be achieved in the Merger might
not be achieved, or that integration of the technologies, products,
organizations or other operations of the two companies might not be accomplished
smoothly and might require more time, expense and management attention than
anticipated; (ii) the potential disruption of the combined company's business
that might result from employee uncertainty or lack of focus, as well as
customer and supplier confusion, following announcement of the Merger; (iii) the
uncertainty of the market's acceptance of the combined product offerings
following the Merger; (iv) the risk that the combination of Pacific and Hybrid,
each of which have a history of operating losses, may result in increased
operating losses; (v) that Pacific's and Hybrid's combined capital resources may
diminish at an accelerated rate resulting in the need to raise additional
capital on terms that might be unfavorable to the combined company and its
shareholders; (vi) the substantial charges to be incurred, primarily in the
quarter in which the Merger is consummated, in connection with the Merger; (vii)
the possibility that the operational efficiencies and other benefits anticipated
from the Merger might not be achieved and that, as a result, the Merger would
have a dilutive effect on Hybrid stock; (viii) the risk that, despite the
efforts of the combined company, key technical management and sales personnel of
Pacific and Hybrid might not be retained by the combined company; (ix) the risk
that the combined company's ability to increase or maintain revenues might be
diminished by intensified competition among suppliers of similar or related
products; (x) the risk that the public market price of Hybrid stock might be
adversely affected by announcement of the Merger; and (xi) the other risks
described in "PROPOSAL NO. 1: THE MERGER--RISK FACTORS" herein. The Pacific
Board believed that these risks were outweighed by the potential benefits of the
Merger.

In view of the wide variety of factors, both positive and negative,
considered by the Pacific Board, the Board did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. After taking into consideration all of the factors set forth above,
the Pacific Board determined that the Merger was fair and in the best interests
of Pacific and its shareholders, and the Board continues to recommend approval
and adoption of the Merger by the Pacific shareholders.

BOARD RECOMMENDATIONS

Hybrid's Board has adopted and approved the Reorganization Agreement and the
Agreement of Merger and the transactions contemplated thereby and approved the
Merger and has determined that the Merger is fair, from a financial point of
view to, and in the best interests of Hybrid. James R. Flach, a member of the
Hybrid Board and an executive partner of Accel Partners, a venture capital firm
and an affiliate of Hybrid, abstained from the vote on the Reorganization
Agreement and the transactions contemplated thereby. Gary M. Lauder, a member of
the Hybrid Board and the General Partner of Lauder Partners, a venture capital
partnership, did not attend the meeting of the Hybrid Board at which the
adoption and approval of the Reorganization Agreement was voted upon but
subsequently voted in favor of the Merger.

56
<PAGE>
AFTER CAREFUL CONSIDERATION, THE HYBRID BOARD RECOMMENDS A VOTE FOR THE
ADOPTION AND APPROVAL OF THE REORGANIZATION AGREEMENT AND THE AGREEMENT OF
MERGER AND THE APPROVAL OF THE MERGER.

Pacific's Board has adopted and approved the Reorganization Agreement and
the Agreement of Merger and the transactions contemplated thereby and approved
the Merger by the vote of all but one of the members of the Pacific Board and
has determined that the Merger is fair, from a financial point of view to, and
in the best interests of Pacific and its shareholders. Alan F. Dishlip, a member
of the Pacific Board and a general partner of Utah Venture Partners, could not
be present at the meeting of the Pacific Board at which the adoption and
approval of the Reorganization Agreement was voted upon, but subsequent thereto
informed Pacific that he supports the approval and adoption of the
Reorganization Agreement and approval of the Merger.

AFTER CAREFUL CONSIDERATION, THE PACIFIC BOARD UNANIMOUSLY RECOMMENDS A VOTE
FOR THE ADOPTION AND APPROVAL OF THE REORGANIZATION AGREEMENT AND THE AGREEMENT
OF MERGER AND THE APPROVAL OF THE MERGER.

BACKGROUND OF THE MERGER

Pacific and Hybrid have been working together informally in the wireless
broadband access equipment market since 1995 when the companies began
occasionally referring customers to one another. On June 23, 1997, at the
request of Matthew D. Miller, a director of Pacific, Mr. Miller and Carl S.
Ledbetter, Hybrid's President and Chief Executive Officer, met preliminarily to
explore a more structured business relationship between the two companies. A
follow up meeting was held on July 17, 1997 between Richard B. Gold, Pacific's
President and Chief Executive Officer, and Mr. Ledbetter. To facilitate this
meeting, Hybrid entered into a non-disclosure agreement with respect to the
confidential information of Pacific, and Pacific provided Hybrid with certain
information regarding its business. Mr. Ledbetter indicated that he was not then
prepared to propose or actively consider such a combination as such discussions
would be premature, but Hybrid and Pacific agreed to keep the channels of
communication open. Mr. Ledbetter had further meetings with Mr. Miller on August
13, 1997, with Mr. Gold on September 16, 1997 and November 14, 1997 and with Mr.
Miller on November 20, 1997 to apprise each other of developments in their
respective businesses, although no substantive discussions were held.

On December 11, 1997, Mr. Ledbetter met with Mr. Gold and indicated that he
was prepared to commence discussions on a more active basis. On December 12,
1997, Hybrid executed a new non-disclosure agreement, and Pacific delivered
preliminary financial information to Hybrid. Subsequently, Pacific retained UBS
to advise the Pacific Board of Directors, and Hybrid retained NationsBanc
Montgomery to advise the Hybrid Board of Directors, in connection with a
possible business combination between Hybrid and Pacific.

On December 30, 1997, a meeting was held at the offices of Fenwick & West,
legal counsel to Hybrid, among Mr. Gold and Andrew Hartland of Pacific, Mr.
Ledbetter and Dan E. Steimle of Hybrid, Tor Braham and Steven J. Lalli of UBS,
and Michael Richter and David Locala of NationsBanc Montgomery. During the
meeting, the parties engaged in preliminary discussions with respect to a
business combination of the two companies.

On January 15, 1998, at a regular meeting of Hybrid's Board of Directors and
in discussions with Hybrid's directors before and after the meeting, Mr.
Ledbetter discussed his interest in pursuing a business combination with Pacific
and the basic terms that Hybrid might propose. On January 22, 1998, Mr.
Ledbetter called Mr. Miller and presented a preliminary proposal, in the form of
a summary term sheet, for a business combination between the two companies. Mr.
Ledbetter and Mr. Gold met on January 27, 1998 and discussed the proposed
combination in general terms.

57
<PAGE>
On January 29, 1998, at a regular meeting of Pacific's Board of Directors,
Mr. Gold and Mr. Braham of UBS presented to the Board the potential business
combination with Hybrid. Mr. Braham reviewed with the Board a detailed package
prepared by UBS relating to Hybrid and the potential business combination. Mr.
Braham also discussed other alternatives and potential business combinations
with companies other than Hybrid. Messrs. Gold and Braham then reviewed the
proposed term sheet in detail with the Board, and the Board discussed the
proposed valuation of Pacific and the preliminary areas of concern with the term
sheet. Mr. Gold then reviewed Hybrid's business and the advantages and
disadvantages of a proposed business combination with Hybrid. After an extended
discussion, the Board authorized Pacific's management, in consultation with
Pacific's legal and financial advisors, to continue discussions with Hybrid
regarding the terms upon which a merger with Hybrid might be structured.

In a conference telephone call on January 30, 1998, Mr. Ledbetter reported
to three of Hybrid's other directors regarding the status of the discussions
with Pacific and his understanding that Pacific was interested in pursuing the
discussions further.

At various times in January 1998, James R. Flach, a director of Hybrid,
worked with Messrs. Gold and Ledbetter to prepare an outline of strategic
reasons for the proposed business combination for presentation to the respective
boards of directors of the two companies. Throughout February and March of 1998,
there continued to be various meetings between representatives of senior
managements of Pacific and Hybrid and their respective advisors to explore the
advisability of a possible business combination, to conduct due diligence
reviews and to discuss the principal terms of a merger. Senior management of the
two companies communicated individually with members of their respective Board
of Directors over this period as well.

On February 2, 1998, a dinner meeting was held among Mr. Gold,
representatives of UBS, Mr. Ledbetter, two directors of Hybrid (Messrs. Halprin
and Leone) and representatives of NationsBanc Montgomery, during which the
potential beneficial synergies of the possible business combination were
discussed.

The following day, the proposed business combination was the subject of a
meeting of Hybrid's Board of Directors, which was attended by Mr. Steimle, by
Hybrid's legal counsel and by representatives of NationsBanc Montgomery. After
extensive discussion, the directors authorized Hybrid's management, in
consultation with Hybrid's legal and financial advisors, to proceed with
discussions regarding the business combination and to continue its due diligence
investigation of Pacific.

During the following week, discussions continued between representatives of
UBS and NationsBanc Montgomery. On February 10, 1998, Mr. Gold met with Gary M.
Lauder, a director of Hybrid, and Howard L. Strachman, who was then director of
Hybrid and discussed Pacific, the possible business combination and questions
about the combination that were required by the Hybrid representatives.

On February 12, 1998, the business combination was the subject of further
extensive discussion at a meeting of Hybrid's Board of Directors. During the
meeting, issues regarding the proposed combination were considered by the
directors and discussed at length with representatives of NationsBanc Montgomery
and with Hybrid's legal counsel.

On February 13, 1998, Mr. Ledbetter spoke with Mr. Gold over the telephone
regarding a proposed meeting to discuss a number of questions regarding Pacific
and the possible business combination. A meeting was held at the offices of
Fenwick & West on February 18, 1998 and was attended by Mr. Gold and Mr.
Hartland of Pacific, representatives of UBS, Messrs. Ledbetter and Quinones of
Hybrid and representatives of NationsBanc Montgomery. Financial aspects of
Pacific and the proposed combination were discussed at length. A further meeting
was held by Hybrid's Board of Directors on February 25, 1998 at which the status
of the negotiations with Pacific and Hybrid's due diligence investigation were
discussed extensively as well as the possible terms that Hybrid might propose
for the business combination.

58
<PAGE>
On March 6, 1998, Hybrid sent a revised term sheet to Pacific. On March 12,
1998, at a regular meeting of Pacific's Board of Directors, Mr. Gold and Mr.
Braham of UBS updated the Board on the status of discussions with Hybrid and
reviewed the revised term sheet in detail with the Board. Mr. Braham also
updated the Board on the status of other alternatives. The Board engaged in an
extended discussion of the revised term sheet, Pacific's current position in its
market, the advantages and disadvantages of a potential business combination
with Hybrid, the current state of Hybrid's business and stock price, the
proposed valuation of Pacific, and other alternatives for Pacific. The Board
then authorized management of Pacific to continue negotiation of the revised
term sheet with Hybrid.

On March 13, 1998, following a breakfast meeting among Messrs. Ledbetter,
Miller and Gold, representatives of Pacific, Hybrid, UBS, NationsBanc Montgomery
and Wilson Sonsini Goodrich & Rosati, legal counsel to Pacific, met and agreed
upon an outline of fundamental terms by which a merger of the two companies
could be accomplished, subject to completion of a comprehensive due diligence
investigation by Hybrid of the technology and operations of Pacific, the
negotiation and approval of a definitive agreement, and final approval by
Hybrid's Board of Directors and Pacific's Board of Directors of such an
agreement.

Beginning on March 16, 1998 and continuing through March 19, 1998,
representatives of senior management of the two companies and their respective
legal counsel met to review and negotiate drafts of the Merger Agreement and
related documents. During this period, representatives of Hybrid continued their
investigation into Pacific's technology and operations.

On March 18, 1998, a special telephonic meeting of the Board of Directors of
Hybrid was held, which included Messrs. Steimle and Quinones all of the
directors (except that Mr. Lauder was present during only a portion of the
meeting) and Hybrid's financial and legal advisors. At the meeting, management
presented its proposal regarding the exchange ratio and other principal terms of
the Merger Agreement and related documents. Senior management and legal and
financial advisors of Hybrid discussed, among other things, the status of
discussions, the principal terms of the Merger, the results of the due diligence
evaluation of Pacific, the benefits and potential risks of the Merger, the
possible impact of the Merger on the financial condition and business of Hybrid,
the potential dilutive effect of the Merger and the potential market reaction to
the proposed Merger. Hybrid's financial advisors then reviewed, among other
things, the strategic rationale for, and certain financial analysis relating to,
the proposed Merger. After extensive discussion, the Hybrid Board of Directors
approved the Merger Agreement and related documents, with Mr. Flach abstaining
due to a potential conflict of interest, subject to receipt of a fairness
opinion from NationsBanc Montgomery regarding the business combination. A
special committee of the Board was appointed to review NationsBanc Montgomery's
opinion and give final approval to the execution and delivery of the Merger
Agreement by Hybrid.

On March 19, 1998, the special committee of the Hybrid Board, consisting of
Messrs. Ledbetter, Halprin and Leone, met by conference call with Mr. Steimle of
Hybrid, representatives of Fenwick & West and representatives of NationsBanc
Montgomery. The representatives of NationsBanc Montgomery made a presentation
regarding the proposed business combination, its potential benefits and risks,
certain principal terms of the Merger Agreement, analysis as to the relative
valuation of Hybrid and Pacific, analysis of valuations of comparable companies
and other valuation analyses and other matters. NationsBanc Montgomery presented
its opinion as to the fairness of the proposed business combination from a
financial point of view to Hybrid and its stockholders. (See "--OPINION OF
FINANCIAL ADVISOR.") After further discussion, the committee, acting pursuant to
authority conferred by the Hybrid Board, authorized the execution and delivery
of the Merger Agreement by Hybrid.

On the same day, a special telephonic meeting of Pacific's Board of
Directors was held, which included various members of Pacific's management, Mr.
Braham of UBS and Pacific's legal advisors. At the meeting, management presented
the exchange ratio and other principal terms of the Merger Agreement and related
documents. Senior management, Mr. Braham and the legal advisors of Pacific
reviewed,

59
<PAGE>
among other things, the status of the discussions with Hybrid, the principal
terms of the Merger, the benefits and potential risks of the Merger, and the
potential impact of the Merger on the business and financial condition of
Pacific. Mr. Braham then reviewed, among other things, certain factors
supporting the proposed exchange ratio and terms. Mr. Braham orally informed the
Board that, based upon UBS's review of the businesses of Hybrid and Pacific and
its experience in the investment banking industry, UBS concurred with the
Board's views as to the advantages of a business combination with Hybrid. After
further discussion, the Pacific Board of Directors approved the Merger Agreement
and related documents.

On March 19, 1998, following final approval by the Hybrid Board and the
Pacific Board of Directors, the Merger Agreement and related documents were
executed by both companies. On the afternoon of March 19, 1998, following the
close of the stock market, Hybrid issued a press release announcing the Merger.

FINANCIAL ADVISORS

Hybrid engaged NationsBanc Montgomery to act as its financial advisor in
connection with the Merger. NationsBanc Montgomery is a nationally recognized
firm and, as part of its investment banking activities, is regularly engaged in
the valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Hybrid selected NationsBanc
Montgomery as its financial advisor on the basis of NationsBanc Montgomery's
experience and expertise in transactions similar to the Merger, its reputation
in the technology and investment communities and its existing investment banking
relationship with Hybrid.

At the March 19, 1998 meeting of the special committee of the Hybrid Board,
NationsBanc Montgomery delivered its opinion that the consideration to be paid
by Hybrid in the Merger was fair to Hybrid from a financial point of view, as of
the date of such opinion. NationsBanc Montgomery did not determine the form or
amount of consideration to be paid by Hybrid in the Merger. The amount of such
consideration was agreed to as a result of negotiations between Hybrid and
Pacific. No limitations were imposed by Hybrid on NationsBanc Montgomery with
respect to the investigations made or procedures followed in rendering its
opinion.

The full text of NationsBanc Montgomery's written opinion to the Hybrid
Board, which sets forth the assumptions made, matters considered and limitations
of review by NationsBanc Montgomery, is attached hereto as Appendix B and is
incorporated herein by reference and should be read carefully and in its
entirety in connection with this Joint Proxy Statement/Prospectus. The following
summary of NationsBanc Montgomery's opinion is qualified in its entirety by
reference to the full text of the opinion. NationsBanc Montgomery's opinion is
addressed to the Hybrid Board only and does not constitute a recommendation to
any Hybrid stockholder as to how such stockholder should vote at the Annual
Meeting. In furnishing its opinion, NationsBanc Montgomery did not admit that it
is an expert within the meaning of the term "expert" as used in the Securities
Act and the rules and regulations promulgated thereunder, or that its opinion is
a report or valuation within the meaning of Section 11 of the Securities Act,
and statements to such effect are included in NationsBanc Montgomery's opinion.

In connection with its opinion, NationsBanc Montgomery, among other things:
(i) reviewed certain financial and other data with respect to Pacific and
Hybrid, including the consolidated financial statements for recent years and
interim periods to February 28 for Pacific and Hybrid and certain other relevant
financial and operating data relating to Pacific and Hybrid made available to
NationsBanc Montgomery from the internal records of Pacific and Hybrid; (ii)
reviewed the financial terms and conditions of the undated draft Reorganization
Agreement; (iii) compared Pacific and Hybrid from a financial point of view with
certain other companies in the wireless telecommunication equipment industry
which NationsBanc Montgomery deemed to be relevant; (iv) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the telecommunication equipment industry which

60
<PAGE>
NationsBanc Montgomery deemed to be comparable, in whole or in part, to the
Merger; (v) reviewed and discussed with representatives of the management of
Hybrid and Pacific certain information of a business and financial nature
regarding Hybrid and Pacific, furnished to NationsBanc Montgomery by them,
including financial forecasts and related assumptions of Hybrid and Pacific;
(vi) made inquiries regarding, and discussed, the Merger and the draft
Reorganization Agreement and other matters related thereto with Hybrid's
counsel; and (vii) performed such other analyses and examinations as NationsBanc
Montgomery deemed appropriate.

In connection with its review, NationsBanc Montgomery did not assume any
obligation independently to verify the foregoing information and relied on such
information being accurate and complete in all material respects. With respect
to the financial forecasts for Pacific provided to NationsBanc Montgomery by
Hybrid, NationsBanc Montgomery assumed for purposes of its opinion that the
forecasts were reasonably prepared on bases reflecting the best available
estimates and judgments of its management at the time of preparation as to the
future financial performance of Hybrid and that they provided a reasonable basis
upon which NationsBanc Montgomery could form its opinion. NationsBanc Montgomery
also assumed that there were no material changes in Hybrid's or Pacific's
assets, financial condition, results of operations, business or prospects since
the respective dates of their last financial statements made available to
NationsBanc Montgomery. NationsBanc Montgomery has relied on advice of counsel
and independent accountants to Pacific and Hybrid as to all legal and financial
reporting matters with respect to Pacific and Hybrid, the Merger and the
Reorganization Agreement. NationsBanc Montgomery assumed that the Merger would
be consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, NationsBanc
Montgomery did not assume responsibility for making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of Hybrid or Pacific, nor was NationsBanc Montgomery furnished
with any such evaluations or appraisals. Hybrid informed NationsBanc Montgomery,
and NationsBanc Montgomery assumed, that the Merger would be recorded as a
pooling of interests under generally accepted accounting principles. Finally,
NationsBanc Montgomery's opinion was based on economic, monetary and market and
other conditions as in effect on, and the information made available to it as
of, March 19, 1998. Accordingly, although subsequent developments may affect
NationsBanc Montgomery's opinion, NationsBanc Montgomery has not assumed any
obligation to update, revise or reaffirm its opinion.

The following is a summary of the material analyses and factors considered
by NationsBanc Montgomery in connection with its opinion to the Hybrid Board
dated March 19, 1998.

SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. NationsBanc Montgomery
compared the value of the consideration to be paid by the stockholders of Hybrid
in the Merger to certain financial and stock market information of selected
publicly-traded companies engaged in the wireless telecommunication industry
that NationsBanc Montgomery believed were comparable in certain respects to
Pacific (the "COMPARABLE COMPANIES"). The Comparable Companies were chosen by
NationsBanc Montgomery as companies that, based on publicly available data,
possess general business, operating and financial characteristics representative
of companies in the industry in which Pacific operates, although NationsBanc
Montgomery recognizes that each of the Comparable Companies is distinguishable
from Pacific in certain respects.

For each of the Comparable Companies and Pacific, NationsBanc Montgomery
obtained certain publicly available financial, operating and stock market data,
including last 12 months ("LTM") revenue, projected calendar year 1998 revenue,
projected calendar year 1999 revenue, recently reported total debt and cash and
cash equivalents, and closing stock price as of March 18, 1998. Calendar year
1998 revenue and calendar year 1999 revenue estimates for the Comparable
Companies were based on publicly available analysts' estimates, and calendar
year 1998 revenue and calendar year 1999 revenue estimates for Pacific were
based on Hybrid management estimates.

61
<PAGE>
NationsBanc Montgomery also compiled the "aggregate value" for each of the
Comparable Companies and for Pacific implied in the Merger. Aggregate value is
the total current equity value plus total debt less cash and cash equivalents.

Based on this data, NationsBanc Montgomery calculated the following ratios
for each of the Comparable Companies and for Pacific implied in the Merger:
aggregate value to LTM revenue; aggregate value to projected calendar year 1998
revenue; and aggregate value to projected calendar year 1999 revenue.

Based on these calculations, NationsBanc Montgomery identified a selected
aggregate value to the LTM revenue range for the Comparable Companies of .66x to
1.82x, compared to .62x for Pacific implied in the Merger. The selected
aggregate value to projected calendar year 1998 revenue range for the Comparable
Companies was .49x to 1.30x, compared to .55x for Pacific implied in the Merger.
The selected aggregate value to projected calendar year 1999 revenue range for
the Comparable Companies was .81x to 1.09x, compared to .50x for Pacific implied
in the Merger.

SELECTED COMPARABLE MERGERS AND ACQUISITIONS ANALYSIS. NationsBanc
Montgomery reviewed certain financial data for selected recently announced
mergers and acquisitions in the telecommunication equipment industry that were
deemed to be comparable to the Merger.

For each such transaction NationsBanc Montgomery calculated the ratio of
aggregate value to LTM revenue. All multiples were based on publicly available
information at the time of announcement of the comparable acquisitions. Based on
these calculations, NationsBanc Montgomery identified a selected aggregate value
to LTM revenue range of 3.40x to 6.36x, compared to .62x for Pacific implied in
the Merger

PRO FORMA MERGER ANALYSIS. NationsBanc Montgomery analyzed the impact of
the Merger on Hybrid stockholders on a pro forma fully diluted EPS basis for
calendar years 1998 and 1999. NationsBanc Montgomery used internal estimates for
calendar year 1998 for Hybrid and Hybrid management estimates for calendar year
1998 for Pacific and performed the analysis giving effect to approximately $2.5
million of cost reduction synergies anticipated to be achieved by the
managements of Hybrid and Pacific to result from the Merger. The analysis
indicated that, for Hybrid stockholders, the Merger would be accretive in
calendar year 1998 with the realization of the synergies. NationsBanc Montgomery
used NationsBanc Montgomery estimates for calendar year 1999 for Hybrid and
Hybrid management estimates for calendar year 1999 for Pacific and performed the
analysis giving effect to approximately $4.5 million of cost reduction synergies
anticipated to be achieved by the managements of Hybrid and Pacific to result
from the Merger. The analysis indicated that, for Hybrid stockholders, the
Merger would be accretive in 1999 with the realization of the synergies.

The actual results achieved by the combined company may vary from projected
results and the variations may be material.

DISCOUNTED CASH FLOW ANALYSIS. NationsBanc Montgomery performed a
discounted cash flow analysis on certain projected financial statements that
were provided to NationsBanc Montgomery by the management of Pacific.

In performing this analysis, NationsBanc Montgomery calculated the projected
stand-alone unlevered after-tax cash flows for Pacific for calendar years 1998
through 2002. NationsBanc Montgomery calculated Hybrid's terminal values in
calendar year 2002 based on aggregate value to revenue multiples ranging from
.75x to 1.75x. The unlevered after-tax cash flows and the terminal value were
discounted to the present using discount rates ranging from 17.5% to 22.5%. This
analysis yielded an equity value range for Pacific of $13.3 million to $41.1
million, compared to $12.5 million for Pacific implied by the Merger.

CONTRIBUTION ANALYSIS. Using estimates and forecasts prepared by Hybrid for
calendar year 1998 and NationsBanc Montgomery for calendar year 1999 with
respect to Hybrid, and by Pacific with respect to

62
<PAGE>
Pacific, NationsBanc Montgomery reviewed the estimated contribution of each of
Hybrid and Pacific to estimated calendar 1998 and 1999 revenue, EBIT and net
income for the combined company. NationsBanc Montgomery then compared such
contributions to the pro forma share ownership of the combined company to be to
be contributed by Hybrid and Pacific, assuming consummation of the Merger as
described in the Reorganization Agreement. These comparisons do not consider the
cost reduction synergies resulting from the Merger. Such analysis indicated that
the Hybrid's stockholders would own approximately 85.6% of the combined company.
Hybrid would contribute approximately 53.9%, 94.5% and 80.2% of the combined
company's estimated 1998 revenue, operating income and net income, respectively,
and 60.4%, 69.5% and 101.5% of the combined company's estimated 1999 revenue,
operating income and net income, respectively.

The summary set forth above does not purport to be a complete description of
the presentation by NationsBanc Montgomery to the Hybrid Board or the analyses
performed by NationsBanc Montgomery. The preparation of a fairness opinion is
not necessarily susceptible to partial analysis or summary description.
NationsBanc Montgomery believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses
and of the factors considered, without considering all analyses and factors,
would create an incomplete view of the process underlying the analyses set forth
in its presentation to the Hybrid Board. In addition, NationsBanc Montgomery may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be NationsBanc Montgomery's view of the actual
value of Pacific. The fact that any specific analysis has been referred to in
the summary above is not meant to indicate that such analysis was given greater
weight than any other analysis. In arriving at its opinion, NationsBanc
Montgomery did not ascribe a specific range of values to Pacific, but rather
made its determination as to the fairness, from a financial point of view, of
the consideration to be paid by Hybrid in the Merger on the basis of the
financial and comparative analyses described above.

In performing its analyses, NationsBanc Montgomery made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Pacific. The analyses
performed by NationsBanc Montgomery are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of NationsBanc Montgomery's analysis of the fairness of the transaction
contemplated by the Reorganization Agreement to Hybrid's stockholders and were
provided to the Hybrid Board in connection with the delivery of NationsBanc
Montgomery's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
NationsBanc Montgomery used in its analyses various projections of future
performance prepared by the management of Hybrid. The projections are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections.

Pursuant to the terms of NationsBanc Montgomery's engagement, Hybrid has
agreed to pay NationsBanc Montgomery a fee in cash equal to 2.5% of the
consideration involved in the sale (subject to a minimum fee of $600,000),
$300,000 of which became payable upon delivery of its opinion and the remainder
of which is contingent upon the closing of the Merger. Accordingly, a
significant portion of NationsBanc Montgomery's fee is contingent upon the
consummation of the Merger. In addition to the foregoing fees, Hybrid has agreed
to reimburse NationsBanc Montgomery for all reasonable out-of-pocket costs and
expenses (including counsel fees). Pursuant to a separate letter agreement,
Hybrid had agreed to indemnify NationsBanc Montgomery, its affiliates and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under
federal securities laws.

63
<PAGE>
Pacific engaged UBS to act as its financial advisor in connection with the
Merger. At the March 19, 1998 telephonic meeting of Pacific's Board of
Directors, UBS orally informed the Board, that, based upon its review of the
businesses of Hybrid and Pacific and its experience in the investment banking
industry, it concurred with the Board's views as to the advantages of a business
combination with Hybrid. UBS did not render a formal "fairness opinion" on the
Merger. UBS acted as one of the two managing underwriters in Hybrid's initial
public offering and currently acts as a market maker for Hybrid's stock.

Pursuant to the terms of UBS's engagement, Pacific has agreed to pay UBS a
fee equal to 1.5% of the consideration involved in the sale, payable in cash
upon the consummation of the Merger. In addition to the foregoing fee, Pacific
has agreed to reimburse UBS for all travel and other out-of-pocket expenses
(including counsel fees), up to a maximum of $30,000.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Pacific
Common Stock and Pacific Preferred Stock. This discussion does not deal with all
income tax considerations that may be relevant to particular Pacific
shareholders in light of their particular circumstances, such as considerations
that might be applicable to shareholders who are dealers in securities, foreign
persons, shareholders who acquired their shares in connection with previous
mergers involving Pacific or an affiliate of Pacific or shareholders who
acquired their shares in connection with stock option or stock purchase plans or
in other compensatory transactions. In addition, the following discussion does
not address the tax consequences of transactions effectuated prior to or after
the Merger (whether or not such transactions are in connection with the Merger),
including, without limitation, transactions in which shares of Pacific Common
Stock or Pacific Preferred Stock were or are acquired or in which shares of
Hybrid Common Stock were or are disposed of. Furthermore, no foreign, state or
local tax considerations are addressed. ACCORDINGLY, PACIFIC SHAREHOLDERS AND
HYBRID STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.

The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Pacific, Merger Sub and Hybrid
intended to qualify as a "party to a reorganization" under Section 368(b) of the
Internal Revenue Code of 1986, as amended (the "CODE"), in which case the
following federal income tax consequences will result (subject to the
limitations and qualifications referred to herein):

(a) No gain or loss will be recognized by holders of Pacific Common
Stock or Pacific Preferred Stock solely upon their receipt of Hybrid Common
Stock in the Merger (except to the extent of cash received in lieu of a
fractional share thereof) in exchange therefor;

(b) The aggregate tax basis of the Hybrid Common Stock received in the
Merger by a holder of Pacific Capital Stock will be the same as the
aggregate tax basis of the Pacific Capital Stock surrendered in exchange
therefor;

(c) The holding period for the Hybrid Common Stock received in the
Merger by a holder of Pacific Capital Stock will include the period during
which the shareholder held the Pacific Capital Stock surrendered in exchange
therefor, provided that the Pacific Capital Stock is held as a capital asset
at the time of the Merger;

(d) Cash payments received by holders of Pacific Capital Stock in lieu
of a fractional share will be treated as if such fractional share of Hybrid
Common Stock has been issued in the Merger and then redeemed by Hybrid. A
holder of Pacific Capital Stock receiving such cash generally will recognize
gain or loss, upon such payment, measured by the difference, if any, between
the amount of cash received and the basis in such fractional share; and

64
<PAGE>
(e) None of Hybrid, Merger Sub or Pacific will recognize material
amounts of gain or loss solely as a result of the Merger.

The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. Hybrid and Pacific have each received an
opinion from their respective legal counsel, Fenwick & West LLP and Wilson
Sonsini Goodrich & Rosati, Professional Corporation, respectively, that, for
federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. These opinions, which are
collectively referred to herein as the "Tax Opinions", neither bind the IRS nor
preclude the IRS from adopting a contrary position. In addition, the Tax
Opinions are subject to certain assumptions and qualifications and are based on
the truth and accuracy of certain representations made by Hybrid, Merger Sub and
Pacific, including representations made in certificates delivered to counsel by
the respective managements of Hybrid, Merger Sub and Pacific.

A successful IRS challenge to the "reorganization" status of the Merger
would result in a Pacific shareholder recognizing gain or loss with respect to
each share of Pacific Capital Stock surrendered equal to the difference between
the shareholder's basis in such share(s) and the fair market value, as of the
Effective Time of the Merger, of the Hybrid Common Stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the Hybrid Common
Stock so received would equal its fair market value and such shareholder's
holding period would begin the day after the Merger.

ACCOUNTING TREATMENT

The Merger is intended to be treated as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
As a condition to Hybrid's and Pacific's obligations to consummate the Merger,
Pacific and Hybrid are to receive the Pooling Opinions from Coopers & Lybrand
L.L.P., independent accountants for Hybrid, and Deloitte & Touche LLP,
independent accountants for Pacific, concurring in Hybrid management's
conclusion as to the appropriateness of pooling-of-interests accounting
treatment for the Merger under APB No. 16, if consummated in accordance with the
terms of the Reorganization Agreement.

GOVERNMENT AND REGULATORY APPROVALS

The Merger is not subject to notification and review under the HSR Act or
the rules promulgated thereunder by the FTC. Neither Hybrid nor Pacific is aware
of any other material governmental or regulatory approvals required for
consummation of the Merger, other than compliance with the federal securities
laws and applicable securities and "blue sky" laws of the various states.

APPRAISAL AND DISSENTERS' RIGHTS

RIGHTS OF PACIFIC SHAREHOLDERS. The following is a brief summary of the
rights of shareholders of Pacific who dissent from the Merger. It is qualified
in its entirety by reference to the applicable statutory provisions of the
California Code attached hereto as Appendix C.

If holders of Pacific Capital Stock exercise dissenters' rights in
connection with the Merger under Sections 1300-1312 of the California Code
("SECTION 1300"), any shares of Pacific Capital Stock as to which such
dissenters' rights are exercised (the "DISSENTING SHARES") will not be converted
into the right to receive shares of Hybrid Common Stock by virtue of the Merger
but instead will be converted into the right to receive such consideration as
may be determined to be due with respect to such Dissenting Shares pursuant to
the laws of the State of California. The following summary of the provisions of
Section 1300 is not intended to be a complete statement of such provisions and
is qualified in its entirety by reference to the full text of Section 1300, a
copy of which is attached hereto as Annex C and is incorporated herein by
reference. It is a condition to Hybrid's obligation to close the Merger that no
more than 5% of the shares of Pacific Capital Stock are eligible to be
Dissenting Shares.

65
<PAGE>
If the Merger is approved by the required vote of Pacific's shareholders,
each holder of shares of Pacific Capital Stock who does not vote in favor of the
Merger and who follows the procedures set forth in Section 1300 will be entitled
to have shares of Pacific Capital Stock purchased by Pacific for cash at their
fair market value. The fair market value of shares of Pacific Capital Stock will
be determined as of the day before the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger and therefore valuing the shares of Pacific Capital Stock as
if the Merger had not occurred.

Within ten days after approval of the Merger by Pacific's shareholders,
Pacific must mail a notice of such approval (the "APPROVAL NOTICE") to all
shareholders who have not voted in favor of the Merger, together with a
statement of the price determined by Pacific to represent the fair market value
of the applicable Dissenting Shares, a brief description of the procedures to be
followed in order for the shareholder to pursue dissenters' rights, and a copy
of Sections 1300-1304 of the California Code. The statement of price by Pacific
constitutes an offer by Pacific to purchase all Dissenting Shares at the stated
amount.

A shareholder of Pacific electing to exercise dissenters' rights must,
within 30 days after the date in which the Approval Notice is mailed to such
shareholder, mail or deliver the written demand to Pacific stating that the
shareholder is demanding purchase of the shareholder's shares of Pacific Capital
Stock, stating the number of shares which Pacific must purchase, what the
shareholder claims to be the fair market value of such shares and enclosing the
share certificates for endorsement by Pacific.

If Pacific and the shareholder agree that the shares are Dissenting Shares
and agree upon the price of the shares, Pacific must pay the shareholder the
agreed upon price plus interest thereon at the legal rate from the date of the
agreement on Dissenting Shares within thirty days from the later of (i) the date
of the agreement on Dissenting Shares or (ii) the date all contractual
conditions to the Merger are satisfied.

If Pacific denies that the shares are Dissenting Shares, or if Pacific and
the shareholder fail to agree upon the fair market value of shares of Pacific
Capital Stock, then within six months after the date the Approval Notice was
mailed to shareholders, any shareholder who has made a valid written purchase
demand and who has not voted in favor of approval and adoption of the Merger may
file a complaint in California superior court requesting a determination as to
whether the shares are Dissenting Shares or as to the fair market value of such
holder's shares of Pacific Capital Stock, or both.

RIGHTS OF HYBRID STOCKHOLDERS. Under the Delaware General Corporation Law,
Hybrid stockholders are not entitled to dissenters' rights or appraisal rights
with respect to the proposed Merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

66
<PAGE>
officers and directors of Pacific referred to above may have personal interests
in the Merger which are not identical to the interests of other Pacific
shareholders.

In addition, certain 5% or greater shareholders of Pacific, in May 1996 and
September 1997, loaned Pacific an aggregate of $1.0 million and $750,000,
respectively, in connection with bridge loan financings and such shareholders
received promissory notes and warrants to purchase Pacific Common Stock. In
connection with the Merger, the promissory notes are expected to be repaid in
full, together with accrued interest. See "SELECTED INFORMATION WITH RESPECT TO
PACIFIC--CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS."

James R. Flach, a director of Hybrid, is an executive partner of Accel
Partners which is an affiliate of both Hybrid and Pacific. As of April 30, 1998,
entities associated with Accel Partners owned 879,562 shares of Hybrid Common
Stock, or 8.3% of all outstanding shares of Hybrid Common Stock. As of April 30,
1998, entities associated with Accel Partners owned 1,818,182 shares of Pacific
Series B Preferred Stock, or 63.5% of all outstanding shares of Pacific Series B
Preferred Stock, as well as 425,532 shares of Pacific Series C Preferred Stock,
or 19.3% of all outstanding shares of Pacific Series C Stock (the 2,243,714
shares of Series B Preferred Stock and Series C Preferred Stock held by these
entities represent 18.2% of all outstanding shares of Pacific Preferred Stock).
As of April 30, 1998, these entities beneficially owned 2,506,102 shares of
Pacific Capital Stock (including shares issuable upon the exercise of warrants),
representing 13.7% of Pacific Capital Stock. Mr. Flach holds no voting or
dispositive power with respect to the Hybrid or Pacific shares owned by any of
these entities. In addition, the entities associated with Accel Partners hold
unsecured demand promissory notes of Pacific in the aggregate amount of $500,000
and warrants to purchase up to 300,000 shares of Pacific Common Stock. In
connection with the Merger, these promissory notes are expected to be repaid in
full, together with accrued interest, and these entities would receive or have
the right to receive (based on the Assumed Exchange Ratio) approximately 226,345
shares of Hybrid Common Stock (including shares subject to issuance upon the
exercise of the warrants assumed by Hybrid in the Merger), or approximately
11.7% of all shares of Hybrid Common Stock that would be issued or issuable by
Hybrid in the Merger. See "SECURITY OWNERSHIP OF THE COMBINED COMPANY";
"SECURITY OWNERSHIP OF HYBRID"; AND "SECURITY OWNERSHIP OF PACIFIC." In view of
the interest of these entities associated with Accel Partners, Mr. Flach
abstained in the vote of Hybrid's Board of Directors to approve the Merger and
recommend it to Hybrid's stockholders for approval.

William H. Fry, Hybrid's Vice President and Chief Technical Officer, holds
options to purchase 113,010 shares of Hybrid Common Stock, 55,262 of which were
vested as of April 30, 1998. In January 1998, Hybrid's Board of Directors
approved the 12-month accelerated vesting for options held by Mr. Fry if the
Company hires certain senior management and his employment is terminated,
voluntarily or involuntarily, within 12 months after such hiring. Mr. Gold is
expected to be appointed the Chief Operating Officer of Hybrid following the
consummation of the Merger, in which event Mr. Fry would have the right to
receive accelerated vesting of options for up to 26,991 shares of Hybrid Common
Stock, should he leave the Company within 12 months thereafter. This may give
Mr. Fry a personal interest in the Merger which is not identical to the interest
of other Hybrid stockholders.

TERMS OF THE MERGER

GENERAL

The discussion in this Joint Proxy Statement/Prospectus of the Merger and
the description of the principal terms of the Reorganization Agreement and the
Agreement of Merger are subject to and qualified in their entirety by reference
to the Reorganization Agreement and the Agreement of Merger, copies of which are
attached to this Joint Proxy Statement/Prospectus as Appendices A-1 and A-2,
respectively, and incorporated herein by reference.

67
<PAGE>
EFFECTIVE TIME; CLOSING DATE

The Merger will become effective upon the filing of the Agreement of Merger
with the Secretary of State of the State of California or at such later time as
may be agreed in writing by Hybrid, Pacific and Merger Sub and specified in the
Agreement of Merger (the "EFFECTIVE TIME"). The closing date ("CLOSING DATE")
will occur at a time and date to be specified by Hybrid, Pacific and Merger Sub
after the satisfaction or waiver of the conditions to the Merger, or at such
other time as Hybrid, Pacific and Merger Sub agree in writing. Assuming all
conditions to the Merger are satisfied or waived prior thereto, it is currently
anticipated that the Closing Date and Effective Time will be on or about May 28,
1998.

CONDUCT OF COMBINED COMPANY FOLLOWING THE MERGER

Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and all of the business, assets, liabilities and obligations of
Merger Sub will be merged with and into Pacific with Pacific remaining as the
surviving corporation (the "SURVIVING CORPORATION"). Following the Merger, the
headquarters of the combined company will be in Cupertino, California.

Pursuant to the Reorganization Agreement, at the Effective Time, (i) the
Articles of Incorporation of Pacific will be amended in substantially the form
attached to the Agreement of Merger as Exhibit A thereto, (ii) the Bylaws of
Pacific, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation, (iii) the initial directors of Merger Sub
immediately prior to the Effective Time will be the directors of the Surviving
Corporation, and (iv) the initial officers of Merger Sub immediately prior to
the Effective Time will be the officers of the Surviving Corporation. See
"MANAGEMENT OF THE COMBINED COMPANY."

MERGER CONSIDERATION

CONVERSION OF CAPITAL STOCK. At the Effective Time, each share of Pacific
Common Stock and Pacific Preferred Stock issued and outstanding immediately
prior to the Effective Time will be canceled and extinguished and automatically
converted into a fraction of a share of Hybrid Common Stock equal to a fraction,
the numerator of which is obtained by dividing $12,500,000 by the Closing Price
and the denominator of which is the total number of shares of Pacific Common
Stock and Pacific Preferred Stock outstanding plus the total number of shares of
Pacific Common Stock issuable upon exercise of outstanding Pacific Options and
Pacific Warrants. The Closing Price will be equal to the average of the closing
sale prices of one share of Hybrid Common Stock reported in THE WALL STREET
JOURNAL, on the basis of information provided by the Nasdaq Stock Market for
each of the ten trading days ending two (2) trading days preceding the Closing
Date; provided, however, that in no event shall the Closing Price be greater
than $8.40 or less than $5.17. As of March 19, 1998, based on Hybrid's ten day
average trading price of $6.46 and the number of shares of Pacific Common Stock,
shares of Pacific Preferred Stock and Pacific Options and Pacific Warrants
outstanding on such date, the Exchange Ratio would be approximately 0.0895193 of
a share of Hybrid Common Stock for each outstanding share of Pacific Common
Stock and Pacific Preferred Stock. Shares of Hybrid Common Stock received by
holders of Pacific Capital Stock who are not also affiliates of Pacific will be
freely salable following the Merger.

ASSUMPTION OF OPTIONS AND WARRANTS. At the Effective Time, each outstanding
Pacific Option and Pacific Warrant to purchase shares of Pacific Common Stock,
whether or not exercisable, will be assumed by Hybrid and will continue to have,
and be subject to, the same terms and conditions set forth in the applicable
Pacific Option or Pacific Warrant, as applicable, immediately prior to the
Effective Time and the Stock Option Agreement or Stock Warrant Agreement by
which it is evidenced, except that (i) each Pacific Option or Pacific Warrant
will be exercisable or become exercisable in accordance with its terms for that
number of whole shares (and no fractional shares) of Hybrid Common Stock equal
to the product of the number of shares of Pacific Common Stock that were
issuable upon exercise of such Pacific Option or Pacific Warrant immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down

68
<PAGE>
to the nearest whole number of shares of Hybrid Common Stock, and (ii) the per
share exercise price for the shares of Hybrid Common Stock issuable upon
exercise of such assumed Pacific Option or Pacific Warrant will be equal to the
quotient determined by dividing the exercise price per share of Pacific Common
Stock at which such Pacific Option or Pacific Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. Hybrid has agreed that as soon as practicable following the
closing of the Merger that it will file a registration statement of Form S-8
registering the shares of Hybrid Common Stock issuable upon the exercise of the
assumed Pacific Options. Upon such registration, shares of Hybrid Common Stock
issued upon the exercise of the assumed Pacific Options will be freely salable
as well.

The shares of Hybrid Common Stock that will be issuable upon the exercise of
assumed Pacific Warrants are not being registered in connection with the Merger.
Shares of Hybrid Common Stock received upon the exercise of the assumed Pacific
Warrants must either be registered for resale or otherwise qualify for an
exemption from registration under applicable federal and state securities laws
as, for example, by the holder of such shares complying with the provisions of
Rule 144 under the Securities Act.

NO FRACTIONAL SHARES. No fractional shares will be issued by virtue of the
Merger, but in lieu thereof each holder of shares of Pacific Capital Stock who
would otherwise be entitled to a fraction of a share of Hybrid Common Stock
(after aggregating all fractional shares to be received by such holder) will
receive from Hybrid an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the average closing
price of one share of Hybrid Common Stock for the ten most recent days that
Hybrid Common Stock has traded ending two trading days immediately prior to the
Closing Date, as reported on the Nasdaq National Market.

CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES

Promptly after the Effective Time, Hybrid will cause the Exchange Agent to
mail to each holder of record (as of the Effective Time) of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Pacific Capital Stock a letter of transmittal in customary
form and instructions for use in effecting the surrender of such certificates
for cancellation and in exchange for certificates representing shares of Hybrid
Common Stock, and cash in lieu of any fractional shares. No dividends or other
distributions declared with respect to Hybrid Common Stock with a record date
after the Effective Time will be paid to the holders of any unsurrendered
certificates until the holders of record of such certificates surrender such
certificates, and no cash payment in lieu of fractional shares will be paid to
such holder until the holder of record of such certificates shall surrender such
certificates. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF PACIFIC
CAPITAL STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT.

In the event a certificate representing Pacific Capital Stock has been lost,
stolen or destroyed, the owner of such certificate will be required to provide
an affidavit of such fact, and Hybrid may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Hybrid
Common Stock, require the owner of such lost, stolen or destroyed certificate to
deliver a bond in such sum as Hybrid may reasonably direct as indemnity against
any claim that may be made against Hybrid, the surviving corporation in the
Merger or the Exchange Agent with respect to the certificate alleged to have
been lost, stolen or destroyed.

REPRESENTATIONS AND WARRANTIES

The Reorganization Agreement contains certain representations and
warranties, including, without limitation, representations and warranties by
Pacific as to: (i) due organization and good standing; (ii) corporate power,
authorization and validity; (iii) capital structure and capitalization; (iv)
subsidiaries; (v) no violation of existing charter documents and agreements;
(vi) litigation; (vii) financial statements;

69
<PAGE>
(viii) taxes; (ix) title to properties; (x) absence of certain changes; (xi)
agreements and commitments; (xii) intellectual property; (xiii) compliance with
laws; (xiv) certain transactions and agreements; (xv) employees; (xvi) corporate
documents; (xvii) brokers; (xviii) disclosure (xix) books and records; (xx)
insurance; (xxi) environmental matters; (xxii) government contracts; (xxiii)
information supplied; (xxiv) board approval; and (xxv) pooling of interests
accounting. The Reorganization Agreement contains further representations and
warranties of Hybrid and Merger Sub as to: (i) organization and good standing;
(ii) power, authorization and validity; (iii) no violation of existing
agreements or laws; (iv) SEC documents; (v) authorized/outstanding capital
stock; (vi) no material change; (vii) pooling of interests accounting; (viii)
litigation; and (ix) board approval.

The representations and warranties of Hybrid and Merger Sub contained in the
Reorganization Agreement will terminate at the Effective Time. The
representations and warranties of Pacific regarding its financial statements
will terminate on the date of issuance of Hybrid's press release regarding its
audited financial results for the fiscal year ending December 31, 1998. All
other representations and warranties will terminate twelve months after the
Closing.

NO OTHER NEGOTIATIONS

Pursuant to the Reorganization Agreement, Pacific has agreed that, from the
date of the Reorganization Agreement until the termination of the Reorganization
Agreement (provided such termination is not due to a breach of the
Reorganization Agreement by Pacific) or the consummation of the Merger, Pacific
will not, and will not authorize any officer, director, employee or affiliate of
Pacific, or any other person, on its behalf, directly or indirectly, to (i)
solicit, facilitate, discuss or encourage any offer, inquiry or proposal
received from any party other than Hybrid, concerning the possible disposition
of all or any substantial portion of Pacific's business, assets or capital stock
by merger, sale or any other means or to otherwise solicit, facilitate, discuss
or encourage any such disposition (other than the Merger), or (ii) provide any
confidential information to or negotiate with any third party other than Hybrid
in connection with any offer, inquiry or proposal concerning any such
disposition. Pacific will immediately notify Hybrid of any such offer, inquiry
or proposal.

ADDITIONAL COVENANTS

COVENANTS REGARDING THE CONDUCT OF BUSINESS OF PACIFIC. The Reorganization
Agreement requires (subject to certain exceptions described therein) that from
the date of execution of the Reorganization Agreement until the earlier of the
termination of the Reorganization Agreement or the Effective Time:

(i) Pacific will carry on and use reasonable efforts to preserve its
business in substantially the same manner as it has prior to the date of the
Reorganization Agreement, and use its reasonable efforts to preserve its
relationships with its material customers, suppliers, employees and others
with which it has business dealings; and

(ii) Pacific will not do any of the following without the prior written
consent of Hybrid, which is not to be unreasonably withheld: (a) borrow more
than $50,000; (b) make commitments for more than $50,000 that is not in the
ordinary course of business; (c) encumber its assets for more than $50,000
except in the ordinary course of its business; (d) dispose of more than
$50,000 of its assets except in the ordinary course of business; (e) enter
into any material lease or contract for the purchase or sale of property,
except in the ordinary course of business; (f) fail to maintain its
equipment and assets in good working condition; (g) pay any bonus, royalty,
increased salary (except for annual increases in the ordinary course of
business or as disclosed to Hybrid); (h) change accounting methods; (i)
declare or pay any cash or stock dividend; (j) amend or terminate any
material contract, except those amended or terminated in the ordinary course
of business; (k) lend any material amount, other than advances for travel
and expenses which are incurred in the ordinary course of business; (l)
guarantee any material obligations except for the endorsement of checks and
other negotiable instruments in the

70
<PAGE>
ordinary course of business; (m) waive or release any material right or claim
except in the ordinary course of business; (n) issue or sell any shares of its
capital stock or issue or create any warrants, options, or accelerate the
vesting of any outstanding option or other security, except for (i) the
conversion of Pacific Preferred Stock or the exercise of Pacific Options or
Pacific Warrants or (ii) the issuance of stock options under Pacific's stock
option plans as provided in the Reorganization Agreement; (o) split its capital
stock or enter into any recapitalization; (p) except for the Merger, merge,
consolidate or reorganize with, or acquire any entity; (q) amend its Articles of
Incorporation or Bylaws; (r) 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 Hybrid for its review prior to filing; (s)
license any of Pacific's technology or intellectual property, except in the
ordinary course of business; (t) change any insurance coverage; (u) terminate
the employment of any key employee; or (v) agree to do any of the above.

NOTIFICATION OF CERTAIN MATTERS. Each party to the Reorganization Agreement
has agreed to give prompt notice to the other parties of the occurrence (or
failure to occur) of any event, which occurrence (or failure to occur) would be
reasonably likely to cause (i) any representation or warranty contained in the
Reorganization Agreement to be untrue or inaccurate in any material respect at
any time from the date of the Reorganization Agreement to the Effective Time
such that the condition to closing of the Merger regarding the accuracy of
representations and warranties would not be satisfied as a result thereof or
(ii) any Material Adverse Effect on Pacific or Hybrid.

MATERIAL ADVERSE EFFECT. For purposes of the Reorganization Agreement, when
used in connection with Pacific, the term "Material Adverse Effect" means any
change, event or effect that is or reasonably likely to be materially adverse to
the business (including, but not limited to the development, sales and marketing
of Pacific's downconverter and CypherPoint line of products), assets (including
intangible assets), liabilities, financial condition or results of operations of
Pacific; provided, however, that a Material Adverse Effect will not include any
adverse effect following the date of this Agreement on the business, financial
condition or results of operations of Pacific that is directly attributable to
adverse reaction to the Merger or the announcement of the Merger or that is
consistent with an economic downturn in the industry in which Pacific operates
or a national economic downturn. When used in connection with Hybrid, the term
"Material Adverse Effect" means any change, event or effect that is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), liabilities, financial condition or results of operations of
Hybrid except that a decline in Hybrid's stock price and its failure to meet its
own or analysts' financial expectations for the quarter ended March 31, 1998 as
described in Hybrid's press release dated March 12, 1998 will not be deemed to
be a Material Adverse Effect.

REASONABLE EFFORTS TO EFFECTUATE THE MERGER. The parties to the
Reorganization Agreement have agreed to use their respective reasonable efforts
to effectuate the Merger and other transactions contemplated by the
Reorganization Agreement, to fulfill and cause to be fulfilled the conditions to
closing of the Merger and to effect the closing of the Merger as soon as
practicable.

CERTAIN OTHER COVENANTS OF THE PARTIES. The Reorganization Agreement also
contains certain additional covenants of the parties including covenants
relating to: (i) the preparation of this Joint Proxy Statement/Prospectus and
the Registration Statement; (ii) Pacific's and Hybrid's obligations with respect
to the Pacific Special Meeting and the submission of the Merger to the vote of
Hybrid's stockholders; (iii) confidentiality of, and access to, the parties'
business information, (iv) public statements with respect to the Merger; (v)
compliance with legal requirements; (vi) obtaining required consents of third
parties; (vii) Pacific stock options and employee benefit plans; (viii) listing
of the Hybrid Common Stock on the Nasdaq National Market; (ix) affiliate and
voting agreements; (x) regulatory filings; (xi) treatment of the Merger as a
tax-free reorganization; and (xii) accounting for the Merger as a pooling of
interests.

71
<PAGE>
INDEMNIFICATION AGREEMENTS

Hybrid has agreed that, from and after the Effective Time, it will enter
into indemnification agreements with Richard B. Gold in his capacity as an
officer and director and Matthew D. Miller in his capacity as a director of
Hybrid.

CONDITIONS TO THE MERGER

CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to the Reorganization Agreement to effect
the Merger are subject to the satisfaction at or prior to the closing of the
following conditions: (i) there will be no order or decree of any governmental
agency or threat thereof which would prohibit or render illegal the Merger; (ii)
there will have been obtained any permits or authorizations required to
consummate the Merger by any regulatory authority; (iii) each party will have
received all written consents necessary to consummate the Merger; (iv) the Form
S-4 will have become effective under the Securities Act and will not be the
subject of any stop order or proceedings threatened by the Commission; (v) the
principal terms of the Reorganization Agreement will have been approved and
adopted, and the Merger will have been duly approved, by the requisite vote
under applicable law, by the stockholders of Hybrid and the shareholders of
Pacific; and (vi) the Employment and Noncompetition Arrangements will have been
executed and delivered by Hybrid and the other parties thereto.

ADDITIONAL CONDITIONS TO OBLIGATIONS OF PACIFIC TO EFFECT THE MERGER. The
obligation of Pacific to consummate and effect the Merger will be subject to the
satisfaction at or prior to the closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Pacific: (i) the
representations and warranties of Hybrid contained in the Reorganization
Agreement will be true and correct in all material respects (a) as of the date
of the Reorganization Agreement, except where the failure to be so true and
correct would not have a Material Adverse Effect on Hybrid, and (b) as of the
closing except for changes contemplated by the Reorganization Agreement and
except for those representations and warranties which address matters only as of
a particular date (which will remain true and correct in all material respects
as of the closing) with the same force and effect as if made as of the closing
except in such cases where the failure to be so true and correct would not have
a Material Adverse Effect on Hybrid; (ii) Hybrid will have performed or complied
in all material respects with all agreements and covenants required by the
Reorganization Agreement to be performed or complied with by them on or prior to
the closing; (iii) Pacific will have received a certificate with respect to the
two foregoing conditions signed on behalf of Hybrid by the Chief Executive
Officer or the Chief Financial Officer of Hybrid; (iv) no Material Adverse
Effect with respect to Hybrid will have occurred since the date of the
Reorganization Agreement; (v) Hybrid will have executed and delivered to Pacific
the Investor Rights Agreement; (vi) Richard B. Gold and Matthew D. Miller will
have been appointed to the Hybrid Board of Directors and Hybrid will have
executed its standard form of indemnity agreement with Messrs. Gold and Miller
as Hybrid directors; (vii) Pacific will have received a legal opinion from
Fenwick & West LLP; and (viii) the shares of Hybrid Common Stock issuable to
shareholders of Pacific in the Merger will have been authorized for listing on
the Nasdaq National Market upon official notice of issuance.

ADDITIONAL CONDITIONS TO OBLIGATIONS OF HYBRID TO EFFECT THE MERGER. The
obligations of Hybrid to consummate and effect the Merger will be subject to the
satisfaction at or prior to the closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Hybrid: (i) the
representations and warranties of Pacific contained in the Reorganization
Agreement will be true and correct in all material respects (a) as of the date
of the Reorganization Agreement, except where the failure to be so true and
correct would not have a Material Adverse Effect on Pacific, and (b) as of the
closing except for changes contemplated by the Reorganization Agreement and
except for those representations and warranties which address matters only as of
a particular date (which will remain true and correct in all material respects
as of the closing) with the same force and effect as if made as of the closing,
except in such cases where the failure to be so true and correct would not have
a Material Adverse Effect on Pacific;

72
<PAGE>
(ii) Pacific will have performed or complied in all material respects with all
agreements and covenants required by the Reorganization Agreement to be
performed or complied with by it on or prior to the closing; (iii) Hybrid will
have received a certificate with respect to the two foregoing conditions signed
on behalf of Pacific by the President and the Chief Financial Officer of
Pacific; (iv) no Material Adverse Effect with respect to Pacific will have
occurred since the date of the Reorganization Agreement; (v) Hybrid will have
received a legal opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation; (vi) Hybrid will have received the Escrow Agreement executed by the
representative of the Pacific shareholders; (vii) Hybrid will have received from
Coopers & Lybrand L.L.P., independent accountants for Hybrid, and Deloitte &
Touche LLP, independent accountants for Pacific, the Pooling Opinions dated as
of the closing concurring with Hybrid's management's conclusions that as of that
date, no conditions exist that would preclude Hybrid from accounting for the
Merger as a pooling of interests; (viii) no litigation or proceeding will be
pending which will have the probable effect of enjoining or preventing the
consummation of any of the transactions provided for in the Reorganization
Agreement or which could reasonably be expected to have a Material Adverse
Effect not disclosed to Hybrid in such agreement; (ix) the Pacific Affiliates
will have executed and delivered the Pacific Affiliate Agreements (see
"--AFFILIATE AGREEMENTS--PACIFIC AFFILIATE AGREEMENTS" below); and (x) no more
than 5% of the outstanding shares of Pacific Capital Stock will be eligible to
be Dissenting Shares.

TERMINATION; TERMINATION FEE

The Reorganization Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the shareholders of Pacific, by mutual written consent of Hybrid and Pacific by
either Hybrid or Pacific (i) as a result of a breach by the other party of a
representation, warranty or covenant set forth in the Reorganization Agreement
which breach has or can reasonably be expected to result in a Material Adverse
Effect on such party and which the other party fails to cure within thirty days
after written notice thereof (except that no cure period will be provided for a
breach which by its nature cannot be cured), (ii) if all the conditions for
closing the Merger are not satisfied or waived on or before the Final Date (as
defined below) other than as a result of the breach of the Reorganization
Agreement by the terminating party or the breach of certain affiliates
agreements by such party's affiliates, (iii) if the required approval of the
stockholders or shareholders of Hybrid or Pacific, as applicable, are not
obtained by reason of the failure to obtain the required vote, or (iv) if a
permanent injunction or other order by a federal or state court which would make
illegal or otherwise restrain or prohibit consummation of the Merger is issued
and has become final and nonappealable.

If the Reorganization Agreement is terminated by Hybrid because more than 5%
of Pacific Capital Stock are eligible for the exercise of dissenters' rights
under the California Code, or if Coopers & Lybrand L.L.P. does not issue a
Pooling Opinion because of actions taken by Pacific after the date of the
Reorganization Agreement, Pacific would be required to pay Hybrid a termination
payment in the amount of $375,000.

73
<PAGE>
EXPENSES

Pursuant to the Reorganization Agreement, all fees and expenses incurred in
connection with the Reorganization Agreement and the transactions contemplated
thereby will be paid by the party incurring such expenses if the Merger is not
consummated. If the Merger is consummated, Hybrid will bear all costs and
expenses in connection with the Reorganization Agreement and the transactions
provided for therein. Expenses incurred by Pacific for accounting, attorneys and
other professionals' fees and expenses (other than those of UBS) in excess of
$175,000, if paid by Hybrid, will constitute a claim under the Escrow.

AMENDMENT

ESCROW AGREEMENT

In connection with the Merger, Hybrid, State Street Bank, as escrow agent,
and Alan F. Dishlip, as representative of the Pacific shareholders, will enter
into the Escrow Agreement. Pursuant to the Escrow Agreement, upon consummation
of the Merger, Hybrid will deposit into escrow stock certificates representing
10% of the shares of Hybrid Common Stock issuable to each of the Pacific
shareholders pursuant to the Merger. The Escrow Shares will be held in escrow as
collateral for the indemnification obligations of the Pacific shareholders under
the Reorganization Agreement. Pursuant to such indemnification obligations, the
Pacific shareholders will indemnify and hold harmless Hybrid and its officers,
directors, agents, employees and affiliates from and against all damages arising
out of any misrepresentation or breach of or default in connection with any of
the representations, warranties and covenants given or made by Pacific in the
Reorganization Agreement or any certificate, document or instrument delivered by
or on behalf of Pacific pursuant thereto. Indemnification obligations will not
apply unless and until the "Damages" (as defined) exceed $100,000, in which
event such indemnification obligations will include all Damages. The
indemnification obligations of the Pacific shareholders with respect to the
Pacific financial statements expire when Hybrid issues its press release
regarding its audited financial results for its fiscal year ending December 31,
1998. The indemnification obligations of the Pacific shareholders with respect
to all other Pacific representations and warranties expire on the first
anniversary of the Closing Date.

VOTING AGREEMENTS

PACIFIC VOTING AGREEMENT. As an inducement to Hybrid to enter into the
Reorganization Agreement, affiliates of Pacific (who beneficially own
approximately 3,357,515 shares or 58.8% of the outstanding Pacific Common Stock
and 7,509,644 shares or 61.0% of the outstanding Pacific Preferred Stock) have
entered into a Voting Agreement with Hybrid that they (a) will vote their shares
in favor of the Merger, the execution and delivery by Pacific of the
Reorganization Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions contemplated by the Reorganization
Agreement and any action required in furtherance hereof and thereof; and against
any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of Pacific in the Reorganization Agreement; and
(b) will not and will not permit any entity under the undersigned's control to
(i) solicit proxies or become a "participant" in a "solicitation" (as such terms
are defined in Regulation 14A under the Exchange Act), in opposition to or in
competition with the consummation of the Merger or otherwise encourage or assist
any person or entity in taking or planning any action which would compete with,
restrain or otherwise serve to interfere with or inhibit the timely consummation
of the Merger in accordance with the terms of the Plan; (ii) initiate a Pacific
shareholder vote or action by written consent of any Pacific shareholder in
opposition to or in competition with the consummation of the Merger; or (iii)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act), with respect

74
<PAGE>
to any voting securities of Pacific for the purpose of opposing or competing
with the consummation of the Merger. This Voting Agreement terminates upon the
earlier to occur of the Effective Date or the termination of the Reorganization
Agreement in accordance with its terms.

Pursuant to this Voting Agreement, the Pacific affiliates have also
delivered to Hybrid an irrevocable proxy with respect to matters covered by the
Voting Agreement, empowering Hybrid and certain officers of Hybrid to vote their
shares on these matter. Neither Hybrid nor Pacific paid any additional
consideration to the Pacific affiliates in connection with the execution and
delivery of the Voting Agreement.

HYBRID VOTING AGREEMENT. As an inducement to Pacific to enter into the
Reorganization Agreement, affiliates of Hybrid (who beneficially own
approximately 1,384,512 shares or 13.3% of the outstanding Hybrid Common Stock)
have entered into a Voting Agreement with Pacific that they (a) will vote their
shares in favor of the Merger, the execution and delivery by Hybrid of the
Reorganization Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions contemplated by the Reorganization
Agreement and any action required in furtherance hereof and thereof; and against
any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of Hybrid in the Reorganization Agreement; and
(b) will not and will not permit any entity under the undersigned's control to
(i) solicit proxies or become a "participant" in a "solicitation" (as such terms
are defined in Regulation 14A under the Exchange Act), in opposition to or in
competition with the consummation of the Merger or otherwise encourage or assist
any person or entity in taking or planning any action which would compete with,
restrain or otherwise serve to interfere with or inhibit the timely consummation
of the Merger in accordance with the terms of the Plan; (ii) initiate a Hybrid
stockholder vote or action by written consent of any Hybrid stockholder in
opposition to or in competition with the consummation of the Merger; or (iii)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act), with respect to any voting securities of Hybrid for the purpose
of opposing or competing with the consummation of the Merger. This Voting
Agreement terminates upon the earlier to occur of the Effective Date or the
termination of the Reorganization Agreement in accordance with its terms.

Pursuant to this Voting Agreement, the Hybrid affiliates have also delivered
to Pacific an irrevocable proxy with respect to matters covered by the Voting
Agreement, empowering Pacific and certain officers of Pacific to vote their
shares on these matter. Neither Hybrid nor Pacific paid any additional
consideration to the Hybrid affiliates in connection with the execution and
delivery of the Voting Agreement.

AFFILIATE AGREEMENTS

PACIFIC AFFILIATE AGREEMENTS. Each person determined by Pacific to be an
"affiliate" of Pacific within the meaning of Rule 145 promulgated under the
Securities Act has executed an agreement that prohibits: (i) the sale, transfer
or other disposition of Hybrid Common Stock received by such person in
connection with the Merger unless (a) such transaction is permitted pursuant to
Rule 145(d) under the Securities Act; or (b) legal counsel, representing
stockholder and reasonably satisfactory to Hybrid, shall have advised Hybrid in
a written opinion letter (satisfactory in form and content to Hybrid and Hybrid'
legal counsel), and upon which Hybrid and its legal counsel may rely, that such
sale, transfer or other disposition will be exempt from registration under the
Securities Act; or (c) a registration statement under the Securities Act
covering the Merger Securities proposed to be sold, transferred or otherwise
disposed of, shall have been filed with, and declared effective by, the
Commission; or (d) an authorized representative of the Commission shall have
rendered written advice to Stockholder to the effect that the Commission would
take no action, or that the staff of the Commission would not recommend that the
Commission take action, with respect to the proposed disposition of such Hybrid
Common Stock if consummated; and (ii) the sale, transfer or other disposition
of, or any other similar transaction intended to reduce its risk relative to any
securities of Hybrid or Pacific, during the period beginning 30 days preceding
the Effective Time of the Merger through the date on which financial results
covering at least 30 days' combined operations of Hybrid and Pacific are
published by Hybrid unless the sale or disposition is in accordance

75
<PAGE>
with the "de minimis" test set forth in SEC Staff Accounting Bulletin No. 76.
Such persons have also made certain representations pertaining to the
"continuity of interest" requirements for the Merger to constitute a
"reorganization" within the meaning of Section 368(a) of the Code. See "PROPOSAL
NO. 1: THE MERGER-- APPROVAL OF THE MERGER--CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."

HYBRID'S AFFILIATE AGREEMENTS. Each person determined by Hybrid to be an
"affiliate" of Hybrid within the meaning of Rule 145 promulgated under the
Securities Act has executed an agreement that prohibits: the sale, transfer or
other disposition of Hybrid Common Stock or any other similar transaction
intended to reduce its risk relative to any securities of Hybrid, during the
period beginning 30 days preceding the Effective Time of the Merger through the
date on which financial results covering at least 30 days' combined operations
of Hybrid and Pacific are published by Hybrid unless the sale or disposition is
in accordance with the "de minimis" test set forth in SEC Staff Accounting
Bulletin No. 76.

EMPLOYMENT/NONCOMPETITION ARRANGEMENTS

Richard B. Gold (the Chief Executive Officer, President and a director of
Pacific) has entered into an employment agreement with Hybrid, effective as of
the closing of the Merger, which states that (i) as of the closing Mr. Gold will
become President and Chief Operating Officer of Hybrid; (ii) his salary will be
$240,000 per year and he will be eligible for target bonuses of up to $120,000
per year; and (iii) two years from the closing, this employment agreement will
terminate, and thereafter he will be an "at-will" employee of Hybrid, subject to
Hybrid's standard employment policies and practices.

Mr. Gold has also entered into a Noncompetition Agreement with Hybrid,
restricting him for a period of two years from the closing from (i) carrying on
or engaging in the design, research, development, marketing, sale or licensing
of any product that is substantially similar to or competitive with any wireless
or wired cable modem product, including any product similar to the downconverter
or Cypherpoint product lines, created, distributed, or known to be under
development by Pacific prior to the termination of employee's employment with
Hybrid anywhere in the world; or (ii) soliciting any employee of Pacific to
discontinue his or her employment relationship with Hybrid or Pacific.

It is anticipated that Michael D. Morganstern (the Vice President,
Engineering of Pacific) and Allen F. Podell (the Chief Technical Officer of
Pacific) will enter into employment arrangements and noncompetition agreements
with Hybrid, effective upon the closing of the Merger, although the terms of
those arrangements and agreements have not yet been determined. Under the
Reorganization Agreement, it is a condition of Hybrid's and Pacific's
obligations to consummate the Merger that such arrangements and agreements be
entered into before the closing.

INVESTOR RIGHTS AGREEMENT

Hybrid and Oak Investment Partners IV, IVP III, Accel IV L.P., Allen F.
Podell and Christopher J. Weseloh will enter into an Investor Rights Agreement
which grants such shareholders certain rights to have their shares of Hybrid
Common Stock registered on certain registration statements that may be utilized
by Hybrid in the future to register its securities.

76
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF HYBRID

The following selected historical financial data should be read in
conjunction with the Hybrid Financial Statements and related notes thereto and
"HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" appearing elsewhere in this Joint Proxy Statement/ Prospectus.
The statement of operations data for each of the three years in the period ended
December 31, 1997 and the balance sheet data at December 31, 1997 and 1996 are
derived from the financial statements of Hybrid which have been audited by
Coopers & Lybrand, L.L.P., independent accountants, and are included elsewhere
in this Joint Proxy Statement/Prospectus. The balance sheet data at December 31,
1995, 1994 and 1993 and the statement of operations data for the years ended
December 31, 1994 and 1993 are derived from financial statements that have been
audited by Coopers & Lybrand L.L.P. that are not included in this Joint Proxy
Statement/Prospectus. Hybrid's unaudited historical financial statement data as
of and for the three months ended March 31, 1998 and 1997 has been prepared on
the same basis as the historical financial information and, in the opinion of
Hybrid's management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and results of operations for such periods. See "HYBRID MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 14,270 $ 2,962 $ 630 $ 668 $ 1,010 $ 3,528 $ 1,852
Cost of sales............................... 12,258 3,130 761 1,362 746 2,897 1,974
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)..................... 2,012 (168) (131) (694) 264 631 (122)
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development.................. 7,108 5,076 3,862 1,251 271 2,042 1,726
Sales and marketing....................... 4,319 1,786 390 348 133 977 1,274
General and administrative................ 3,606 1,714 748 533 250 1,390 1,233
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................ 15,033 8,576 5,000 2,132 654 4,409 4,233
--------- --------- --------- --------- --------- --------- ---------
Loss from operations.................. (13,021) (8,744) (5,131) (2,826) (390) (3,778) (4,355)
Interest income and other expense, net...... 399 257 166 30 5 302 87
Interest expense............................ (968) (28) (304) (101) -- (224) (12)
--------- --------- --------- --------- --------- --------- ---------
Net loss................................ $ (13,590) $ (8,515) $ (5,269) $ (2,897) $ (385) $ (3,700) $ (4,280)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted loss per share............ $ (3.84) $ (3.36) $ (2.37) $ (1.30) $ (0.18) $ (0.36) $ (1.67)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in basic and diluted per share
calculations(1)........................... 3,541 2,535 2,223 2,226 2,094 10,353 2,561
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- MARCH 31,
1997 1996 1995 1994 1993 1998
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalent and short term investments...... $ 27,148 $ 6,886 $ 3,353 $ 1,426 $ 1,031 $ 20,001
Working capital....................................... 35,911 6,944 3,149 1,129 484 31,985
Total assets.......................................... 43,119 10,539 4,586 1,892 1,353 39,194
Long-term debt........................................ 6,118 472 228 2,108 604 6,087
Total stockholders' equity (deficit).................. 33,164 7,709 3,661 (708) 1 29,294
</TABLE>

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

(1) See Note 2 of Notes to Financial Statements for an explanation of the number
of shares used to compute basic and diluted net loss per share.

77
<PAGE>
HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HYBRID SHOULD BE READ IN CONJUNCTION WITH THE HYBRID FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. HYBRID'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "PROPOSAL NO. 1: THE MERGER--RISK FACTORS."

OVERVIEW

From its inception in June 1990 until September 1996, Hybrid focused on the
design, development, manufacturing and market introduction of the first two
generations of Hybrid's Series 1000 ("SERIES 1000") product line. These product
generations offered 5 and 10 Mbps access speeds for downstream data. In October
1996, Hybrid introduced its third generation product line, the Series 2000,
which provides 30 Mbps downstream access speeds. Hybrid expects to generate
substantially all of its future sales from its Series 2000 products,
enhancements to these products, new products and related support and networking
services. Hybrid recognizes revenue upon shipment of products and accrues for
warranty costs at the time of shipment. To date, net sales include principally
product sales and, to a lesser extent, support and networking services.

Hybrid sells its products primarily in the United States, and markets its
products to a variety of customers, including broadband wireless system
operators, cable system operators, ISPs, resellers and certain distributors and
communications equipment resellers. Historically, a small number of customers
has accounted for a substantial portion of Hybrid's net sales. From
quarter-to-quarter, the Company has experienced a significant variation in the
mix of type of customers, as well as the identity of its largest customers.
Although Hybrid has expanded its customer base, Hybrid expects that a limited
number of customers will continue to account for a substantial portion of
Hybrid's net sales for the foreseeable future. Hybrid expects that its largest
customers in future periods could be different from its largest customers in
prior periods due to a variety of factors, including customers' deployment
schedules and budget considerations. As a result, Hybrid has experienced, and
expects to continue to experience, significant fluctuations in its results of
operations on a quarterly and an annual basis. If orders from significant
customers are delayed, canceled or otherwise fail to materialize in any
particular period, or any significant customer delays payment or fails to pay,
Hybrid can experience significant operating losses in such period. In addition,
historically, a substantial majority of Hybrid's net sales in a given quarter
have been recorded in the third month with a concentration in the last two weeks
of the quarter. Accordingly, any delay in the closing of quarter end
transactions can have a significant impact on Hybrid's operating results for a
particular quarter.

Further, Hybrid's customers include companies in the early stage of
development or in need of capital to upgrade or expand their services. In order
to address the needs and competitive factors facing the emerging broadband
access market, Hybrid on occasion has provided customers extended payment,
promotional pricing or other terms. Hybrid has experienced collectibility
problems with a number of its customers, including major customers. For example,
as of March 31, 1998, 16.7% of Hybrid's outstanding

78
<PAGE>
accounts receivable were owed by its principal customer in 1997 (accounting for
13.7% of net sales for that year), and 13.2% and 7.5% of outstanding accounts
receivable were owed by its two principal customers, respectively, for the
quarter ended March 31, 1998 (accounting for 20.6% and 11.5% of net sales for
that quarter, respectively). The provision of extended credit terms and
collection problems have contributed to increases in accounts receivable. The
amounts of outstanding accounts receivable increased from $1,348,000 as of
December 31, 1996 to $10,045,000 as of December 31, 1997 and to $12,153,000 as
of March 31, 1998, and days of sales outstanding increased from 71 as of
December 31, 1996 to 165 as of December 31, 1997 and to 251 as of March 31,
1998. Accounts receivable past due increased to $3,912,000 as of December 31,
1997 and to $4,865,000 as of March 31, 1998. In 1997, Hybrid established a
reserve of $1,175,000 for doubtful accounts and increased the reserve by
$450,000 for the quarter ended March 31, 1998. In addition, Hybrid recorded a
$800,000 sales return reserve for the three months ended March 31, 1998 for
potential adjustments to inventory. These increases in accounts receivable and
collectibility issues have adversely affected Hybrid's business, operating
results and financial condition. See "PROPOSAL NO. 1: THE MERGER--RISK
FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--INEXPERIENCE IN EMERGING MARKET," "--DEPENDENCE ON BROADBAND WIRELESS
SYSTEM OPERATORS," "--DEPENDENCE ON CABLE SYSTEM OPERATORS," "--CUSTOMER
CONCENTRATION" and "--COMPETITION."

The market for high speed network connectivity products and services is
intensely competitive and is characterized by rapid technological change, new
product development and product obsolescence and evolving industry standards.
Hybrid's ability to develop and offer competitive products on a timely basis
that satisfy industry demands and standards, such as MCNS, could have a material
effect on Hybrid's business, operating results or financial condition: See
"PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND
THE COMBINED COMPANY--COMPETING TECHNOLOGIES AND EVOLVING INDUSTRY STANDARDS"
and "--COMPETITION." In addition the market for Hybrid's products has
historically experienced significant price erosion over the life of a product,
and Hybrid has experienced and expects to continue to experience pressure on its
unit average selling prices. While Hybrid has initiated cost reduction programs
to offset pricing pressures on its products, there can be no assurance that
these cost reduction efforts will keep pace with competitive price pressures or
lead to improved gross margins. If Hybrid is unable to reduce costs, its gross
margins and profitability will be adversely affected. Hybrid's gross margins are
also adversely affected by the sales mix of PoPs and modems. Hybrid's
single-user modems generally have lower margins than its multi-user modems, both
of which have lower margins than Hybrid's headends. Due to current customer
demand, Hybrid anticipates that the sales mix of modems will be weighted toward
lower-margin single-user modems in the foreseeable future. As a result, gross
margins could be adversely affected in the near term. "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--COMPETITION," "--NEED TO REDUCE COST OF CLIENT MODEMS, DOWNCONVERTERS,
ANTENNAS AND VIDEO DECODERS," and "--LIMITED MANUFACTURING EXPERIENCE; SOLE
SOURCE MANUFACTURING."

Hybrid has recently initiated patent infringement litigation against two
parties, who in response are seeking declarations of invalidity,
unenforceability and non-infringement of Hybrid's patent. Such litigation could
be time consuming and costly and therefore have a material adverse effect on
Hybrid's business, operating results or financial condition. See "Business of
Hybrid--Legal Proceedings."

Hybrid incurred net losses for the quarter ended March 31, 1998 and the
years ended December 31, 1997, 1996 and 1995 of $3,700,000, $13,590,000,
$8,515,000 and $5,269,000, respectively. As a result, Hybrid had an accumulated
deficit of $34,632,000 as of March 31, 1998. Hybrid expects to increase its
capital expenditures, as well as its research and development and other
operating expenses, in order to support and expand Hybrid's operations. As a
result, Hybrid expects to incur losses for the foreseeable future. See "PROPOSAL
NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE
COMBINED COMPANY--LIMITED OPERATING HISTORY; HISTORY OF LOSSES,"--FLUCTUATIONS
IN OPERATING RESULTS; ABSENCE OF SIGNIFICANT BACKLOG; CONTINUING DECLINE OF
AVERAGE SELLING PRICES" and "--LENGTHY SALES CYCLE."

As of December 31, 1997, Hybrid had approximately $14,052,000 in gross
deferred tax assets comprised primarily of net operating loss carryforward and
research and development tax credits. Hybrid

79
<PAGE>
believes that, based on a number of factors, there is uncertainty regarding the
realizability of the deferred tax assets. These factors include Hybrid's history
of net losses since its inception and the fact that the market in which Hybrid
competes is intensely competitive and characterized by rapidly changing
technology. As a result, Hybrid believes that, based on the current available
evidence, it is more likely than not that Hybrid will not generate sufficient
taxable income to realize its net deferred tax assets. In addition, the
utilization of net operating loss carry forwards may be subject to a substantial
annual limitation due to the "change in ownership" provisions of the Code and
similar state provisions. Hybrid will continue to assess the realizability of
the deferred tax assets based on actual and forecasted operating results. See
Note 12 of Notes to Financial Statements.

In the past, Hybrid and Pacific have each required substantial amounts of
capital to design, develop, market, sell and manufacture its products and to
finance customer purchases by providing extended payment terms and other
accommodations. Neither Hybrid nor Pacific has been able to generate sufficient
cash from operations to meet its cash flow needs. See "--LIQUIDITY AND CAPITAL
RESOURCES" below and "PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." In connection with the proposed Merger,
Hybrid anticipates incurring a charge of from $3.0 million to $3.5 million in
the quarter in which the Merger occurs and paying Pacific's indebtedness of
approximately $2.0 million (inclusive of accrued interest) for bridge loans made
by principal shareholders of Pacific. See "--LIQUIDITY AND CAPITAL RESOURCES"
below.

RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales represented by
the items in Hybrid's statements of operations for the periods indicated:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ---------------------
1997 1996 1995 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 85.9 105.7 120.8 82.1 106.6
-------- -------- -------- -------- --------
Gross margin........................ 14.1 (5.7) (20.8) 17.9 (6.6)
-------- -------- -------- -------- --------
Operating expenses:
Research and development.............. 49.8 171.4 613.0 57.9 93.2
Sales and marketing................... 30.2 60.3 61.9 27.7 68.8
General and administrative............ 25.3 57.8 118.7 39.4 66.6
-------- -------- -------- -------- --------
Total operating expenses............ 105.3 289.5 793.6 125.0 228.6
-------- -------- -------- -------- --------
Loss from operations................ (91.2) (295.2) (814.4) (107.1) (235.2)
Interest income and other expense,
net................................... 2.8 8.7 26.3 8.6 4.7
Interest expense........................ (6.8) (1.0) (48.2) (6.3) (0.6)
-------- -------- -------- -------- --------
Net loss............................ (95.2)% (287.5)% (836.3)% (104.8)% (231.1)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997.

NET SALES. Net sales were $3,528,000 for the quarter ended March 31, 1998,
compared to net sales of $1,852,000 for the comparable period in 1997. The
significant growth in net sales was primarily due to increased unit shipments as
a result of the introduction of the Series 2000 product line in October 1996
offset in part by price declines on certain products as a result of competitive
pressures and volume purchase commitments. Net sales for the quarter ended March
31, 1998 decreased by $1,590,000, or 31%, from net sales of $5,118,000 for the
quarter ended December 31, 1997 primarily as a result of delays in anticipated
orders and weakness in demand for both cable and wireless systems that utilize
telephone

80
<PAGE>
return. Net sales were also adversely affected by cancellation by a major
customer of an order for approximately $400,000 of telco return products that
were scheduled for delivery in the quarter. The cancellation resulted from
litigation involving the customer and others which, though unrelated to Hybrid
or its products, remains unresolved and may affect orders for similar amounts
that were expected in future quarters. In addition, orders for the quarter ended
March 31, 1998 were slowed, reducing net sales by approximately $300,000 from
the amount anticipated, due to a delay in the introduction of Hybrid's new QPSK
two-way transmission product for both cable and wireless environments. Net sales
for the quarter ended March 31, 1998 were further reduced by a $800,000 sales
return reserve which Hybrid reported for the quarter in anticipation of
potential adjustments to inventory held by distributors and value added
resellers. While these customers do not have the contractual right to require
product returns, Hybrid believes that, given current market weakness, it was
appropriate to reserve for potential returns that have been or may be requested.
For the three months ended March 31, 1998, cable systems operators accounted for
47.5% of net sales, broadband wireless systems operators accounted for 27.8% of
net sales and distributors accounted for 24.7% of net sales. During the same
period in 1997, ISPs accounted for 56.0% of net sales, broadband wireless system
operators accounted for 29.5% of net sales and cable system operators accounted
for 14.5% of net sales. International sales accounted for 29.9% and 7.4% of net
sales for the quarters ended March 31, 1998 and 1997, respectively. Hybrid had
three customers that accounted for 20.6%, 18.5% and 11.1% of net sales,
respectively, during the three months ended March 31, 1998. Hybrid had one
customer that accounted for 50.9% of net sales for the comparable period in
1997.

GROSS PROFIT. Gross margin was 17.9% and negative 6.6%, for the quarters
ended March 31, 1998 and 1997, respectively. The improvement in gross margin was
primarily due to increased sales of POPs, lower per unit manufacturing costs and
greater absorption of overhead due to increased sales. However, gross margins
for the first quarter of 1998 declined from 21.0% in the quarter ended December
31, 1998, reflecting the continuing competitive pressures in the broadband
access market.

RESEARCH AND DEVELOPMENT. Research and development expenses include ongoing
headend, software and cable modem development expenses, as well as design
expenditures associated with product cost reduction programs and improving
manufacturability of its existing products. Research and development expenses
were $2,042,000 and $1,726,000 during the quarters ended March 31, 1998 and
1997, respectively, representing 57.9% and 93.2% of net sales, respectively.
Research and development expenses grew in absolute dollars as a result of
increased staffing and associated engineering costs related to new and existing
product development. Hybrid intends to continue to increase its investment in
research and development programs in future periods.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related payroll costs of sales and marketing personnel,
commissions, advertising, promotions and travel. Sales and marketing expenses
were $977,000 and $1,274,000 during the three months ended March 31, 1998 and
1997, respectively, representing 27.7% and 68.8% of net sales, respectively. The
decrease in sales and marketing expenses in absolute dollars was principally due
to lower trade show, promotion and outside service costs. The decrease in sales
and marketing expenses was offset by increased headcount and related payroll
costs and, increased commissions as a result of higher net sales.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of executive personnel salaries, provision for doubtful accounts,
travel expenses, legal fees and costs of outside services. General and
administrative expenses were $1,390,000 and $1,233,000 during the quarters ended
March 31, 1998 and 1997, respectively, representing 39.4% and 66.6% of net
sales, respectively. The increase in absolute dollars was due to increased
headcount and related payroll costs, increased legal costs to support the
Hybrid's patent program and higher outside service costs. Included in general
and administrative expense in the first quarter of 1998 and 1997 was a bad debt
provision of $450,000 and $650,000, respectively, for potential customer account
write-offs as a result of the financial condition of certain customers.

81
<PAGE>
INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Hybrid earned net
interest income of $78,000 and $75,000 during the quarters ended March 31, 1998
and 1997, respectively. Net interest income earned during the quarter ended
March 31, 1998 was the result of higher cash balances as a result of the
issuance of Common Stock in Hybrid's initial public offering in November 1997,
offset in part by the interest expense incurred on outstanding capital lease
obligations and the $5.5 Million Debenture. Net interest income earned during
the first quarter of 1997 was primarily due to higher cash balances as a result
of the issuance of Preferred Stock in February 1997, offset in part by the
interest expense incurred on outstanding capital lease obligations.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.

NET SALES. Net sales were $14,270,000 for the year ended December 31, 1997,
compared to net sales of $2,962,000 for the same period in 1996. The significant
growth in net sales was primarily due to increased unit shipments as a result of
the introduction of the Series 2000 product line in October 1996 offset in part
by price declines on certain products in connection with volume purchases. In
1997, broadband wireless system operators accounted for 50.6% of net sales,
distributors accounted for 20.4% of net sales, cable systems operators accounted
for 19.3% of net sales and ISPs accounted for 9.7% of net sales. During 1996,
cable system operators accounted for 40.6% of net sales, ISPs accounted for
43.5% of net sales and broadband wireless system operators accounted for 15.7%
of net sales. International sales accounted for 8.5% and 10.1% of net sales for
the years ended 1997 and 1996, respectively. Hybrid had one customer that
accounted for 13.7% of net sales during 1997. Hybrid had two customers that
accounted for 41.0% and 20.7%, respectively, of net sales during 1996.

GROSS PROFIT. Gross margin was 14.1% and negative 5.7%, in 1997 and 1996,
respectively. The improvement in gross margin was primarily due to the shift in
sales mix from the lower margin Series 1000 products to the higher margin Series
2000 products, lower per unit manufacturing costs and greater absorption of
overhead.

RESEARCH AND DEVELOPMENT. Research and development expenses include ongoing
headend, software and cable modem development expenses, as well as design
expenditures associated with product cost reduction programs and improving
manufacturability of its existing products. Research and development expenses
were $7,108,000 and $5,076,000 during the years ended December 31, 1997 and
1996, respectively, representing 49.8% and 171.4% of net sales, respectively.
Research and development expenses grew in absolute dollars as a result of
increased staffing and associated engineering costs related to new and existing
product development. Hybrid intends to continue to increase its investment in
research and development programs in future periods, focusing on wireless
technologies, cost improvement and software enhancements.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related payroll costs of sales and marketing personnel,
commissions, advertising, promotions and travel. Sales and marketing expenses
were $4,319,000 and $1,786,000 during the years ended December 31, 1997 and
1996, respectively, representing 30.2% and 60.3% of net sales, respectively. The
increase in sales and marketing expenses in absolute dollars was principally due
to increased headcount and related payroll costs, increased commissions as a
result of higher net sales and increased costs for marketing and promoting
Hybrid's Series 2000 product line. Hybrid expects sales and marketing expenses
to increase in the future.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of executive personnel salaries, provision for doubtful accounts,
travel expenses, legal fees and costs of outside services. General and
administrative expenses were $3,606,000 and $1,714,000 during the years ended
December 31, 1997 and 1996, respectively, representing 25.3% and 57.8% of net
sales, respectively. The increase in absolute dollars was due to increased
charges to the provision for doubtful accounts, increased legal costs to support
Hybrid's patent program and increased headcount and related payroll costs.

82
<PAGE>
INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Hybrid incurred net
interest expense during 1997 of $569,000 and earned net interest income of
$229,000 during 1996. Net interest expense incurred during 1997 was the result
of Hybrid's use of capital lease financing to fund a majority of its capital
expenditures, and interest expense (including noncash expense incurred in the
fourth quarter of 1998 related to issuance of warrants with respect to certain
loans obtained in September 1997) incurred on loans obtained to support working
capital requirements. Net interest income earned during 1996 was primarily due
to higher cash balances as a result of the issuance of Preferred Stock in
December 1995 and July 1996, offset in part by the interest expense incurred on
outstanding capital lease obligations.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

NET SALES. Net sales were $2,962,000 and $630,000 in 1996 and 1995,
respectively. The increase in net sales was due primarily to the increase in
unit sales due to the introduction of the Series 2000 product line in October
1996.

GROSS PROFIT. Gross margin improved to negative 5.7% in 1996 compared to
negative 20.8% in 1995. The improvement in gross margin was primarily
attributable to the introduction of the Series 2000 product line, which
generally has higher gross margins than the Series 1000 product line, and to the
increase in net sales, which allowed for greater absorption of overhead.

RESEARCH AND DEVELOPMENT. Research and development expenses were $5,076,000
and $3,862,000 for 1996 and 1995, respectively, representing 171.4% and 613.0%
of net sales, respectively. The increase in research and development expenses in
absolute dollars during 1996 was due to increased headcount and related labor
costs, increased cost of development material to support product development and
depreciation expenses associated with capital purchases for product testing.

SALES AND MARKETING. Sales and marketing expenses were $1,786,000 and
$390,000 for 1996 and 1995, respectively, representing 60.3% and 61.9% of net
sales, respectively. The increase in sales and marketing expenses in absolute
dollars during 1996 was principally due to increased headcount for staff level
positions, the hiring of Hybrid's vice presidents of sales and marketing,
increased commissions as a result of higher net sales and increased costs for
marketing and promoting Hybrid's products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1,714,000 and $748,000 for 1996 and 1995, respectively, representing 57.8% and
118.7% of net sales, respectively. The increase in general and administrative
expenses in absolute dollars during 1996 was due to increased allowances for
doubtful accounts, higher legal costs to prosecute patents, and increased
headcount and related personnel costs.

INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. During 1996, Hybrid had
net interest income of $229,000 compared to net interest expense of $138,000 in
1995. The increase in 1996 compared to 1995 was primarily due to higher cash
balances as a result of the issuance of Preferred Stock in July 1996. The
interest income earned during 1996 was offset in part by interest expense
incurred on outstanding capital lease obligations.

LIQUIDITY AND CAPITAL RESOURCES

Hybrid has historically financed its operations primarily through a
combination of debt and equity and equipment lease financing. As of March 31,
1998, Hybrid had working capital of $31,985,000, including $20,001,000 in cash,
cash equivalents and short-term investments, as compared to working capital of
$35,911,000 and $27,148,000 in cash and cash equivalents as of December 31,
1997. This $7,147,000 decrease in cash, cash equivalents and short-term
investments during the three months ended March 31, 1998 resulted from the use
of cash in operating activities, investing activities and financing activities
discussed below.

83
<PAGE>
Cash used in operating activities during the quarter ended March 31, 1998
was $6,662,000, resulting primarily from the net loss of $3,700,000; an increase
in accounts receivable of $2,226,000 attributable principally to higher net
sales made late in the quarter and the limited capital resources of and extended
payment terms given to certain customers; the increase in inventories of
$2,214,000 due to anticipated sales increases that did not occur and the delay
of sales orders by several customers in the quarter; and a decrease in accrued
liabilities of $116,000. Cash used in operating activities during the quarter
ended March 31, 1998 was offset principally by the increase of $800,000 in
reserves for potential sales returns by distributors and the increase of
$450,000 in reserves for doubtful accounts as a result of Hybrid's assessment of
the risks associated with several slow paying customers and with continuing
collection problems reflected in an increase of $953,000 accounts receivable
past due during the quarter, from $3,912,000 as of December 31, 1997 to
$4,865,000 as of March 31, 1998. Cash used in operating activities during the
quarter was further offset by depreciation and amortization of $304,000.

Cash used in investing activities during the quarter ended March 31, 1998
was $11,977,000, resulting primarily from purchases of short term investments of
$12,753,000, the change in other assets of $154,000 and purchases of property
and equipment of $51,000, offset by the proceeds from the maturity of short term
investments of $981,000. During the quarter ended March 31, 1998, capital
expenditures for property and equipment were primarily for computers, furniture,
fixtures and engineering test equipment. Hybrid has funded and expects to
continue to fund a substantial portion of its property and equipment
expenditures from a variety of sources including direct vendor leasing programs
and third party commercial leasing arrangements. As of March 31, 1998, Hybrid is
committed to $1.5 to $2.0 million in capital expenditures for tenant
improvements in connection with its new subleased headquarters. Hybrid expects
capital expenditures for the next twelve months (including such tenant
improvements) to be between $4.0 million to $5.0 million.

Cash used in financing activities during the quarter ended March 31, 1998
was $280,000, attributable primarily to payment of capital lease obligations and
additional costs incurred in connection with Hybrid's initial public offering.

Hybrid's principal source of liquidity at March 31, 1998 was cash, cash
equivalents and short-term investments of $20,001,000 and Hybrid's $4.0 Million
Credit Facility. The $4.0 Million Credit Facility, which expires in October
1998, bears interest at the bank's prime rate and is collateralized by certain
of Hybrid's assets. As of March 31, 1998, Hybrid has no borrowings outstanding
under the $4.0 Million Credit Facility.

Under the $5.5 Million Debenture, Hybrid is subject to limitations on the
amount of capital expenditures it may incur in any 12-month period and may not
declare dividends, retire any subordinated debt other than in accordance with
its terms or distribute its assets to any stockholder so long as the $5.5
Million Debenture remains outstanding. In addition, under the $4.0 Million
Credit Facility, Hybrid may not declare dividends. The $5.5 Million Debenture is
collateralized by substantially all of Hybrid's assets. Any borrowings under the
$4.0 Million Credit Facility will be collateralized by a first priority security
interest in certain of Hybrid's assets, and any borrowings under the $4.0
Million Credit Facility will be collateralized by a first priority security
interest in certain of Hybrid's assets. See "PROPOSAL NO. 1: THE MERGER--RISK
FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED COMPANY--RESTRICTIVE
DEBT COVENANTS" and Notes 6 and 7 to Financial Statements.

The Merger is intended to be treated as a pooling of interests for
accounting purposes. If the Merger is consummated, Hybrid anticipates incurring
a charge of approximately $3.0 to $3.5 million in the quarter in which the
Merger occurs in connection with the write-off of certain assets, personnel
severance costs, the cancellation and continuation of contractual obligations
and direct transaction fees for investment bankers, attorneys, accountants,
financial printing and other related charges. Actual costs may substantially
exceed such estimates. In addition, upon consummation of the Merger, Hybrid
anticipates paying Pacific's indebtedness of approximately $2.0 million in
bridge loans (inclusive of accrued interest) made by principal

84
<PAGE>
shareholders of Pacific. Such repayment is not required under the terms of the
Merger and Hybrid does not expect to make any other cash payments to former
shareholders of Pacific. Total costs associated with the Merger are anticipated
to result in an operating loss and a net loss for Hybrid's quarter ending June
30, 1998 and for its fiscal year ending December 31, 1998 and could negatively
affect financial results in future periods. Holders of Pacific Capital Stock
may, by complying with Sections 1300 through 1312 of the California Code, be
entitled to dissenters' rights with respect to the Merger. It is a condition to
Hybrid's obligation to close the Merger that holders of no more than 5% of the
outstanding shares of Pacific Capital Stock shall be eligible to exercise
dissenters' rights. See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS OF THE
MERGERS;" "--COSTS OF INTEGRATION; TRANSACTION EXPENSES;" "--POSSIBLE NEED FOR
ADDITIONAL FINANCING;" and "--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--LIMITED OPERATING HISTORY; HISTORY OF LOSSES" and "--APPROVAL OF THE
MERGER--APPRAISAL AND DISSENTERS' RIGHTS."

Hybrid is seeking to reduce its cash utilization in operations and believes
that, notwithstanding the proposed merger with Pacific, cash generated from
operations, if any, and existing cash resources and credit facilities will
provide Hybrid with sufficient funds to finance its operations for at least the
next 12 months. However, Hybrid may require additional funds to support its
working capital requirements or for other purposes, and may seek to raise such
additional funds through the sale of public or private equity or debt financing
or from other sources. The sale of additional equity or convertible debt
securities may result in additional dilution to Hybrid's stockholders. No
assurance can be given that additional financing will be available or that, if
available, such financing can be obtained on terms favorable to Hybrid or its
stockholders.

IMPACT OF ADOPTION OF NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." This statement 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. Such items may include foreign currency translation adjustments,
unrealized gains/losses from investing and hedging activities, and other
transactions. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This statement was adopted in the Company's first
quarter of 1998, and its effect on the financial statements was not material.

In June 1997, the Financial Accounting Standards Board issued Statement
No.131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stock holders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This Statement is required to be adopted
for fiscal years beginning after December 15, 1997. Hybrid has yet to determine
the affect of adoption of this statement.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates. While uncertainty exists concerning the
potential effects associated with such compliance, Hybrid does not believe that
year 2000 compliance will result in a material adverse effect on its financial
condition or results of operations.

85
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PACIFIC

The following selected historical financial data should be read in
conjunction with the Pacific Financial Statements and related notes thereto and
"PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" appearing elsewhere in this Joint Proxy Statement/ Prospectus.
The statement of operations data for each of the three years in the period ended
September 30, 1997 and the balance sheet data at September 30, 1997 and 1996 are
derived from financial statements of Pacific which have been audited by Deloitte
& Touche LLP, independent auditors, and are included elsewhere in this Joint
Proxy Statement/Prospectus. The selected historical financial data for the years
ended September 30, 1994 and 1993 were derived from financial statements of
Pacific which were audited and are not included in this Joint Proxy
Statement/Prospectus. Pacific unaudited historical financial statement data as
of and for the three and six months ended March 31, 1998 and 1997 has been
prepared on the same basis as the historical financial information and, in the
opinion of Pacific management, contains all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial position and results of operations for such periods. March 31, 1998
financial results are not necessarily indicative of the results that may be
expected for the year ended September 30, 1998. See "PACIFIC MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31, MARCH 31,
----------------------------------------------------- -------------------- --------------------
1997 1996 1995 1994 1993 1998 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 35,369 $ 29,141 $ 24,925 $ 20,135 $ 11,332 $ 5,018 $ 8,350 $ 11,981 $ 21,500
Total cost of revenues........ 26,014 23,246 15,964 12,870 7,929 4,140 5,904 9,686 15,533
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.................. 9,355 5,895 8,961 7,265 3,403 878 2,446 2,295 5,967
Operating expenses:
Research and development.... 4,824 5,421 3,169 2,318 1,764 1,059 1,319 2,021 2,639
Sales and marketing......... 3,690 3,104 2,514 1,819 1,579 633 917 1,306 1,907
General and
administrative............ 1,649 2,839 2,434 1,553 1,210 453 228 874 966
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses................ 10,163 11,364 8,117 5,690 4,553 2,145 2,464 4,201 5,512
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations............ (808) (5,469) 844 1,575 (1,150) (1,267) (18) (1,906) 455
Interest income and other
(expense), net.............. (45) (12) 100 154 12 (28) (20) (61) (33)
Interest expense.............. (554) (462) (400) (146) (320) (201) (131) (348) (259)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes............ (1,407) (5,943) 544 1,583 (1,458) (1,496) (169) (2,315) 163
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Provision for income taxes.... 3 91
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $ (1,407) $ (5,943) $ 541 $ 1,492 $ (1,458) $ (1,496) $ (169) $ (2,315) $ 163
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Basic income (loss) per
share....................... $ (0.29) $ (1.42) $ 0.15 $ 0.46 $ (0.66) $ (.28) $ (.04) $ (.45) $ .04
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares used in basic per share
calculation(1).............. 4,866 4,184 3,701 3,216 2,200 5,285 4,619 5,186 4,600
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Diluted income (loss) per
share....................... $ (0.29) $ (1.42) $ 0.03 $ 0.10 $ (0.66) $ (.28) $ (.04) $ (.45) $ .01
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares used in diluted per
share calculation(1)........ 4,866 4,184 15,553 14,291 2,200 5,285 4,619 5,186 19,142
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

86
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------- MARCH 31,
1997 1996 1995 1994 1993 1998
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investment........ $ 1,931 $ 900 $ 1,555 $ 698 $ 102 $ 162
Working capital......................................... 4,163 5,390 7,437 4,119 2,289 2,119
Total assets............................................ 16,669 18,991 16,232 12,793 7,817 16,819
Long-term debt.......................................... 442 383 1,382 2,057 232 458
Total shareholders' equity.............................. 6,570 7,876 8,608 3,400 3,536 4,264
</TABLE>

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

(1) See Notes to Financial Statements for an explanation of the number of shares
ued to compute basic and diluted net loss per share.

87
<PAGE>
PACIFIC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PACIFIC SHOULD BE READ IN CONJUNCTION WITH THE PACIFIC FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. PACIFIC'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "PROPOSAL NO. 1: THE MERGER--RISK FACTORS."

OVERVIEW

Pacific designs, develops, manufactures and markets radio frequency devices
and systems for providers of wireless communication services. Since its
inception in 1984, Pacific has been involved in the development of gallium
arsenide RFIC products, including power amplifiers, switches, attenuators,
converters and oscillators for telephony, remote data collection and wireless
point-to-point communications applications. In 1991, Pacific began applying its
RFIC design expertise and radio frequency system engineering skills to the
development of system solutions for the broadband wireless video market. Since
1991, Pacific has produced and sold over one million broadband wireless
antenna/downconverters. Additionally, since the introduction of Pacific's
CypherPoint video encoding system in 1996, Pacific has produced and sold over 50
encoding systems and 100,000 decoders. Broadband wireless and RFIC products
comprise Pacific's principal product lines with broadband wireless products
(including both downconverters and CypherPoint) currently comprising more than
90% of its revenues.

Pacific markets its products through a direct sales force supplemented by
distributors. The majority of Pacific's sales are made by its sales force
directly to broadband wireless operators, while distributors, which sell only
Pacific's RFIC products, account for less than 10% of Pacific's sales. Pacific
has no current plans to materially increase the size of its direct sales force.
The sales cycle associated with Pacific's products is typically lengthy and is
subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, that are beyond Pacific's control.
In addition, Pacific's customers include companies in the early stage of
development or in need of capital to deploy or expand their services. Further,
timing and volume of customer orders are difficult to forecast because a
substantial majority of Pacific's sales are booked and shipped in the same
quarter and Pacific has a limited backlog or orders. If orders from current
customers are canceled, decreased or delayed, or Pacific fails to obtain
significant orders from new customers, or any significant customer delays
payment or fails to pay, Pacific's business, operating results and financial
condition could be materially adversely affected. SEE "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--INEXPERIENCE IN EMERGING MARKET" and "--CUSTOMER CONCENTRATION."

To date, a small number of customers has accounted for a substantial portion
of Pacific's net sales. Pacific expects that sales to a small number of
customers will continue to account for a substantial portion of its net sales
and also expects that its largest customers in future periods could be different
from its largest customers in prior periods due to a variety of factors,
including customers' deployment schedules and budget and regulatory
considerations. In addition, Pacific's customers include companies in the early
stage of development or in need of capital to upgrade or expand their services.
While Pacific has not increased its reserves for doubtful accounts due to the
assessment of risks associated with collectability or billing problems with
respect to any of its current, major customers, there can be no assurance that
problems relating to uncollectability or billing will not arise with respect to
any of its current or future, major customers. See "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--CUSTOMER CONCENTRATION."

The markets in which Pacific participates are highly competitive. Broadband
wireless competitors include California Amplifier, Inc., Conifer Corporation,
TransSystems, Inc., and TeleLynx, Inc. RFIC competitors include Celeritek, Inc.,
ANADIGICS, Inc., Teledyne, Inc., Philips Semiconductors, RF Micro

88
<PAGE>
Devices, Inc. and Motorola, Inc. In addition, Pacific anticipates increased
competition from new companies entering such markets, some of whom may have
financial and technical resources substantially greater than those of Pacific.
Furthermore, because some of Pacific's products may not be proprietary, they may
be duplicated by low-cost producers, resulting in price and margin pressures.
See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC
AND THE COMBINED COMPANY--COMPETITION."

Sales to customers of Pacific outside the United States have accounted for a
significant portion of net sales in the past. International sales are subject to
a number of risks including longer payment cycles, export and import
restrictions and tariffs, including existing United States restrictions on the
export of certain high technology products that could limit Pacific's sales
abroad, unexpected changes in regulatory requirements, the burden of complying
with a variety of foreign laws, greater difficulty in accounts receivable
collection, potentially adverse tax consequences, currency fluctuations and
political and economic instability. Fluctuations in currency exchange rates
could cause Pacific's products to become relatively more expensive to customers
in a particular country, leading to a reduction in sales or profitability in
that country. To the extent that international revenues increase as a percentage
of total revenues in the future, foreign currency fluctuation exposure may also
increase. In addition, Pacific has in the past experienced a decline in sales to
Mexico due to the devaluation of the Mexico peso. There can be no assurance that
future economic or political instability in countries where Pacific sells its
products will not have a material adverse effect on Pacific's sales in such
countries, and consequently, on the business financial condition or results of
operations of Pacific. See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS-- RISKS
RELATING TO HYBRID, PACIFIC AND THE COMBINED COMPANY."

Pacific had no income tax provision or benefit in fiscal 1997 and 1996 due
principally to net operating losses and a valuation allowance reserving 100% of
its deferred tax assets. As a result of Pacific's history of recent operating
losses, management believes that recognition of the deferred tax assets is
considered less likely than not. Accordingly, Pacific has recorded a valuation
allowance against its net deferred tax asset. At March 31, 1998, net operating
loss carryforwards of approximately $19,717,000 and $4,877,000 were available to
offset future federal and state taxable income, respectively. These
carryforwards expire beginning in 2002 and 2000. At March 31, 1998, research and
development credit carryforwards of $284,000 and $151,000 were available to
offset future federal and state taxable income, respectively. These
carryforwards expire beginning in 2009 for federal purposes. As a result of the
Merger, the annual utilization of operating losses will be significantly
limited.

89
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales represented by
the items in Pacific's statements of operations for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
FISCAL YEARS ENDED ENDED
ENDED SEPTEMBER 30, MARCH 31, MARCH 31,
------------------------------ ------------------- -------------------
1997 1996 1995 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Product Sales........................... 99.2% 96.3% 75.7% 99.7% 98.6% 99.7% 98.9%
Development Contracts and Licensing
Revenue............................... 0.8 3.7 24.3 0.3 1.4 0.3 1.1
-------- -------- -------- -------- -------- -------- --------
Net Sales............................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of Sales........................... 73.6 79.8 64.1 82.5 70.7 80.8 72.2
-------- -------- -------- -------- -------- -------- --------
Gross Margin.......................... 26.4 20.2 35.9 17.5 29.3 19.2 27.8
-------- -------- -------- -------- -------- -------- --------
Operating Expenses
Research and Development.............. 13.6 18.6 12.7 21.1 15.8 16.9 12.3
Sales and Marketing................... 10.4 10.6 10.1 12.6 11.0 10.9 8.9
General and Administrative............ 4.7 9.8 9.8 9.0 2.7 7.3 4.5
-------- -------- -------- -------- -------- -------- --------
Total Operating Expenses............ 28.7 39.0 32.6 42.7 29.5 35.1 25.7
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss) from Operations....... (2.3) (18.8) 3.4 (25.2) (0.2) (15.9) 2.1
Interest Income and Other Expense,
Net................................. (0.1) (0.1) 0.1 (0.6) (0.2) (0.5) (0.1)
Interest Expense...................... (1.6) (1.6) (1.6) (4.0) (1.6) (2.9) (1.2)
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)....................... (4.0%) (20.4%) 2.2% (29.8%) (2.0%) (19.3%) 0.8%
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

NET SALES. Pacific's total sales consist of product sales of
downconverters, CypherPoint and RFIC, and development contracts and licensing
revenue. Net sales were $5,018,000 for the three months ended March 31, 1998,
compared to net sales of $8,350,000 for the three months ended March 31, 1997.
The significant decline in net sales was primarily due to a reduction in
shipments to Pacific's largest customer of the downconverter and CypherPoint
product lines. Such customer's product purchases are not expected to return to
historic levels. To the extent that such customer is not replaced with other
customers accounting for significant additional sales, this will likely
adversely affect Pacific's future results of operations and financial position.
There can be no assurance that Pacific will be able to acquire such additional
customers. In the three months ended March 31, 1998, product sales accounted for
99.7% of net sales and contract/ licensing revenue accounted for .3% of net
sales. For the three months ended March 31, 1997, product sales accounted for
98.6% and the contract/licensing revenues accounted for 1.4%. International
sales accounted for 54.3% and 53.5% of net sales for the three months ended
March 31, 1998 and 1997, respectively. Pacific had one customer that accounted
for 35.8% of net, sales in the three months ended March 31, 1998. Pacific had
three customers that accounted for 28.0%, 23.3% and 15.5%, respectively, of net
sales in the three months ended March 31, 1997.

GROSS MARGIN. Gross margins were 17.5% and 29.3% for the three months ended
March 31, 1998 and 1997, respectively. The decrease in the gross margin was
primarily due to the reduction in shipments of all product lines, price
reductions of downconverters due to competitive pressures and non-absorption of
manufacturing overhead due to excess capacity.

RESEARCH AND DEVELOPMENT. Research and development expenses include ongoing
decoder and headend CypherPoint product development expenses, two-way product
development, as well as design

90
<PAGE>
expenditures associated with cost reduction programs. Research and development
expenses were $1,059,000 and $1,319,000 for the three months ended March 31,
1998 and 1997, respectively. These expenditures represented 21.1% and 15.8% of
net sales for the three months ended March 31, 1998 and 1997, respectively. The
expenditures decreased between the quarters primarily as a result of high
CypherPoint product development costs incurred in the former quarter.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related payroll costs of sales and marketing personnel,
commissions, advertising, promotions and travel. Sales and marketing expenses
were $633,000 and $917,000 for the three months ended March 31, 1998 and 1997,
respectively, representing 12.6% and 11.0% of net sales, respectively. The
decrease in sales and marketing expenses in absolute dollars was principally due
to a reduction in headcount and related payroll costs and a reduction in
spending in the area of marketing and promotions.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of executive personnel salaries, legal and audit fees, travel expenses
and professional services. General and administrative expenses were $453,000 and
$228,000 for the three months ended March 31, 1998 and 1997, respectively,
representing 9.0% and 2.7% of net sales, respectively.

INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Pacific incurred interest
expense during the three months ended March 31, 1998 of $201,000 and earned
interest income of $6,000. Pacific incurred interest expense during the three
months ended March 31, 1997 of $131,000 and earned interest income of $6,000.
The increase in net interest expense was due to increased loans obtained to
support working capital requirements.

SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997

NET SALES. Net sales were $11,981,000 for the six months ended March 31,
1998, compared to net sales of $21,500,000 for the six months ended March 31,
1997. The significant decrease in net sales was primarily due to a reduction in
units shipped of the downconverter and CypherPoint product line and to a decline
in the rate of product purchases by Pacific's largest customer. Such customer's
product purchases are not expected to return to historic levels. To the extent
that such customer is not replaced with other customers accounting for
significant additional sales, this will likely adversely affect Pacific's future
results of operations and financial position. There can be no assurance that
Pacific will be able to acquire such additional customers. For the six months
ending March 31, 1998, product sales accounted for 99.7% of net sales and the
contract/licensing revenues accounted for .3% of net sales. For the six months
ending March 31, 1997, product sales accounted for 98.9% of net sales and
contract/licensing revenues accounted for 1.1% of net sales. International sales
accounted for 19.5% and 53.8% of net sales for the 6 months ended March 31, 1998
and 1997, respectively. Pacific had four customers that accounted 31.3%, 13.6%,
11.5% and 10.1%, respectively, of net sales for the six-month period ending
March 31, 1998. Pacific had two customers that accounted for 48.6% and 19.3%,
respectively, of net sales for the six-month period ending March 31, 1997.

GROSS PROFIT. Gross margin was 19.2% and 27.8%, for the six-month period
ending March 31, 1998 and 1997, respectively. The decrease in the gross margin
was primarily due to the reduction in shipments, price erosion within the
downconverter product line and non-absorption of manufacturing overhead.

RESEARCH & DEVELOPMENT. Research and development expenses include
development of decoder and headend CypherPoint products, downconverter and RFIC
products as well as design expenditures associated with cost reduction. Research
and development expenses were $2,021,000 and $2,639,000 for the six-month period
ending March 31, 1998 and 1997, respectively. These expenditures represented
16.9% and 12.3% of net sales for the six-month period ending March 31, 1998 and
1997, respectively. This reduction was primarily due to the completion of
CypherPoint product development.

91
<PAGE>
SALES & MARKETING. Sales and marketing expenses consist primarily of
salaries and related payroll costs for sales and marketing personnel,
commissions, advertising, promotions and travel. Sales and marketing expenses
were $1,306,000 and $1,907,000 for the six-month period ending March 31, 1998
and 1997, respectively, representing 10.9% and 8.9% of net sales, respectively.
The decrease in sales and marketing expenses in absolute dollars was principally
due to reductions in headcount and related payroll costs and a reduction in
spending in the area of marketing and promotions.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of executive personnel salaries, legal and audit fees, travel expenses
and costs of outside services. General and administrative expenses were $874,000
and $966,000 for the six-month period ending March 31, 1998 and 1997,
respectively, representing 7.3% and 4.5% of net sales, respectively. The
decrease in absolute dollars was due to lower legal and audit fees and payroll
costs.

INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Pacific incurred net
interest expense for the six-month period ending March 31, 1998 of $348,000 and
earned interest income of $12,000. The company incurred net interest expense for
the six-month period ending March 31, 1997 of $259,000 and earned interest
income of $11,000. The increase in net interest expense was due to increased
loans obtained to support working capital requirements.

FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996

NET SALES. Net sales were $35,369,000 for the year ended September 30,
1997, compared to net sales of $29,141,000 for fiscal 1996. The significant
growth in net sales was primarily due to increased unit sales of the CypherPoint
product line, which product line had a 242.5% increase in sales from 1996. This
growth was offset, in significant part, by a decline in shipments of
downconverter products, which products had a 20% decrease in net sales from
1996. In fiscal 1997, product sales accounted for 99.2% of net sales and
contracts/licensing revenue accounted for 0.8% of net sales. In fiscal 1996,
product sales accounted for 96.3% of net sales and contracts/licensing revenues
accounted for 3.7%. International sales accounted for 30.4% and 28.5% of net
sales for the fiscal years 1997 and 1996, respectively. Pacific had two
customers that accounted for 30.4% and 21.5%, respectively, of net sales in
fiscal 1997. Pacific had two customers that accounted for 35.7% and 12.4%,
respectively, of net sales in fiscal 1996.

GROSS PROFIT. Gross margin was 26.4% and 20.2%, in fiscal years 1997 and
1996, respectively. The improvement in gross margin was due in part to a
$1,126,000 inventory provision. The provision was accrued in 1996 in connection
with inventory components and products unique to an international customer and
reversed in 1997 when the products were shipped. The remainder of the
improvement was due to a number of factors including the volume production of
the CypherPoint product line, greater contributions from higher margin RFIC
products, the completion of the high cost non-recurring engineering contract
work, and greater absorption of manufacturing overhead due to increased sales
volumes.

RESEARCH AND DEVELOPMENT. Research and development expenses were $4,824,000
and $5,421,000 during the fiscal years 1997 and 1996, respectively. These
expenditures represented 13.6% and 18.6% of net sales for fiscal years 1997 and
1996, respectively. This year to year reduction was primarily the result of
decreased CypherPoint product development costs in fiscal 1997. Pacific intends
to continue to increase its investment in research and development programs for
future periods, focusing on two-way wireless technologies and cost improvement.

SALES AND MARKETING. Sales and marketing expenses were $3,690,000 and
$3,104,000 during the fiscal years 1997 and 1996, respectively, representing
10.4% and 10.7% of net sales, respectively. The increase in sales and marketing
expenses in absolute dollars was principally due to increases in headcount and
related payroll costs and an increase in sales support efforts and marketing
activities associated with the increase in revenues. Pacific expects sales and
marketing expenses to increase in the future.

92
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1,649,000 and $2,839,000 during the fiscal years 1997 and 1996, respectively,
representing 4.7% and 9.8% of net sales, respectively. The decrease was due
primarily to the reversal of a $817,000 bad debt provision associated with the
collection of certain receivables from an international customer in 1997.

INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Pacific incurred net
interest expense during fiscal 1997 of $554,000 and earned interest income of
$25,000. Pacific incurred net interest expense during fiscal 1996 of $462,000
and earned interest income of $37,000. The increase in net interest expense was
due to increased loans obtained to support working capital requirements.

FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995

NET SALES. Net sales were $29,141,000 for the year ended September 30,
1996, compared to net sales of $24,925,000 for the year ended September 30,
1995. The significant growth in net sales was primarily due to an increase in
units shipped with the expansion of the downconverter product line, which
product line had a 22.6% increase in net sales from 1995, and the mid-year
introduction of the CypherPoint product line, as opposed to an increase in sales
prices of such products. This growth was offset by a reduction of revenue under
contracts/licensing due to a transition from military contracts to commercial
products. In fiscal 1996, product sales accounted for 96.3% of net sales and the
contract/licensing revenues accounted for 3.7% of net sales. In fiscal 1995,
product sales accounted for 75.7% of net sales and contract/ licensing revenues
accounted for 24.3% of net sales. International sales accounted for 28.5% and
36.7% of net sales for the fiscal years 1996 and 1995, respectively. Pacific had
two customers that accounted for 35.7% and 12.4%, respectively, of net sales in
1996. Pacific had two customers that accounted for 18.8% and 17.5%,
respectively, of net sales in 1995.

GROSS PROFIT. Gross margin was 20.2% and 35.9%, in fiscal years 1996 and
1995, respectively. The decrease in the gross margin was due to inventory
provisions for products unique to an international customer, the transition away
from the higher margin military contracts to a non-recurring engineering
contract, price erosion within the downconverter product line and non-absorption
of manufacturing overhead related to CypherPoint production start-up.

RESEARCH AND DEVELOPMENT. Research and development expenses were $5,421,000
and $3,169,000 during the fiscal years 1996 and 1995, respectively. These
expenditures represented 18.6% and 12.7% of net sales for fiscal years 1996 and
1995, respectively. This was primarily the result of a one time charge of
$2,051,000 associated with a design change of CypherPoint products.

SALES AND MARKETING. Sales and marketing expenses were $3,104,000 and
$2,514,000 during the fiscal years 1996 and 1995, respectively, representing
10.7% and 10.1% of net sales, respectively. The increase in sales and marketing
expenses in absolute dollars was principally due to increases in headcount and
related payroll costs and in spending in the area of marketing and promotions.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2,839,000 and $2,434,000 during the fiscal years 1996 and 1995, respectively,
representing 9.8% and 9.8% of net sales, respectively. The increase in absolute
dollars was due primarily to an $817,000 provision associated with uncertainty
regarding account receivable collections from an international customer.

INTEREST INCOME (EXPENSE) AND OTHER EXPENSE, NET. Pacific incurred interest
expense during fiscal 1996 of $462,000 and earned interest income of $37,000.
Pacific incurred interest expense during fiscal 1995 of $400,000 and earned
interest income of $28,000. The increase in net interest expense was due to
increased loans obtained to support working capital requirements.

93
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Pacific has financed its operations primarily through financial support from
its majority shareholders in the form of capital infusions and promissory notes,
bank debt, and lease financing of capital equipment. As of March 31, 1998,
Pacific had working capital of $2,119,000, including $162,000 in cash and cash
equivalents. The $1,344,000 decrease in cash and cash equivalents in the first
six months of fiscal 1998 was primarily the result of a net loss of $2,315,000.
As of September 30, 1997, Pacific had working capital of $4,163,000, including
$1,506,000 in cash and cash equivalents, as compared to working capital of
$5,390,000 and $475,000 in cash and cash equivalents as of September 30, 1996.
The $1,031,000 increase in cash and cash equivalents for the fiscal year ended
September 30, 1997 was primarily a result of obtaining a shareholder note of
$750,000 in September 1997.

Cash used in operating activities in the six months ended March 31, 1998 was
$3,907,000 and was primarily the result of an increase in accounts receivable of
$2,211,000 and the net loss of $2,315,000. The increase in accounts receivable
was primarily attributable to a shift in the customer base to international
customers resulting in longer average collection periods. Cash used in operating
activities during the six months ending March 31, 1998 was offset by
depreciation and amortization of $597,000 and prepaid expense decreases of
$109,000. Cash provided by operating activities during fiscal 1997 was
$2,583,000, primarily the result of the decrease in accounts receivable of
$3,931,000 as a result of collections and lower net sales in the final quarters
of the fiscal year, and depreciation and amortization of $1,234,000. Cash
provided by operating activities during fiscal year 1997 was offset by the net
loss of $1,407,000, a decrease in the provision for doubtful accounts of
$930,000 as a result of Pacific's assessment of collectability of accounts
receivable and decreases in accounts payable of $330,000.

Cash flows from investment activities during the six months ended March 31,
1998 was $322,000 and resulted primarily from decreases in short-term
investments. Cash used in investing activities during fiscal 1997 was $348,000,
and resulted primarily from the purchases of property and equipment. During the
six months ended March 31, 1998 and fiscal year 1997, capital expenditures for
property and equipment were primarily for computers, furniture, fixtures, and
manufacturing and engineering test equipment. Pacific has financed a substantial
portion of its property and equipment expenditures from several sources
including direct vendor leasing programs and third party commercial leasing
arrangements. As of March 31, 1998, Pacific had no material commitments for
capital expenditures.

Cash provided by financing activities during the six months ended March 31,
1998 was $2,241,000, and was primarily the result of cash advances of $2,568,000
on the recently established bank credit line. Cash provided by financing
activities during the six months ended March 31, 1998 was offset by the
repayment of capital lease obligation of $341,000. Cash used in financing
activities during fiscal year 1997 was $1,204,000, and was primarily the result
of repayments of $1,261,000 to the bank line of credit and the repayment of
capital lease obligations of $763,000. Cash used in financing activities during
fiscal year 1997 was offset by the result of proceeds from shareholder loans of
$750,000.

Pacific's principal sources of liquidity at March 31, 1998 were cash and
cash equivalents of $162,000 and an $8,000,000 revolving bank line of credit.
The line of credit was entered into with Coast in November 1997, bears interest
at Coast's reference rate (8.5% at March 31, 1998) plus 2.25%, has a term which
expires in the year 2000, and is collateralized by substantially all of the
Pacifics's assets. Advances on the line of credit are limited to a percentage of
certain current assets (i.e. accounts receivable and inventory). The line of
credit requires Pacific to maintain a minimum Tangible Net Worth of $5,750,000.
Tangible Net Worth is defined as consolidated owner's equity plus subordinated
debt less any assets that would be treated as intangible assets in accordance
with generally accepted accounting principles. As of March 31, 1998, Pacific had
a Tangible Net Worth of $6,014,000. Coast has consented to the Merger of Pacific
with Hybrid and is currently reviewing the terms of the line of credit to
determine whether modifications will be made to the Tangible Net Worth covenant
with respect to the combined company. As of April 30, 1998, Pacific had
$3,733,000 in borrowings outstanding under the line of credit and no additional
borrowings

94
<PAGE>
were available. The Comerica line of credit outstanding as of September 30, 1997
was repaid and canceled with borrowings under the Coast line of credit. Pacific
is currently in need of immediate additional capital to finance its operations
and to meet its short term liquidity needs. While Pacific is seeking additional
financing up to an approximate amount of $1.0 million, there can be no assurance
that the additional required financing will be available through equity
offerings, bank borrowings, or otherwise, or that, if such financing is
available, it will be available on terms favorable to Pacific or its
shareholders. If Pacific is unable to secure financing prior to the consummation
of the Merger, Pacific will have to scale back sales and marketing and research
and development efforts and Pacific's business, financial condition and
operating results will be materially adversely affected. If the Merger with
Hybrid is consummated, Pacific will have access to the capital resources of this
combined company. See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING
TO HYBRID, PACIFIC AND THE COMBINED COMPANY--PACIFIC'S NEED FOR IMMEDIATE
ADDITIONAL FINANCING," "--RESTRICTED DEBT COVENANTS" and "--POSSIBLE NEED FOR
ADDITIONAL FINANCING."

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates. While uncertainty exists concerning the
potential effects associated with such compliance, Pacific does not believe that
year 2000 compliance will result in a material adverse effect on its financial
condition or results of operations.

95
<PAGE>
BUSINESS OF HYBRID

This Business section and other parts of this Joint Proxy
Statement/Prospectus contain forward-looking statements that involve risks and
uncertainties. Hybrid's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed below and separately
in "PROPOSAL NO. 1: THE MERGER--RISK FACTORS," and "HYBRID MANAGEMENTS'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION."

Hybrid Networks, Inc. is a broadband access equipment company that designs,
develops, manufactures and markets wireless and cable systems that provide high
speed access to the Internet and corporate intranets for both businesses and
consumers. Hybrid's products remove the bottleneck over the "last mile"
connection to the end-user which causes slow response time for those accessing
bandwidth-intensive information over the Internet or corporate intranets.
Hybrid's customers include broadband wireless system operators, cable system
operators, ISPs, resellers and other companies that provide broadband networking
systems or services to business and residential users. Hybrid's Series 2000
product line consists of secure headend routers, wireless or cable modems and
management software for use with either cable TV or wireless transmission
facilities. Because the substantial majority of wireless and cable transmission
facilities are not capable of two-way transmissions, the Series 2000 has been
designed to utilize a variety of return paths, including the public switched
telephone network. The Series 2000 system also features a router to provide
corporate telecommuters and others in remote locations secure access to their
files on the corporate intranet. The Series 2000 is capable of supporting a
combination of speeds, media and protocols in a single wireless or cable system,
providing system operators with flexible, scalable and upgradeable solutions
that allow them to offer cost-effective broadband access to their subscribers.

PRODUCTS, TECHNOLOGY AND SERVICES

Hybrid's Series 2000 product line provides broadband wireless system
operators, cable system operators, ISPs and other businesses with a
cost-effective, high speed Internet and intranet access solution. Hybrid's
products include secure headend routers, wireless and cable modems and
management software for use with either wireless transmission facilities or
cable TV transmission facilities. Hybrid's headend products are used by
broadband wireless system operators, cable system operators and other customers
to transmit and receive data across networks and to manage networks and modems.
Hybrid's client modems and routers are used by subscribers of Hybrid's customers
and can be used as single-user devices or in multi-user local area networks
("LANS"). Hybrid's products incorporate proprietary technology that enables the
same system to be deployed in either broadband wireless or cable systems and
supports both one-way downstream transmission accompanied by upstream
transmission via modem and router return or two-way wireless or cable
transmission.

96
<PAGE>
PRODUCTS

The following table outlines the primary components of Hybrid's Series 2000:
<TABLE>
<S> <C>
HEADEND EQUIPMENT (1)(2) PRODUCT DESCRIPTION
CyberManager 2000 (CMG-2000) Workstation with proprietary Hybrid software
that provides subscriber and network management.
CyberMaster Downstream Router (CMD-2000) High speed downstream RF router that supports up
to 60 Mbps aggregate throughput in 12 MHz of
spectrum.
Upstream Router, Telephone Return Performs the functions of an analog modem bank
(Ascend Max 4048, 4060) and terminal server in a telephone return
configuration. Supports up to 48/60 incoming
telephone lines.
CyberMaster Upstream Router QPSK Return Upstream receiver and demodulator for two-way
(CMU 2000-14C and QDC-030-2) QPSK configuration.

<CAPTION>
SINGLE-USER EQUIPMENT (1)(3)
<S> <C>
Headend Router (HER-2010) Highspeed downstream RF router that supports up
to 60 Mbps aggregate throughout in 12 MHz of
spectrum.
Multi-User Modem/Router (CCM-201) Client modem and router that can be used in
either wireless or cable systems. Supports up to
20 users. Client modem that can be used in
either wireless or cable systems. Supports a
single user.
</TABLE>

(1) All products are available for use with wireless or cable systems.

(2) Headend equipment typically ranges in price from $40,000 to $90,000 for a
single system.

(3) Modem list prices range from approximately $440 to $795 depending on
features.

HEADEND EQUIPMENT

CYBERMANAGER 2000. The CyberManager 2000 (CMG-2000) is a proprietary
subscriber and network management workstation built on a Sun Microsystems Sparc
5. Running proprietary Hybrid software, the CMG-2000 operates as the system
administrator interface to the upstream and downstream routers and other third
party headend equipment. The CMG-2000 has a 10BaseT interface to connect to a
fast Ethernet switch in the headend. Currently, the CMG-2000 supports up to
5,000 subscribers.

CYBERMASTER DOWNSTREAM ROUTER. The CyberMaster Downstream Router (CMD-2000)
is a rack-mounted, Pentium based, PCI/ISA bus industrial microcomputer. It
supports SIF and QAM cards, which are used for downstream routing and for 64QAM
downstream modulation. The CMD-2000 has a 100BaseT interface to connect to a
fast Ethernet switch within the headend. The CMD-2000 supports up to six
independent 10 Mbps downstream channels. Each 10 Mbps channel occupies 2 MHz of
either wireless or cable spectrum.

UPSTREAM ROUTER, TELEPHONE RETURN. The Upstream Router, Telephone Return is
an Ascend modem bank sold by Hybrid for terminating headend telephone lines in
the telephone return configuration. The Ascend 4048 provides a 71 digital
interface for 48 lines in the United States and the

97
<PAGE>
Ascend 4060 provides an E1 digital or a primary rate interface for international
applications. The system also operates with modem banks and upstream router from
US Robotics, Motorola and other suppliers provided by the customer.

CYBERMASTER UPSTREAM ROUTER QPSK RETURN. The Cybermaster upstream router is
a rack mounted, Pentium based, PCI/ISA bus industrial microcomputer. The product
houses dual QPSK receiver cards which demodulate upstream QPSK signals. The
CMU-2000-14C has a 100 BaseT interface to connect to a fast ethernet switch at
the headend. The CMU supports up to 28 upstream signals each with 256 to 5 Mbits
data rate.

END-USER EQUIPMENT

HEADEND ROUTER. The Series 2000 Headend Router (HER-2010) is a rack-mounted,
Pentium based, PCI/ISA bust industrial microcomputer. The product supports SIF
and QAM cards, which are used for downstream routing and for 64QAM downstream
modulation. The HER-2010 has a 1000BaseT interface to connect to a fast Ethernet
switch within the headend. The HER-2010 supports up to six independent 10 Mbs
downstream channels. Each 10 Mbps channel occupies 2MHz of either wireless or
cable spectrum. The HER-2010 can be deployed in one-way RF configurations
(cable/wireless downstream and telco/router return).

MULTI-USER MODEM/ROUTER. The Multi-User Modem/Router (CCM-201) supports 10
Mbps, 64QAM downstream data transmission on both wireless and cable systems and
upstream transmission via analog modem, router or wireless or cable return. Each
CCM-201 includes routing capability to support up to 20 networked devices (PC,
Macintosh or workstation). The CCM-201 has a number of security features
including system authentication, user ID, public and private key management and
optional DES encryption.

SINGLE-USER MODEM. The Single-User Modem (N-201) supports 10 Mbps, 64QAM
downstream data transmission on both wireless and cable systems and upstream
transmission via analog modem, router, and wireless or cable return. Each N-201
supports one client device which can be a PC, Macintosh or workstation.

TECHNOLOGY

The Series 2000 product line is an integrated broadband access system. The
Series 2000 is media independent, allowing the same system components to be
deployed in either wireless or cable systems. It utilizes proprietary asymmetric
networking technology that allows for optimal use of available frequencies. The
Series 2000 supports both asymmetric two-way transmission on a wireless or cable
system and asymmetric telephone- or router-return on either a broadband wireless
or cable system. Hybrid's proprietary sub-channelization technology splits a
standard 6 MHz channel into three 2 MHz slices for downstream transmission,
providing greater flexibility and minimizing the effects of multipath
interference in wireless systems. By providing 2 MHz sub-channelization,
Hybrid's products are also positioned to serve the newly auctioned WCS
frequencies, which are only 5 MHz wide. The Series 2000 provides for downstream
transmission over wired cable in the interference prone "rolloff" channels that
are unsuitable for video broadcast, preserving scarce channels for the cable
system operator. The Series 2000 is expandable from an entry-level system
supporting up to 5,000 subscribers to serve more than 20,000 subscribers. The
modular architecture also accommodates changes to the transport medium, such as
upgrades from one-way coaxial cable plant to two-way HFC plant.

SERVICES

Hybrid generally performs all consulting, systems engineering, systems
integration, installation, training and technical support for its products.
Network operations engineers, who combine radio frequency ("RF") and TCP/IP
networking expertise, provide network consulting to support the sales force,
assisting

98
<PAGE>
sales representatives and customers in defining the specifications for the
system to be installed. Hybrid's network operations group also works with the
customer during site preparation to aid in systems engineering, system
integration, installation and acceptance testing to ensure a successful system
start-up. Services are provided on a time and materials basis. Each customer is
required to enroll, for a fee, at least one person in Hybrid's one-week training
course; enrollment for multiple employees from the customer organization is
encouraged and supported with a discounted fee schedule. These training courses
are tailored to specific implementations of Hybrid's products and cover the
installation, operation and maintenance of Hybrid's headend and client modem
products in a network operating environment. Hybrid typically provides a
one-year warranty on its hardware products that includes factory and on-site
repair service as needed. Customer support also includes telephone support,
maintenance releases and technical bulletins covering all of Hybrid's software
and firmware products that contain application code. Hybrid provides support
after expiration of the warranty period as a purchase option, including on-site
field support.

CUSTOMERS

Hybrid's customers include broadband wireless system operators, cable system
operators, ISPs, resellers and other businesses. To date, a small number of
customers has accounted for a substantial portion of Hybrid's net sales. Hybrid
expects that net sales from the sale of its products to a limited number of
customers will continue to account for a high percentage of its net sales in the
foreseeable future. Hybrid expects that its largest customers in future periods
could be different from its largest customers in prior periods due to a variety
of factors, including customers' deployment schedules and budget considerations.
In addition the mix of Hybrid's customers, whether cable, wireless, ISPs or
distributors, has changed from quarter-to-quarter. A limited number of broadband
wireless system operators and cable system operators account for a majority of
capital equipment purchases in their respective markets, and Hybrid's success
will be dependent upon its ability to establish and maintain relationships with
these companies. In addition, Hybrid has increased sales through distributors
and value added reseller , with 3D Communications, a subsidiary of IKON
Corporation, becoming the largest distributor customer in 1997, accounting for
13.7% of Hybrid's net sales. No other customer accounted for 10% or more of net
sales in 1997. In 1996, AT&T Corporation ("AT&T") and Intel accounted for 41.0%
and 20.7%, respectively, of Hybrid's net sales; and in 1995, Intel and AT&T
accounted for 51.6% and 28.2%, respectively, of Hybrid's net sales. During 1994,
1995 and 1996, Intel manufactured certain products based on Hybrid's design, and
jointly marketed Hybrid's products with its own. Intel no longer purchases
products from Hybrid, but it remains a stockholder of Hybrid and maintains
certain licensing and manufacturing rights to certain Hybrid products. AT&T
continued to purchase products from Hybrid in 1997, although the volume of those
purchases was less than 10% of Hybrid's net sales.

During 1997, approximately one-half of Hybrid's net sales were attributable
to broadband wireless system customers and the balance to cable system
customers. Hybrid anticipates that the trend of increasing sales to broadband
wireless customers will continue during 1998 although changes could occur in
Hybrid's product offerings or other circumstances that might affect this trend.
Hybrid's customers, particularly those in the broadband wireless industry,
include companies in the early stage of development or in need of capital to
upgrade or expand their services. In order to address the needs and competitive
factors facing the emerging broadband access market, Hybrid on occasion has
provided customers extended payment, promotional pricing or other terms. The
provision of extended payment terms, or the extension of promotional payment,
pricing or other terms can have a material adverse effect on Hybrid's business,
operating results and financial condition. See "HYBRID MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

99
<PAGE>
SALES, MARKETING AND DISTRIBUTION

Hybrid markets and sells its products in the United States through its
domestic field sales force and sales support organization. Hybrid also sells its
products through distributors, VARs and OEMs. Hybrid's sales and marketing,
senior management and technical staff work closely with existing and potential
customers to help them develop the market potential of high speed Internet
access services and to help them develop relationships with other companies that
have the facilities and expertise necessary to deliver Internet access services.
Field sales offices are located in San Francisco, Atlanta and Tinton Falls, New
Jersey.

The sale of Hybrid's products typically involves a significant technical
evaluation and commitment of capital and other resources, with the delays
frequently associated with customers' internal procedures to approve large
capital expenditures and to test and accept new technologies that affect key
operations. For these and other reasons, the sales cycle associated with
Hybrid's products is typically lengthy, generally lasting three to nine months,
and is subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, that are beyond Hybrid's control.
Because of the lengthy sales cycle and the large size of customers' orders, if
orders forecasted for a specific customer for a particular quarter are not
realized in that quarter, or any significant customer delays payment or fails to
pay, Hybrid's operating results for that quarter could be materially adversely
affected. In addition, Hybrid's customers include companies in the early stage
of development or in need of capital to upgrade or expand their services.
Accordingly, in order to address the needs and competitive factors facing the
emerging broadband access markets serviced by the broadband wireless system
operators, cable system operators and ISPs, Hybrid on occasion has provided
customers extended payment, promotional pricing or other terms which can have a
material adverse effect on Hybrid's business, operating results and financial
condition. See "HYBRID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

The timing and volume of customer orders are difficult to forecast because
wireless and cable companies typically require prompt delivery of products and a
substantial majority of Hybrid's sales are booked and shipped in the same
quarter. Accordingly, Hybrid has a limited backlog of orders. Further, sales are
generally made pursuant to standard purchase orders that can be rescheduled,
reduced or canceled with little or no penalty. Hybrid believes that its backlog
at any given time is not a meaningful indicator of future sales.

Hybrid's marketing efforts are targeted at broadband wireless system
operators, cable system operators and existing ISPs. Hybrid devotes considerable
time and effort to educating potential customers on the business opportunity of
providing high speed Internet and intranet access. It accomplishes this through
white papers, prototype customer business models, industry speaking engagements
and direct customer presentations. Hybrid also attempts to facilitate
introductions and strategic relationships between ISPs and wireless or cable
system operators. These strategic relationships bring together the capabilities
needed to offer high speed access service. Hybrid maintains its industry
presence by exhibiting at wireless and cable tradeshows and speaking at
conferences and seminars.

In order to market and sell Hybrid's products internationally, Hybrid has
entered into several distribution relationships and is seeking to enter into
distribution relationships as well. Alcatel Standard Electrica S.A. has
worldwide nonexclusive distribution rights for Hybrid's products and is Hybrid's
main distributor in Europe.

MANUFACTURING

Hybrid's manufacturing strategy is to perform system integration, testing
and quality inspection internally and to outsource the manufacturing of the
product modules to multiple third parties where it is more cost-effective.
Hybrid's future success will depend, in significant part, on its ability to
successfully manufacture its products cost-effectively and in sufficient
volumes. Hybrid maintains a limited in-house manufacturing capability for
performing system integration and testing on all headend products and for

100
<PAGE>
manufacturing small quantities of modems at its headquarters in Cupertino.
Hybrid's in-house manufacturing capability, however, is largely used for pilot
production of new modem designs and sample testing of products received from
volume modem manufacturers, as well as for developing the manufacturing process
and documentation for new products in preparation for outsourcing.

Hybrid's future success will depend, in significant part, on its ability to
obtain high volume manufacturing at low costs. Hybrid entered into an agreement
pursuant to which Sharp has been the exclusive OEM supplier through Itochu of
certain of Hybrid's client modems, including the substantial majority of those
utilized in the Series 2000. During the second quarter and a portion of the
third quarter of 1997, Hybrid did not receive the full shipment of modems
anticipated from Sharp because of technical delays in product integration. While
these problems have since been resolved, there can be no assurance that Hybrid
will not experience similar supply problems in the future at Sharp or any other
manufacturer. Hybrid has had only limited experience manufacturing its products
to date, and there can be no assurance that Hybrid, Sharp or any other
manufacturer of Hybrid's products will be successful in increasing the volume of
its manufacturing efforts. Hybrid may need to procure additional manufacturing
facilities and equipment, adopt new inventory controls and procedures,
substantially increase its personnel and revise its quality assurance and
testing practices. There can be no assurance that any of these efforts will be
successful. Hybrid anticipates the need to reduce the manufacturing costs of its
cable modem and will continue to evaluate the use of low cost third party
suppliers and manufacturers. Subcontractors supply both standard components and
subassemblies manufactured to Hybrid's specifications. Standard components
include the Sun Microsystems Sparc5 workstation and its Sun Operating System
(OS); Intel's Ethernet cards and Pentium-based PCI processor cards; and
NextLevel Systems' Upconverter. The CyberManager 2000 and CyberCommuter 2000
Secure Router are built on the Sparc5/Sun OS platform by installing Hybrid's
proprietary network subscriber and network management software, HybridWare. The
CyberMaster Downstream Router (CMD) and CyberMaster Upstream Router, Telephone
Return (CMU) are built on Intel's Pentium-based PCI/ISA-based computer cards
installed in standard rack-mounted backplanes from Industrial Computer Source
(ICS) that are configured to Hybrid's specification. Hybrid's proprietary
software, Hybrid OS, is overlaid on a standard Berkeley Systems operating system
for the CMD and CMU. Hybrid is dependent upon certain key suppliers for a number
of the components for its products. For example, Hybrid currently only has one
vendor, BroadCom Corporation, for the 64 QAM demodulator semiconductors that are
used in Hybrid's server and client modem products, and in past periods these
semiconductors have been in short supply. In 1997, BroadCom announced a program
whereby certain of its technological and product enhancements may be made
available to certain of Hybrid's competitors before making them available to
Hybrid. This could have the effect of putting Hybrid at a competitive
disadvantage with regard to time to market or cause Hybrid to have to redesign
its products if competitors influence changes in BroadCom's products. Hitachi is
the sole supplier of the processors used in certain of Hybrid's modems. In
addition, certain other components for products that Hybrid has under
development are currently only available from a single source. For example,
Stanford Telecom, which is a competitor for at least one of Hybrid's broadband
wireless products, is currently the sole supplier for certain of Hybrid's
products, although Hybrid is in the process of developing one or more
alternative sources. There can be no assurance that delays in key components or
product deliveries will not occur in the future due to shortages resulting from
a limited number of suppliers, the financial or other difficulties of such
suppliers or the possible limitation in component product capacities due to
significant worldwide demand for such components. Any significant interruption
or delay in the supply of components for Hybrid's products or significant
increase in the price of components due to short supply or otherwise could have
a material adverse effect on Hybrid's ability to manufacture its products and,
therefore, could have a material adverse effect on its business, operating
results and financial condition.

Products as complex as those offered by Hybrid frequently contain undetected
errors, defects or failures, especially when first introduced or when new
versions are released. Such errors have occurred in the past in Hybrid's
products, and there can be no assurance that, despite testing by Hybrid and use
by current and potential customers, errors will not be found in Hybrid's current
and future products. The

101
<PAGE>
occurrence of such errors, defects or failures could result in product returns
and other losses to Hybrid or its customers. Such occurrence could also result
in the loss of or delay in market acceptance of Hybrid's products, which could
have a material adverse effect on Hybrid's business, operating results and
financial condition. Hybrid's products generally carry a one-year warranty for
replacement of parts. Due to the relatively recent introduction of the Series
2000 products, Hybrid has limited experience with the problems that could arise
with this generation of products. Hybrid's purchase agreements with its
customers typically contain provisions designed to limit Hybrid's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in Hybrid's purchase agreements may not be
effective as a result of federal, state or local laws or ordinances or
unfavorable judicial decisions. Although Hybrid has not experienced any
significant product liability claims to date, the sale and support of Hybrid's
products may entail the risk of such claims. A successful product liability
claim brought against Hybrid could have a material adverse effect on Hybrid's
business, operating results and financial condition.

RESEARCH AND DEVELOPMENT

As of March 31, 1998, Hybrid's research and development staff consisted of
36 full-time employees. Hybrid's total research and development expenses for
1997, 1996 and 1995 were $7,108,000, $5,076,000 and $3,862,000, respectively,
and for the three months ended March 31, 1998 were $2,240,000. Hybrid will
continue its efforts to increase the scalability and performance of its current
broadband systems, to enhance the systems for broadband wireless system
operators and to migrate toward standards compliance. Hybrid expects to increase
scalability by developing an optional relational database that will handle
subscriber bases of up to 20,000 per system and new SNMP-based network
management capabilities that will allow operators to manage their network
centrally. Hybrid is optimizing its product's radio frequency (RF) tuners for
the currently targeted wireless-cable and WCS frequency bands, 2-3 GHz and LPTV
(400-800 MHz), and expects to add LMDS products to its offerings.

Hybrid has recently completed development of and released for sale a new
two-way product utilizing QPSK modulation in place of the current FSK return
product. This QPSK product utilizes standards-compliant chipsets and a
cost-effective channel sharing algorithm. It will support both wireless and
cable return. In addition, Hybrid is developing a prototype system targeted for
ISP customers consisting of a broadband downstream router that can be installed
in existing ISP networks and will interoperate with standard ISP equipment and
operational procedures. See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS-- RISKS
RELATING TO HYBRID, PACIFIC AND THE COMBINED COMPANY--COMPETING TECHNOLOGIES AND
EVOLVING INDUSTRY STANDARDS."

To address competitive and pricing pressures, Hybrid expects that it will
have to reduce the cost of manufacturing client modems significantly through
design and engineering changes. Such changes may involve redesigning Hybrid's
products to utilize more highly integrated components and more automated
manufacturing techniques. There can be no assurance that Hybrid will be
successful in these efforts, that a redesign can be made on a timely basis and
without introducing significant errors and product defects or that a redesign
will result in sufficient cost reductions to allow Hybrid to reduce the list
price of its client cable modems significantly.

In addition, from time to time, Hybrid considers collaborative relationships
with other entities to gain access to certain technologies that could enhance
Hybrid's product offerings, broaden the market for Hybrid's products or
accelerate time to market. In connection with such collaborative relationships,
Hybrid may seek to jointly develop products, share its technology with other
entities and license technology from such entities. In November 1997, Hybrid
entered into a Warrant Purchase Agreement with Alcatel pursuant to which Alcatel
agreed to provide Hybrid with certain technical information and the parties
agreed to use commercially reasonable efforts to define and carry out a
development program regarding broadband data modulation technology and to
cross-license the technology developed. As of March 31, 1998, the parties had
not defined such a program. In connection with entering into the Warrant
Purchase Agreement, Hybrid issued to Alcatel a five-year warrant to purchase
458,295 shares of Common Stock at

102
<PAGE>
an exercise price of $10.91 per share. The relationship between Hybrid and
Alcatel is in the early stages, and, accordingly, there can be no assurance that
the relationship will result in the development of commercially viable products
or that Hybrid will otherwise significantly benefit from its relationship with
Alcatel.

The market for high speed Internet access products is characterized by
rapidly changing and competing technologies, evolving industry standards and
frequent new product introductions leading to short product life cycles. As
standards evolve in the market, such as the MCNS specifications, Hybrid will
need to work toward complying with such standards. There can be no assurance
that Hybrid's engineering and product design efforts will be successful or that
Hybrid will be successful at developing new products in the future. Any failure
to release new products or to fix, upgrade or redesign old products on a timely
basis could have a material adverse effect on Hybrid's business, operating
results and financial condition.

BACKLOG

Because Hybrid generally ships its products within a short period after
receipt of an order, Hybrid does not have a backlog of firm unfilled orders, and
sales in any quarter are substantially dependent on orders booked in that
quarter.

COMPETITION

The market for high speed network connectivity products and services is
intensely competitive. The principal competitive factors in this market include
product performance and features (including speed of transmission and upstream
transmission capabilities), reliability, price, size and stability of
operations, breadth of product line, sales and distribution capability,
technical support and service, relationships with broadband wireless and cable
system operators and ISPs, standards compliance and general industry and
economic conditions. Certain of these factors are outside of Hybrid's control.
The existing conditions in the high speed network connectivity market could
change rapidly and significantly as a result of technological changes, and the
development and market acceptance of alternative technologies could decrease the
demand for Hybrid's products or render them obsolete. Similarly, the continued
emergence or evolution of industry standards or specifications may put Hybrid at
a disadvantage in relation to its competitors.

Hybrid's current and potential competitors include providers of asymmetric
cable modems, other types of cable modems and other broadband access products.
Most of Hybrid's competitors are substantially larger and have greater
financial, technical, marketing, distribution, customer support and other
resources, as well as greater name recognition and access to customers than
Hybrid. In addition, many of Hybrid's competitors are in a better position to
withstand any significant reduction in capital spending by cable or broadband
wireless system operators. Certain of Hybrid's competitors have established
relationships with cable system operators and telcos and, based on these
relationships, may have more direct access to the decision-makers of such cable
system operators and telcos. In addition, Hybrid could face potential
competition from certain of its suppliers, such as Sharp, if it were to develop
or license modems for sale to others. In addition, suppliers such as Cisco
Systems, which manufactures routers, could become competitors should they decide
to enter Hybrid's markets directly. Stanford Telecom, which manufacturers QPSK
components and is the sole supplier for certain of Hybrid's products, has become
a competitor for at least one of Hybrid's products in the broadband wireless
market. There can be no assurance that Hybrid will be able to compete
effectively in its target markets.

Hybrid's principal competitors in the wireless modem market, Bay Networks,
Harmonic Lightwaves through its acquisition of New Media Communications,
Motorola, NextLevel Systems and Stanford Telecommunications, are providing
wireless Internet connectivity over wireless cable and LMDS frequencies.

The principal competitors in the cable modem market include Bay Networks,
Motorola, NextLevel Systems and 3Com and its subsidiary U.S. Robotics. Other
cable modem competitors include Cisco

103
<PAGE>
Systems, Com21, Hayes Microcomputer Products, Phasecom, Scientific-Atlanta,
Terayon, Toshiba and Zenith Electronics, as well as a number of smaller, more
specialized companies. Certain competitors have entered into partnerships with
computer networking companies that may give such competitors greater visibility
in this market. For example, Cisco Systems has announced intentions to develop
solutions based on the MCNS standard with several cable modem vendors and in
December 1997 announced an MCNS-compliant integrated router and cable modem to
offer high-speed Internet access. Certain of Hybrid's competitors have already
introduced or announced high speed connectivity products that are priced lower
than Hybrid's, and certain other competitors are more focused on and experienced
in selling and marketing two-way cable transmission products. There can be no
assurance that additional competitors will not introduce new products that will
be priced lower, provide superior performance or achieve greater market
acceptance than Hybrid's products.

To be successful, Hybrid's Series 2000 products must achieve market
acceptance and Hybrid must respond promptly and effectively to the challenges of
new competitive products and tactics, alternate technologies, technological
changes and evolving industry standards. Hybrid must continue to develop
products with improved performance over two-way cable transmission facilities
and with the ability to perform over two-way wireless transmission facilities.
There can be no assurance that Hybrid will meet these challenges, that it will
be able to compete successfully against current or future competitors, or that
the competitive pressures faced by Hybrid will not materially and adversely
affect Hybrid's business, operating results and financial conditions. Further,
as a strategic response to changes in the competitive environment, Hybrid may
make certain extended payment, pricing, service, marketing or other promotional
decisions or enter into acquisitions or new ventures that can have a material
adverse effect on Hybrid's business, operating results or financial conditions.

Broadband wireless and cable system operators face competition from
providers of alternative high speed connectivity systems. In the wireless high
speed access market, broadband wireless system operators are in competition with
satellite TV providers. In telephony networks, xDSL technology enables digitally
compressed video signals to be transmitted through existing telephone lines to
the home. Recently several companies, including Compaq, Intel, Microsoft, 3Com,
Alcatel, Lucent, several RBOCs, MCI and others announced the formation of a
group focused on accelerating the pace of ADSL service. In the event that any
competing architecture or technology were to limit or halt the deployment of
coaxial or HFC systems, Hybrid's business, operating results and financial
condition could be materially adversely affected.

INTELLECTUAL PROPERTY

Hybrid relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its products. Hybrid currently has two patents issued in the United
States as well as pending patent applications in the United States, Europe and
Japan that relate to its network and modem technology as well as communication
processes implemented in those devices. Hybrid's two issued U.S. patents relate
to Hybrid's basic client cable modem device and methodology and asymmetric
system architecture and methodology. Hybrid initially obtained U.S. Patent No.
5,347,304 in September 1994, filed an application for the reissuance of the
patent with the U.S. Patent and Trademark Office in November 1994 and
anticipates that the patent was reissued on April 21, 1998 as U.S. Patent No. RE
35,774. In the future, Hybrid intends to seek further United States and foreign
patents on its technology. There can be no assurance that any of these patents
will be issued from any of Hybrid's pending applications or applications in
preparation or that any claims allowed will be of sufficient scope or strength,
or be issued in sufficient countries where Hybrid's products can be sold, to
provide meaningful protection or any commercial advantage to Hybrid. Moreover,
any patents that have been or may be issued might be challenged, as is the case
with Hybrid's recently initiated patent litigation. Any such challenge could
result in time consuming and costly litigation and result in Hybrid's patents
being held invalid or unenforceable. Furthermore, even if the patents are upheld
or are not challenged, third parties might be able to develop other technologies
or products without infringing any such patents.

104
<PAGE>
Hybrid has entered into confidentiality and invention assignment agreements
with its employees and enters into non-disclosure agreements with certain of its
suppliers, distributors and customers in order to limit access to and disclosure
of its proprietary information. There can be no assurance that these contractual
arrangements or the other steps taken by Hybrid to protect its intellectual
property will prove sufficient to prevent misappropriation of Hybrid's
technology or deter independent third-party development of similar technologies.
The laws of certain foreign countries may not protect Hybrid's products or
intellectual property rights to the same extent as do the laws of the United
States.

In the past, Hybrid has received, and in the future may receive, notices
from third parties claiming that Hybrid's products or proprietary rights
infringe the proprietary rights of third parties. Hybrid expects that developers
of wireless and cable modems will be increasingly subject to infringement claims
as the number of products and competitors in Hybrid's industry segment grows.
Any such claim, whether meritorious or not, could be time consuming, result in
costly litigation, cause product shipment delays or require Hybrid to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to Hybrid or at all, which could have a
material adverse effect upon Hybrid's business, operating results and financial
condition.

Hybrid has and in the future may license its patents or proprietary rights
for commercial or other reasons to parties who are or may become competitors of
Hybrid. Further Hybrid has recently, and may in the future, elect to initiate
claims or litigation against third parties for infringement of Hybrid's patents
or proprietary rights or to establish the validity of Hybrid's patents or
proprietary right. Hybrid has sent notices to certain third parties offering to
license Hybrid's patents for products which may be infringing Hybrid's patent
rights. Hybrid has recently initiated patent infringement litigation against two
parties, and in response, one party is seeking a declaration of invalidity,
unenforceability and non-infringement of Hybrid's patents and attorneys fees,
and the other party is seeking to be dismissed from the litigation. Hybrid has
not yet determined if it will assert claims against additional parties or
others. There can be no assurance that such notifications will not involve
additional potential litigation initiated by Hybrid or additional related
countersuits by third parties seeking to challenge Hybrid's patents or asserting
infringement by Hybrid. Patent litigation can be time consuming and costly and,
although no monetary claim is asserted against the Company, the action, if
resolved adversely to the Company, could have a material adverse effect on
Hybrid's business, operating results and financial condition.

EMPLOYEES

As of March 31, 1998, Hybrid had 88 full-time employees. None of Hybrid's
employees is represented by a collective bargaining unit with respect to his or
her employment with Hybrid, nor has Hybrid ever experienced an organized work
stoppage.

PROPERTIES

Hybrid leases approximately 14,900 square feet of office, research and
development and manufacturing space in Cupertino, California. Hybrid also
subleases approximately 10,200 square feet and 9,200 square feet in Cupertino
under sublease agreements. The current leases for the Cupertino facilities
expire between May 1998 and September 1998. Hybrid plans to move out of these
three facilities and consolidate into an single facility which Hybrid subleased
in February 1998. The new subleased facility is for approximately 55,000 square
feet of office, research and development and manufacturing space in San Jose,
California. The sublease expires in April 2004 and Hybrid has an option to
extend the term of the lease through October 2009. Hybrid also leases
approximately 900 square feet of office space in Tinton Falls, New Jersey,
approximately 1,000 square feet of office space in Atlanta, Georgia and
approximately 2,400 square feet of office space in San Francisco, California
under leases expiring in September 1998, March 1999 and March 2002,
respectively. Hybrid believes that its facilities are adequate to meet its needs
for the immediate future and that future growth can be accommodated by leasing
additional or alternative space near its current facilities.

105
<PAGE>
LEGAL PROCEEDINGS

Hybrid initiated a civil action for patent infringement against Com21, Inc.,
and Celestica, Inc. on January 23, 1998 in the U.S. District Court for the
Eastern District of Virginia. In response to Hybrid's action, Com21, Inc.
initiated a declaratory judgment action on January 29, 1998 against Hybrid in
the U.S. District Court for the Northern District of California to obtain a
declaration of invalidity, unenforceability and non-infringement of Hybrid's
patents and the collection of attorneys fees. Separately, Celestica is seeking
to be dismissed from the action. The action in the Eastern District of Virginia
was subsequently transferred to the Northern District of California on February
23, 1998. The litigation is expected to be time consuming and costly, and,
although no monetary claim is asserted against Hybrid, other than attorneys
fees, the litigation, if resolved adversely to Hybrid, could have a material
adverse effect on Hybrid's business, operating results or financial condition.

106
<PAGE>
BUSINESS OF PACIFIC

This Business section and other parts of this Joint Proxy
Statement/Prospectus contain forward-looking statements that involve risks and
uncertainties. Pacific'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, those discussed below and
separately in "PROPOSAL NO. 1: THE MERGER--RISK FACTORS" and "PACIFIC PROPERTIES
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Pacific designs, manufactures and markets radio frequency devices and
systems for providers of wireless communication services. Since its inception in
1984, Pacific has been involved in the development of radio frequency integrated
circuits (RFICS) employing gallium arsenide (GAAS) for use in a variety of
commercial and military applications. In 1991, Pacific began applying its RFIC
design expertise and radio frequency system engineering skills to the
development of system solutions for the broadband wireless video market. Since
1991, Pacific has produced and sold over one million broadband wireless antenna/
downconverters. Additionally, since the introduction of Pacific's CypherPoint
video encoding system in 1996, Pacific has produced and sold over 50 encoding
systems and 100,000 decoders.

Pacific's strategy is to leverage its position in broadband wireless video
communications to address more extensive "wireless last mile" voice, data and
video applications. It has recently begun field trials of an RF Transverter
which, when used in combination with a two-way cable modem, can provide
high-speed wireless Internet access using the RF spectrum.

PRODUCTS, TECHNOLOGY AND SERVICES

PRODUCTS

Broadband wireless and RFIC products comprise Pacific's principal product
lines, with broadband wireless products currently comprising more than 90% of
its revenues.

BROADBAND WIRELESS DOWNCONVERTERS AND ANTENNAS. Downconverters were
Pacific's entry into the broadband wireless market and, when combined with
Pacific's antennas, currently comprise the majority of Pacific's revenues. These
products convert a block of microwave frequencies to a block of cable television
frequencies that television sets can process. They perform this process while
filtering out unwanted frequencies and adding as little noise as possible.
Downconverters differ in the number of channels processed, the amount of
filtering applied to the out-of band frequencies and the amount of signal
amplification.

Pacific has developed integrated antenna/downconverters that are designed to
reduce the number of connections and improve performance and reliability in the
field. Pacific's latest generation of DigiSite downconverters incorporates
Pacific's proprietary Fil-Tenna, which is designed to filter unwanted signals
with minimal in-band loss. In addition, Pacific has introduced a new line of
smaller planar array antennas that are targeted at urban and suburban markets
and designed to offer optimal gain and side lobe performance to reduce multipath
interference.

CYPHERPOINT VIDEO ENCODING SYSTEM. CypherPoint, Pacific's video encoding
and decoding system, was commercially introduced in 1996. The development of
CypherPoint relied heavily on Pacific's RFIC expertise, system level design
experience and hardware and software integration skills, including DES
encryption, digital ASIC design and remote network management. CypherPoint
utilizes proprietary broadband encoding techniques to provide video signal
security and customer addressability. CypherPoint eliminates the need for
broadband wireless operators to rely on a set top converter for each television
set or VCR in order to decode encoded programming. Operators can have signal
security and addressability without the cost and inconvenience of set top
converters.

RFIC PRODUCTS. The communications industry is migrating toward the use of
higher frequencies in response to the need to manipulate large amounts of data
and to provide high data integrity. Their intrinsic

107
<PAGE>
electrical properties make GaAs RFICs a popular choice for applications at 1 GHz
and above. Pacific manufactures a line of low-cost, plastic packaged GaAs RFIC
products for common frequency bands between 800 and 2500 MHz, including power
amplifiers, switches, attenuators, converters and oscillators. Applications
include telephony, remote data collection and wireless point-to-point
communications.

TECHNOLOGY

In the 14 years since its inception, Pacific has developed a broad range of
skills and competencies applicable to the wireless communication market.

GAAS RFIC DESIGN. Gallium arsenide integrated circuits are central to
Pacific's product capability. GaAs RFICs have been engineered for use in
component products such as power amplifiers, final products such as
downconverters and systems such as wireless data. Pacific has proprietary tools
and technologies to design, package and perform complex wafer testing and
qualification of GaAs RFICs at frequencies ranging from DC to beyond 20 GHz.

OTHER PROPRIETARY TECHNOLOGIES. Pacific engineers have designed, developed
and engineered for manufacturing a wide variety of wireless communication
products. These products incorporate multiple proprietary technologies
addressing a number of frequencies and applications. While products such as
broadband wireless downconverters have utilized the 2.5 GHz frequency range,
Pacific's video encoding/decoding system, CypherPoint, typically operates in the
200 to 400 MHz frequency range. CypherPoint also includes extensive, proprietary
embedded and system control software developed by Pacific for this application,
with capabilities including DES encryption and remote network management.
Pacific's antennas, filters and electro-mechanical designs also include numerous
proprietary technical elements.

SERVICES

Pacific provides field installation, support and training services. In some
cases, these services are purchased by customers as part of a system sale, while
in other cases they are provided on a time and materials basis. Pacific employs
six field application engineers who are located throughout North America, with
an average of over seven years direct experience in wireless technical
operations. In addition, Pacific provides training and remote software support
from its facility in Sunnyvale, California. Pacific typically provides a
two-year warranty on its broadband wireless downconverters and decoders.

CUSTOMERS

Pacific's customers include broadband wireless system operators as well as
distributors, installers, resellers and other manufacturers. As of March 31,
1998, Pacific's largest domestic customers included BellSouth Corporation, CS
Wireless Systems, Inc., Heartland Wireless Communications, Wireless Broadcasting
Systems of America, Inc. and Wireless One, Inc. Pacific's largest international
customers included Caribbean Broadcast Corp. (Barbados), Megacable (Mexico), MVS
Multivision (Mexico), TV Filme Inc. (Brazil) and VTR Cablexpress (Chile).

To date, a small number of customers has accounted for a substantial portion
of Pacific's net sales in any given period. Pacific expects that the sale of its
products to a limited number of customers will continue to account for a high
percentage of its net sales in the foreseeable future. Pacific expects that its
largest customers in future periods could be different from its largest
customers in prior periods due to a variety of factors, including customers'
deployment schedules and budget and regulatory considerations. In addition,
Pacific's customers include companies in the early stage of development or in
need of capital to deploy or expand their services. A limited number of
broadband wireless system operators account for a majority of capital equipment
purchases in their respective markets, and Pacific's success will be dependent
upon its ability to establish and maintain relationships with these companies.
Pacific had two customers that accounted for 35.7% and 12.4%, respectively, of
Pacific's net sales in fiscal 1996 and two customers that accounted for 30.4%
and 21.5%, respectively, of net sales in fiscal 1997. In the six months ended

108
<PAGE>
March 31, 1998 two customers accounted for 31.3% and 13.6%, respectively, of
Pacific's net sales. Pacific's international sales accounted for 29.5%, 28.5%
and 36.7% of net sales in 1997, 1996 and 1995, respectively, and 53.2% of net
sales for the six months ended March 31, 1998. See "PROPOSAL NO. 1: THE
MERGER--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED COMPANY--CUSTOMER
CONCENTRATION."

SALES, MARKETING AND DISTRIBUTION

Pacific markets its products through a direct sales force supplemented by
distributors. The majority of Pacific's sales are made by its sales force
directly to broadband wireless operators. Pacific has sales offices and
personnel in Sunnyvale and San Diego, California. Currently Pacific employs five
field salespeople, three internal salespeople and one corporate officer whose
primary responsibility is sales.

Manufacturers' representatives supplement this in-house sales staff in
selected international markets, as well as in the United States for RFIC
products. Pacific also has a nonexclusive worldwide stocking distributorship
with Richardson Electronics, Ltd., for its RFIC products. Hills Industries, Ltd.
is Pacific's exclusive distributor in Australia for broadband wireless products
as well as a manufacturing licensee for selected downconverters and antennas.

The sale of Pacific's products typically involves a significant technical
evaluation and commitment of capital and other resources, with the delays
frequently associated with customers' internal procedures to approve large
capital expenditures and to test and accept new technologies that affect key
operations. For these and other reasons, the sales cycle associated with
Pacific's products is typically lengthy, generally lasting three to nine months,
and is subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, that are beyond Pacific's control.
Because of the lengthy sales cycle and the large size of customers' orders, if
orders forecasted for a specific customer for a particular quarter are not
realized in that quarter, or any significant customer delays payment or fails to
pay, Pacific's operating results for that quarter could be materially adversely
affected.

In addition, Pacific's customers include companies in the early stage of
development or in need of capital to deploy or expand their services.
Accordingly, in order to address the needs and competitive factors facing the
emerging markets serviced by wireless system operators, distributors, installers
and other manufacturers, Pacific on occasion has provided customers extended
payment, promotional pricing or other terms which can have a material adverse
effect on Pacific's business, operating results and financial condition.
Pacific's future success will depend in significant part upon the decision of
Pacific's current and prospective customers to continue to purchase products
from Pacific. There can be no assurance that Pacific's current customers will
continue to place orders with Pacific or that Pacific will be able to obtain
orders from new customers. If orders from current customers are canceled,
decreased or delayed, or Pacific fails to obtain significant orders from new
customers, or any significant customer delays payment or fails to pay, Pacific's
business, operating results and financial condition could be materially
adversely affected.

The timing and volume of customer orders are difficult to forecast because
broadband wireless companies typically require prompt delivery of products and a
substantial majority of Pacific's sales are booked and shipped in the same
quarter. Pacific's backlog was approximately $3.1 million at March 31, 1998.
Because of the possibility of customer changes in delivery schedules or
cancellation of orders, with little or no penalty, Pacific's backlog at any
point in time may not be a good indicator of actual revenues for any future
period and cannot be predicted with any degree of accuracy. Accordingly,
Pacific's expectations for both short- and long-term future net revenues are
based in large part on its own estimate of future demand and not on firm
customer orders. See "PROPOSAL NO. 1: THE MERGER--RISK FACTORS--RISKS RELATING
TO HYBRID, PACIFIC AND THE COMBINED COMPANY--FLUCTUATIONS IN OPERATING RESULTS;
ABSENCE OF SIGNIFICANT BACKLOG; CONTINUING DECLINE OF AVERAGE SELLING PRICES."

109
<PAGE>
MANUFACTURING

Pacific's manufacturing strategy is to perform systems integration, testing
and quality inspection internally while outsourcing the majority of component
production to low-cost, offshore manufacturing partners. Pacific has established
a manufacturing partnership for component assembly with Sun Denki (HK) Ltd. in
the People's Republic of China, where the majority of Pacific's broadband
wireless products are produced. Antennas are produced under a similar
partnership arrangement in Mexico. For GaAs wafer fabrication, Pacific uses
multiple foundries. Currently, TriQuint Semiconductor performs the majority of
wafer fabrication. Pacific also has a manufacturing licensing arrangement with
Hills Industries, Ltd. in Australia for antennas and downconverters.
Manufacturing operations consist primarily of assembling, tuning and testing
electronic assemblies built from semiconductors, fabricated parts, printed
circuit boards and other electronic devices.

Electronic devices, components and raw materials used in Pacific's products
are obtained from a number of suppliers, although certain materials are obtained
from a limited number of sources or, in some cases, a sole source. Some devices
or components are standard items while others are manufactured to Pacific's
specifications by its suppliers. Any significant interruption in the delivery of
such items could have a material adverse effect on Pacific's operations.

RESEARCH AND DEVELOPMENT

The wireless communications market is fiercely competitive and characterized
by rapid technological change, which requires industry participants to make
continuous expenditures of substantial resources for product enhancement and
innovation. Pacific is committed to the creation of new products and the
enhancement of existing products. Pacific is currently focusing its research and
development resources on products designed to interface with high speed cable
modems and allow for two-way, high speed wireless Internet communications. In
addition, development resources are allocated to broaden existing product lines,
reducing product costs and improving performance by product redesign efforts.

During fiscal years 1997, 1996 and 1995, Pacific spent approximately $4.8
million, $5.4 million and $3.2 million, respectively, on product research and
development. These amounts represent approximately 14%, 19% and 13%,
respectively, of net sales in each of those periods.

COMPETITION

The markets in which Pacific participates are highly competitive. Broadband
wireless competitors include California Amplifier, Inc., Conifer Corporation,
Trans-Systems, Inc., and TeleLynx, Inc. RFIC competitors include Celeritek,
Inc., ANADIGICS, Inc., Teledyne, Inc., Philips Semiconductors, RF Micro Devices,
Inc. and Motorola, Inc. In addition, Pacific anticipates increased competition
from new companies entering such markets, some of whom may have financial and
technical resources substantially greater than those of Pacific. Furthermore,
because some of Pacific's products may not be proprietary, they may be
duplicated by low-cost producers, resulting in price and margin pressures.

Pacific believes that competition in its markets is based primarily on
price, performance, reputation and product reliability. Pacific's continued
success in these markets will depend upon its ability to continue to design and
manufacture quality products at competitive prices. See "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--COMPETITION."

INTELLECTUAL PROPERTY

Pacific relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its products. Pacific currently has 23 patents issued in the United
States as well as pending applications in the United States, Mexico, Europe and
Japan that relate to the design features for its RFIC and broadband wireless
products. Any patents that have been or

110
<PAGE>
may be issued might be challenged and any such challenge could result in time
consuming and costly litigation and result in Pacific's patents being held
invalid or unenforceable. Furthermore, even if the patents are upheld or are not
challenged, third parties might be able to develop other technologies or
products without infringing any such patents. See "PROPOSAL NO. 1: THE
MERGER--RISK FACTORS--RISKS RELATING TO HYBRID, PACIFIC AND THE COMBINED
COMPANY--PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS."

Pacific has entered into confidentiality and invention assignment agreements
with its employees and certain of its distributors and customers in order to
limit access to and disclosure of its proprietary information. There can be no
assurance that these contractual arrangements or the other steps taken by
Pacific to protect its intellectual property will prove sufficient to prevent
misappropriation of Pacific's technology or deter independent third-party
development of similar technologies. The laws of certain foreign countries may
not protect Pacific's products or intellectual property rights to the same
extent as do the laws of the United States.

In the past, Pacific has received, and in the future may receive, notices
from third parties claiming that Pacific's products or proprietary rights
infringe the proprietary rights of third parties. Pacific expects that
participants in the wireless communications market will be increasingly subject
to infringement claims as the number of products and competitors in Pacific's
industry segment grows. Any such claim, whether meritorious or not, could be
time consuming, result in costly litigation, cause product shipment delays or
require Pacific to enter into royalty or licensing agreements. Such agreements
may not be available on terms acceptable to Pacific or at all, which could have
a material adverse effect upon Pacific's business, operating results and
financial condition.

EMPLOYEES

As of March 31, 1998, Pacific had 100 full-time employees. Of the total, 38
were engaged in engineering, 13 in marketing and sales, 35 in operations and 14
in finance and administration. None of Pacific's employees is represented by a
labor union. Pacific has experienced no work stoppages and believes its employee
relations are good.

PROPERTIES

Pacific's principal offices are located in approximately 75,000 square feet
of space in Sunnyvale, California. This facility is leased to Pacific through
October 2000.

111
<PAGE>
MANAGEMENT OF THE COMBINED COMPANY

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding persons who are
expected to serve as the executive officers and directors of the combined
company after the consummation of the Merger, which is expected to occur in May
1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Executive Officers
Carl S. Ledbetter.................................. 48 Chief Executive Officer and Chairman of the Board of
Directors
Richard B. Gold.................................... 43 President, Chief Operating Officer and Director
Gustavo (Gus) Ezcurra.............................. 42 Vice President, Sales
William H. Fry..................................... 60 Vice President, Manufacturing
Vishwas R. (Victor) Godbole........................ 51 Vice President, Engineering
Dan E. Steimle..................................... 50 Vice President, Finance and Administration, Chief
Financial Officer and Secretary

Other Directors(1)
James R. Flach..................................... 51 Director
Gary M. Lauder..................................... 35 Director
Matthew D. Miller.................................. 50 Director
</TABLE>

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

(1) Stephen E. Halprin and Douglas M. Leone, current directors of Hybrid are
expected to resign upon the Effective Time of the Merger and to be replaced
by Richard B. Gold and Matthew D. Miller.

CARL S. LEDBETTER. Mr. Ledbetter joined Hybrid in January 1996 as its
President and Chief Executive Officer, and in August 1996, he became Chairman of
the Board. It is expected that, effective upon consummation of the Merger, Mr.
Ledbetter will resign from his position as President of Hybrid, but will remain
as Chief Executive Officer and Chairman of the Board of Directors of Hybrid.
Prior to joining Hybrid, he served in various positions at AT&T from April 1993
to January 1996, most recently as President of Consumer Products. From 1991
until April 1993, Mr. Ledbetter was Vice President of Sun Microsystems and
General Manager of SunSelect, Sun's PC networking business. He is also a
director of Software Spectrum, Inc., a software distributor. Mr. Ledbetter holds
a B.S. in Mathematics from University of Redlands, an M.A. in Mathematics from
Brandeis University and a Ph.D. in Mathematics from Clark University.

RICHARD B. GOLD. It is expected that, effective upon consummation of the
Merger, Mr. Gold will become the President and Chief Operating Officer and a
director of Hybrid. Mr. Gold joined Pacific as Vice President, Engineering in
November 1991 and was promoted to Chief Operating Officer in March of 1994 and
to his current position as President and Chief Executive Officer in January
1997. Mr. Gold holds a B.S. in Engineering Physics from Cornell University, an
M.B.A. from Northeastern University, and an M.S.E.E. and Ph.D.E.E. from Stanford
University.

GUSTAVO (GUS) EZCURRA. Mr Ezcurra joined Hybrid in September 1996 as its
Vice President, Sales. From May 1994 to September 1996, Mr. Ezcurra was Vice
President of Worldwide Sales of the Digital Telephone Systems Division of Harris
Corporation, a broadcast equipment manufacturer. From November 1988 to May 1994,
he was Vice President of Worldwide Sales of the Broadcast Division of Harris
Corporation. Mr. Ezcurra holds a B.S. in Economics from the California
Polytechnic State University, San Luis Obispo.

WILLIAM H. FRY. Mr. Fry joined Hybrid in August 1995 as its interim Chief
Operating Officer and Acting Vice President, Operations, and in May 1996 he
became Vice President, Operations. He is expected to become Vice President,
Manufacturing after the consummation of the Merger. From July 1994 to

112
<PAGE>
July 1995, Mr. Fry was a consultant with Silicon Valley Associates. From 1991 to
June 1994, he served as President and CEO of Ion Systems, a manufacturer of
semiconductor processing equipment. Mr. Fry holds a B.S. in Industrial
Management from LaSalle College.

VISHWAS R. (VICTOR) GODBOLE. Mr. Godbole joined Hybrid in May 1997 as its
Vice President, Engineering. From June 1992 to April 1997, he worked for Sierra
Semiconductor Corporation, a provider of networking and telecommunications
components, as Director, Systems Engineering and most recently as Vice
President, Stretegic Planning and Systems Engineering. Mr. Godbole received a
Bachelor of Technology degree in Electrical Engineering from the Indian
Institute of Technology, Bombay, India and his M.S. in Electrical Engineering
from Oklahoma State University.

DAN E. STEIMLE. Mr. Steimle joined Hybrid in July 1997 as its Vice
President, Finance and Administration, Chief Financial Officer and Secretary.
From January 1994 to June 1997, he served as Vice President and Chief Financial
Officer of Advanced Fibre Communications, Inc., a telecommunications equipment
manufacturer and from July 1997 to September 1997 he served part time as its
Vice President, Business Development. From September 1991 to December 1993, Mr.
Steimle served as Senior Vice President, Operations and Chief Financial Officer
of The Santa Cruz Operation, Inc., an operating system software company. Mr.
Steimle serves as a director of Mitek Systems, Inc., a software development
company. Mr. Steimle holds a B.S. in Accounting from Ohio State University and
an M.B.A. from the University of Cincinnati.

JAMES R. FLACH. Mr. Flach has been a director of Hybrid since May 1995, and
he served as acting Chief Executive Officer of Hybrid from November 1995 to
January 1996. Since September 1992, Mr. Flach has been an executive partner of
Accel Partners, a venture capital firm. Since September 1992, he has also been
the President of Flach & Associates, a Management Services firm, and since March
1997, he has been the Chief Executive Officer of Redback Networks, a network
products company. From May 1990 to August 1992, Mr. Flach was Vice President of
Intel, serving as the General Manager of Intel's Personal Computer Enhancement
Division. He holds a B.S. in Physics from Rensselaer Polytechnic Institute and
an M.S. in Applied Mathematics from The Rochester Institute of Technology.

GARY M. LAUDER. Mr. Lauder has been a director of Hybrid since October 1994.
Since 1986 he has been the General Partner of Lauder Partners, a venture capital
partnership formed by Mr. Lauder that focuses on advanced technologies for the
cable TV marketplace. Since May 1995, Mr. Lauder has been Vice-Chairman of ICTV,
Inc., a developer of interactive cable television technology. Mr. Lauder holds a
B.A. in International Relations from the University of Pennsylvania, a B.S. in
Economics from the Wharton School and an M.B.A. from the Stanford University
Graduate School of Business.

MATTHEW D. MILLER. It is expected that Mr. Miller, effective upon
consummation of the Merger, will become a director of Hybrid. Mr. Miller has
been a Director of Pacific since 1994 and Chairman since January 1997. Since
November 1997, Mr. Miller has served as President and Chief Executive Officer of
Sarnoff Digital Communications, a digital video technology development company.
Mr. Miller currently also serves as President of M-Squared Media and Technology,
an investing and consulting firm he founded in August 1994 focusing on emerging
digital multimedia hardware, software, communications and service markers. Prior
to founding M-Squared, Mr. Miller was Vice President of Technology at General
Instrument Corporation, the world's leading supplier of broadband communications
equipment. Mr. Miller is a director of Lumisys, LogicVision and Faroudja Images.
Mr. Miller holds a B.A. degree in Physics from Harvard University and an M.A.
and Ph.D. in Physics from Princeton University.

Each officer serves at the discretion of the Hybrid Board. Hybrid's
certificate of incorporation and bylaws provide for a classified Hybrid Board.
Accordingly, the terms of the office of the Hybrid Board of Directors have been
divided into three classes. Class I will expire at the annual meeting of the
stockholders to be held in 1998; Class II will expire at the annual meeting of
the stockholders to be held in 1999; and Class III will expire at the annual
meeting of the stockholders to be held in 2000. At each annual meeting of the
stockholders, beginning with the 1998 annual meeting, the successors to the
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual

113
<PAGE>
meeting following election and until their successors were duly elected and
qualified, or until their earlier resignation or removal, if any. To the extent
that there is an increase in the number of directors, additional directorships
resulting therefrom will be distributed among the three classes so that, as
nearly as possible, each class will consist of an equal number of directors.

HYBRID BOARD COMMITTEES

The Hybrid Board has, and the Board of the Combined Company will have the
following committees:

AUDIT COMMITTEE.

The Audit Committee of the Hybrid Board currently consists of Mr. Flach and
Mr. Halprin. The Audit Committee reviews Hybrid's financial statements and
accounting practices, makes recommendations to the Hybrid Board regarding the
selection of independent auditors and reviews the results and scope of the audit
and other services provided by Hybrid's independent auditors.

COMPENSATION COMMITTEE.

The Compensation Committee of the Hybrid Board currently consists of Mr.
Flach and Mr. Leone. The Compensation Committee makes recommendations to the
Hybrid Board concerning salaries and incentive compensation for Hybrid's
officers and employees and administers Hybrid's employee benefit plans.

SELECTED INFORMATION WITH RESPECT TO HYBRID

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid for services rendered to Hybrid in all capacities during the years ended
December 31, 1996 and 1997 by (i) Hybrid's Chief Executive Officer and (ii) the
three other most highly compensated executive officers other than the Chief
Executive Officer who were serving as executive officers of Hybrid at December
31, 1997 (collectively, the "HYBRID NAMED EXECUTIVE OFFICERS").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARD
------------------------------------------------ ----------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION OPTIONS(#)
- ---------------------------------------- ----- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Carl S. Ledbetter....................... 1997 $ 187,500 $ 36,853 $ 77,924(1)(2) 170,000
President and Chief Executive Officer 1996 175,000 -- 61,299(1) 487,919

Gustavo Ezcurra(3)...................... 1997 126,875 97,154(4) 1,129(2) 14,815
Vice President, Sales 1996 17,625 12,835(4) -- 77,876

William H. Fry.......................... 1997 131,250 34,501 2,252(2) --
Vice President, Operations 1996 70,000 -- -- 89,815

Dan E. Steimle(5)....................... 1997 68,750 86,250 -- 111,111
Vice President, Finance and
Administration and Chief Financial
Officer
</TABLE>

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

(1) Includes temporary living expenses paid by Hybrid of $72,000 and $61,299 to
Mr. Ledbetter in 1996 and 1997, respectively.

(2) Includes value of stock bonuses of $5,924, $1,129 and $2,252 for Messrs.
Ledbetter, Ezcurra and Fry, respectively.

114
<PAGE>
(3) Mr. Ezcurra joined Hybrid in September 1996.

(4) Includes commissions of $94,904 in 1997 and $12,835 in 1996.

(5) Mr. Steimle joined Hybrid in July 1997.

The following table sets forth further information regarding option grants
pursuant to Hybrid's Executive Officer Plan and Hybrid's 1996 Equity Incentive
Plan during 1997 to each of the Hybrid Named Executive Officers. In accordance
with the rules of the Securities and Exchange Commission, the table sets forth
the hypothetical gains or "option spreads" that would exist for the options at
the end of their respective five or ten year terms. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10% from the
date the option was granted to the end of the option term.

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
RATES OF STOCK PRICE
APPRECIATION FOR
NUMBER OF PERCENTAGE OF POTENTIAL REALIZABLE
SECURITIES TOTAL OPTIONS VALUE AT ASSUMED ANNUAL
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) 1997 SHARE DATE 5% 10%
- ------------------------------------ ----------- --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Carl S. Ledbetter................... 170,000 19.59 $ 11.04 09/16/02 $ 518,526 $ 1,145,805
Gustavo Ezcurra..................... 14,815 1.71 1.08 01/28/02 4,421 9,768
William H. Fry...................... -- -- -- -- -- --
Dan E. Steimle...................... 111,111 12.81 5.40 07/16/02 165,769 366,306
</TABLE>

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

(1) Options granted pursuant to the Hybrid Executive Officer Plan and Hybrid's
1996 Equity Incentive Plan in 1997 generally have been incentive stock
options or non-qualified stock options that were granted at fair market
value and vest over a four-year period so long as the individual is employed
by Hybrid. Options granted to executive officers generally expire five years
from the date of grant.

(2) The 5% and 10% assumed annual rates of stock price appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
Hybrid's estimate or projection of future Common Stock prices.

The following table sets forth the number of shares acquired upon the
exercise of stock options during 1997 and the number of shares covered by both
exercisable and unexercisable stock options held by each of the Hybrid Named
Executive Officers as of December 31, 1997. Also reported are values of "in-the-
money" options, which represent the positive spread between the respective
exercise prices of outstanding stock options and the fair market value of
Hybrid's Common Stock as of December 31, 1997 ($11.12) as determined by the
Hybrid Board.

AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING EXERCISED IN-THE- MONEY OPTIONS AT
OPTIONS AT YEAR-END YEAR-END
SHARES ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Carl S. Ledbetter.............. -- -- 219,750 438,168 $ 2,324,955 $ 2,850,817
Gustavo Ezcurra................ -- -- 27,730 64,961 278,409 652,208
William H. Fry................. -- -- 40,219 47,744 425,517 505,132
Dan E. Steimle................. -- -- -- 111,111 -- 635,555
</TABLE>

EMPLOYMENT AGREEMENTS

In January 1996, Hybrid entered into a two year employment agreement with
Mr. Ledbetter in which he agreed to serve as Hybrid's Chief Executive Officer
during that period. The agreement provides for Mr. Ledbetter to receive a base
salary of $175,000 per year and to be eligible for up to $75,000 in bonuses

115
<PAGE>
during the first year, based on achieving certain milestones, as well as regular
employee benefits, relocation costs of up to $97,500 and five year options to
purchase up to 353,104 shares of Hybrid's Common Stock at $0.54 per share,
vesting as to 12.5% six months after commencement of employment and 2.0833% per
month for 42 months thereafter. The stock option grant provides for accelerated
vesting in the event of a "Change of Control Transaction" (as defined in the
Executive Officer Plan). Hybrid is prohibited from terminating Mr. Ledbetter's
employment except for "Cause" (as defined in the employment agreement).

Pursuant to a July 1997 employment letter, Mr. Steimle received an option to
purchase 111,111 shares of Hybrid Common Stock, which provides for accelerated
vesting in the event of a "Change of Control Transaction" (as defined in
Hybrid's Executive Officer Plan) and is entitled to severance equal to three (3)
months of his base salary if he is terminated without cause.

In January, 1998, the Hybrid Board approved the 12-month acceleration of
vesting for options held by Mr. Fry if Hybrid hires certain senior management
and Mr. Fry's employment is terminated within 12 months. In addition, Mr. Fry is
entitled to severance equal to three months of his base salary if he is
terminated by Hybrid without cause.

INCENTIVE BASED COMPENSATION PROGRAM

In July 1997, Hybrid adopted a bonus plan for Hybrid's officers and certain
managers with respect to the three quarters ending December 31, 1997. Under the
bonus plan, Hybrid's Compensation Committee has assigned a target bonus for each
participant, expressed as a percentage of the participant's annual salary (10%
to 40% for the 12-month period). The extent to which participants receive their
target bonuses for any quarter depends upon Hybrid's net sales and operating
income for the quarter as well as Hybrid's results in a third category which
varies from participant to participant. Actual bonuses may be greater or less
than the target amount, depending on whether Hybrid's financial results exceed
or fall short of specified goals. Bonus awards under the bonus plan are to be
paid 50% in cash and 50% in stock for the two quarters ended June 30, 1997 and
September 30, 1997 and entirely in cash for the quarter ended December 31, 1997.
For the quarters ended September 30, 1997 and December 31, 1997, Hybrid made no
cash payments and issued no shares pursuant to the bonus plan.

DIRECTOR COMPENSATION

Directors of Hybrid do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending meetings
of the Hybrid Board. In September 1997, the Hybrid Board adopted Hybrid's 1997
Directors Stock Option Plan (the "DIRECTORS PLAN") and reserved a total of
100,000 shares of Hybrid's Common Stock for issuance thereunder. Hybrid's
stockholders approved the Directors Plan in October 1997. Members of the Board
who are not employees of Hybrid, or any parent, subsidiary or affiliate of
Hybrid, are eligible to participate in the Directors Plan. Each eligible
director who first becomes a member of the Hybrid Board on or after Hybrid's
initial public offering in November 1997 will initially be granted an option for
15,000 shares (an "INITIAL GRANT") on the later of the effective date of the
initial public offering or the date such director first becomes a director. At
each annual meeting of stockholders thereafter, each eligible director will
automatically be granted an additional option to purchase 5,000 shares if such
director has served continuously as a member of the Board since the date of such
director's Initial Grant (or since the effective date of the initial public
offering if such director did not receive an Initial Grant). All options issued
under the Directors Plan will vest as to 25% of the shares on each anniversary
of the date of grant, provided the optionee continues as a member of the Board
or as a consultant to Hybrid. The exercise price of all options granted under
the Directors Plan will be the fair market value of the Common Stock on the date
of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee of the Board was an
officer or employee of Hybrid during 1997. No executive officer of Hybrid serves
as a member of the board of directors or

116
<PAGE>
compensation committee of any entity that has one or more executive officers
serving on Hybrid's Board or Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which Hybrid was or is to
be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of Hybrid Common Stock had
or will have a direct or indirect interest other than (i) compensation
arrangements, which are described where required under "Management" and (ii) the
transactions described below.

In April 1997, London Pacific Life & Annuity Company ("LONDON PACIFIC") and
Hybrid entered into a senior secured convertible debenture agreement pursuant to
which London Pacific loaned $5.5 million to Hybrid in exchange for a senior
secured convertible debenture due 2002. In connection with the issuance of the
$5.5 Million Debenture, Hybrid paid a fee of $500,000 to London Pacific
International Limited, a subsidiary of London Pacific. The loan accrues interest
at a rate of 12% per annum, payable quarterly, and its term ends in April 2002,
at which time the full principal amount is due. The loan is secured by
substantially all of Hybrid's assets, and Hybrid is subject to certain
restrictive covenants while the $5.5 Million Debenture is outstanding. In August
1997, the $5.5 Million Debenture was transferred to BG Services Limited, an
affiliate of London Pacific. The $5.5 Million Debenture is convertible into
513,423 shares of Hybrid Common Stock, assuming a conversion price of $10.71 per
share, at the option of BG Services Limited at any time.

In September 1997, Dan Steimle, Hybrid's Vice President, Finance and
Administration and Chief Financial Officer and Sequoia Partnerships loaned
Hybrid $500,000 and $300,000, respectively, under a demand note exchangeable for
subordinated notes. In September 1997, Hybrid entered into an agreement to issue
the subordinated notes at a face value of $6,882,201 and related warrants to
acquire 252,381 shares of Common Stock at a price of $10.91 per share. The
following affiliates of Hybrid participated in the subordinated notes and
related warrant transaction:

<TABLE>
<CAPTION>
NUMBER OF ISSUES OF
SUBORDINATED COMMON STOCK
NAME NOTES SUBJECT TO WARRANTS
- ----------------------------------------------------------- ------------ -------------------
<S> <C> <C>
Sequoia Partnerships....................................... $ 300,000 11,001
Accel Partnerships......................................... 250,000 9,167
OSCCO...................................................... 200,000 7,334
Gary M. Lauder............................................. 100,000 3,667
Dan E. Steimle............................................. 500,000 18,335
</TABLE>

COMPENSATION COMMITTEE REPORT

This Report of the Compensation Committee is required by the Commission and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that Hybrid
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.

117
<PAGE>
To the Hybrid Board:

Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Hybrid Board (the
"COMMITTEE"). The Committee is composed of two independent non-employee
directors, none of whom have any interlocking relationships as defined by the
Commission.

GENERAL COMPENSATION POLICY

The Committee acts on behalf of the Hybrid Board to establish the general
compensation policy of Hybrid for all employees of Hybrid. The Committee
typically reviews base salary levels and target bonuses for the Chief Executive
Officer ("CEO") and other executive officers and employees of Hybrid at or about
the beginning of each year. The Committee administers Hybrid's incentive and
equity plans, including the 1997 Equity Incentive Plan (the "INCENTIVE PLAN").

The Committee's philosophy in compensating executive officers, including the
CEO, is to relate compensation to corporate performance. Consistent with this
philosophy, the incentive component of the compensation of the executive
officers of Hybrid is contingent on gross margin, operating expenses, sales
performance and cash management. Each executive's incentive compensation is
based on the executive's quarterly performance with respect to the two of these
factors most closely. Long-term equity incentives for executive officers are
effected through the granting of stock options under the Incentive Plan (and,
prior to their termination, the 1993 Equity Incentive Plan, the 1996 Equity
Incentive Plan and the Executive Incentive Plan). Stock options generally have
value for the executive only if the price of Hybrid's stock increases above the
fair market value on the grant date and the executive remains in Hybrid's employ
for the period required for the shares to vest.

The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in companies with whom Hybrid competes for
executive talent and by their evaluating such information in connection with
Hybrid's corporate goals. The Committee's goal is to maintain base salary,
target bonuses, and stock option awards in the range of 50% to 75% of those paid
by other companies in the industry.

In preparing the performance graph for this Joint Proxy
Statement/Prospectus, Hybrid used the Hambrecht & Quist Technology Index and the
Nasdaq Stock Market Composite Index. The compensation practices of most of the
companies in these indices were not reviewed by the Company when the Committee
reviewed the compensation information described above because such companies
were determined not to be competitive with Hybrid for executive talent.

1997 EXECUTIVE COMPENSATION

BASE COMPENSATION. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
for each executive officer, including the CEO. Prior to Hybrid's initial public
offering the Committee did not consult market surveys in establishing base
salaries. After Hybrid's initial public offering, using the Radford Executive
Compensation Survey as a guide, the Committee set base salaries for officers in
a range of 50% to 75% of salaries paid by San Francisco Bay Area companies with
sales of less than or equal to $40 million. To that end, the Committee awarded
salary increases to executive officers and other employees in January 1998.

INCENTIVE COMPENSATION. For 1997, Hybrid did not rely on market data as the
basis for determining incentive compensation for the CEO and the other
executives. The target amount of bonus for each executive and the CEO was
established by the Company at the beginning of the fiscal year. The actual
amount of bonus paid was based on Hybrid's achievement of Company-wide specified
financial performance targets. For 1997, executive officers and other employees
received approximately 20% of the annual

118
<PAGE>
target bonus. Bonuses are paid 50% in cash and 50% in stock. For 1998, Hybrid
will review performance and the market data as the basis for determining
incentive compensation.

STOCK OPTIONS. In 1997, stock options were granted to certain executive
officers as incentives for them to become employees or to aid in the retention
of executive officers and to align their interests with those of the
stockholders. Stock options typically have been granted to executive officers
when the executive first joins Hybrid, in connection with a significant change
in responsibilities and, occasionally, to achieve equity within a peer group.
The Committee may, however, grant additional stock options to executives for
other reasons. The number of shares subject to each stock option granted is
within the discretion of the Committee and is based on anticipated future
contribution and ability to impact corporate and/or business unit results, past
performance or consistency within the executive's peer group. In 1998, the
Committee considered these factors, as well as the number of options held by
such executive officers as of the date of grant that remained unvested. In the
discretion of the Committee, executive officers may also be granted stock
options under the Incentive Plan to provide greater incentives to continue their
employment with Hybrid and to strive to increase the value of Hybrid's Common
Stock. The stock options generally become exercisable over a four-year period
and are granted at a price that is equal to the fair market value of Hybrid's
Common Stock on the date of grant. In keeping with this general approach, the
Committee made option grants to Dan E. Steimle, Vice President of Finance, and
Carl S. Ledbetter, President and Chief Executive Officer of the Company.

COMPANY PERFORMANCE AND EXECUTIVE COMPENSATION. Based upon the criteria set
forth above, Mr. Ledbetter received an incentive bonus of $11,853 in 1997 as
well as a special bonus of $25,000, pursuant to the terms of his employment, for
accomplishing a specific task. Mr. Ledbetter's incentive bonus represents
approximately 20% of his annual target bonus established by the Committee prior
to the beginning of the fiscal year.

COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE OF 1986. Hybrid
intends to comply with the requirements of Section 162(m) of the Code. The
Incentive Plan is already in compliance with Section 162(m) by limiting stock
awards to named executive officers. Hybrid does not expect cash compensation for
1998 to be in excess of $1,000,000 or consequently affected by the requirements
of Section 162(m).

COMPENSATION COMMITTEE

James R. Flach
Douglas Leone

119
<PAGE>
HYBRID STOCK PRICE PERFORMANCE

The stock price performance graph below is required by the SEC and shall not
be deemed to be incorporated by reference by any general statement incorporating
by reference this Joint Proxy Statement/ Prospectus into any filing under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that Hybrid specifically incorporates
this information by reference, and shall not otherwise be deemed soliciting
material or filed under such Acts.

The graph below compares the cumulative total stockholder return on the
Common Stock of Hybrid from the first day of trading of Hybrid's Common Stock
upon Hybrid's initial public offering (November 12, 1997) to December 31, 1997
with the cumulative total return on the Nasdaq Stock Market and the Hambrecht &
Quist Technology Index (assuming the investment of $100 in Hybrid's Common Stock
and in each of the indexes on the date of Hybrid's initial public offering, and
reinvestment of all dividends).

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
HYBRID NASDAQ HAMBRECHT
NETWORKS COMPOSITE & QUIST
INDEX TECHNOLOGY INDEX
<S> <C> <C> <C>
11/12/97 $100.00 $100.00 $100.00
12/31/97 $69.80 $101.90 $96.60
</TABLE>

The above graph was plotted using the following data:

<TABLE>
<CAPTION>
NASDAQ STOCK MARKET HAMBRECHT & QUIST
HYBRID NETWORKS, INC. COMPOSITE INDEX TECHNOLOGY INDEX
------------------------- ----------------------- -----------------------
INVESTMENT INVESTMENT INVESTMENT
MARKET PRICE VALUE INDEX VALUE INDEX VALUE
------------ ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
11/12/97............................ $ 15.938 $ 100.00 1,541.720 $ 100.00 1,202.510 $ 100.00
12/31/97............................ 11.125 69.80 1,570.350 101.90 1,161.790 96.60
</TABLE>

120
<PAGE>
SELECTED INFORMATION WITH RESPECT TO PACIFIC

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of Pacific as of April 30, 1998 who will be serving as
executive officers and directors of Hybrid, upon the closing of the Merger.

RICHARD B. GOLD joined Pacific as Vice President, Engineering in November
1991 and was promoted to Chief Operating Officer in March of 1994 and to his
current position as President and Chief Executive Officer in January 1997. Mr.
Gold holds a B.S. in Engineering Physics from Cornell University, an M.B.A. from
Northeastern University, and an M.S.E.E. and Ph.D.E.E. from Stanford University.

MATTHEW D. MILLER has been a Director of Pacific since 1994 and Chairman
since January 1997. Since November 1997, Mr. Miller has served as President and
Chief Executive Officer of Sarnoff Digital Communications, a digital video
technology development company. Mr. Miller currently also serves as President of
M-Squared Media and Technology, an investing and consulting firm he founded in
August 1994 focusing on emerging digital multimedia hardware, software,
communications and service markers. Prior to founding M-Squared, Mr. Miller was
Vice President of Technology at General Instrument Corporation, the world's
leading supplier of broadband communications equipment. Mr. Miller is a director
of Lumisys, LogicVision and Faroudja Images. Mr. Miller holds a B.A. degree in
Physics from Harvard University and an M.A. and Ph.D. in Physics from Princeton
University.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for Pacific's officers and
employees and administers Pacific's 1986 Stock Option Plan and 1996 Equity Plan.
See "SELECTED INFORMATION WITH RESPECT TO PACIFIC--COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" below. The Audit Committee reviews the
results and scope of the audit and other accounting related services and reviews
and evaluates Pacific's internal audit and control functions. The Audit
Committee currently consists of Alan S. Dishlip.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Pacific's Compensation Committee was formed to review and approve the
compensation and benefits for Pacific's executive officers, administer Pacific's
stock option plans and make recommendations to the Board of Directors regarding
such matters. The Compensation Committee of the currently consists of Messrs.
Dishlip and Miller, neither of whom is an officer or employee of Pacific. No
member of the Compensation Committee or executive officer of Pacific has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.

DIRECTOR COMPENSATION

No directors of Pacific receive cash remuneration for serving on the Board
of Directors. Directors are entitled to participate in Pacific's 1986 Incentive
Stock Option Plan and 1996 Equity Plan. See "SELECTED INFORMATION WITH RESPECT
TO PACIFIC--STOCK PLANS--1986 INCENTIVE STOCK OPTION PLAN" and "--1996 EQUITY
PLAN" below.

121
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Pacific in all capacities during the fiscal
year ended September 30, 1997 to Pacific's Chief Executive Officer in the 1997
fiscal year (the "PACIFIC NAMED EXECUTIVE OFFICER").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------- COMPENSATION AWARD
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (#)
- ------------------------------------------------------------- ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Richard B. Gold ............................................. 1997 $ 148,159 $ 10,800 140,000(2)
President and Chief Executive Officer
</TABLE>

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

(1) Excludes certain perquisites and other personal benefits, such as life
insurance premiums paid by Pacific. These amounts reflect salary and bonus
paid for the full fiscal year 1997. These amounts, in the aggregate, did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus for
the Pacific Named Executive Officer.

(2) Shares granted January 21, 1997 under Pacific's 1996 Equity Incentive Plan.
The shares are immediately exercisable. The shares vested 25% on January 21,
1998 and vest an additional 2.083% each full calendar month thereafter. On
February 21, 1997 Mr. Gold exercised his option for 140,000 shares.

OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR

The following tables set forth information regarding stock options granted
to and exercised by the Pacific Named Executive Officer during the last fiscal
year, as well as options held by such officer as of September 30, 1997, the last
day of Pacific's 1997 fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME UNDERLYING OPTIONS EMPLOYEES IN 1997 PER SHARE DATE
- ---------------------------------------------- ------------------ --------------------- --------------- -------------
<S> <C> <C> <C> <C>
Richard B. Gold............................... 140,000(1) 15.2% $ 0.25 N/A
</TABLE>

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

(1) The option listed in the table was granted pursuant to Pacific's 1996 Equity
Incentive Plan, is immediately exercisable and is subject to the terms of
such plan as described herein. The shares purchasable thereunder are subject
to repurchase by Pacific at the original exercise price paid per share upon
the optionee's cessation of service prior to the vesting in such shares. The
repurchase right lapses and the optionee vests as to 25% of the option
shares on January 21, 1998 and the balance in a series of equal monthly
installments over the next 48 months of service thereafter.

122
<PAGE>
AGGREGATE UNEXERCISED OPTIONS IN 1997

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard B. Gold................ 140,000(2) -- 495,312 39,688 $ 96,875 $ 7,125
</TABLE>

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

(1) Market value at underlying securities price as determined by the Board of
Directors as of September 1997 of $0.25 minus exercise price.

(2) All shares subject to repurchase rights in favor of Pacific. The shares
vested 25% on January 21, 1998 and an additional 2.083% vest each calendar
month thereafter.

STOCK PLANS

1986 INCENTIVE STOCK OPTION PLAN

Pacific's 1986 Incentive Stock Option Plan (the "1986 PLAN") provides for
the granting to employees of incentive stock options within the meaning of
Section 422 of the Code and for the granting to employees and consultants of
nonstatutory stock options. The 1986 Plan was approved by the Board of Directors
in October 1986 and by the shareholders in November 1986. The 1986 Plan
terminated in October 1996, and no further option grants will be made
thereunder. A total of 3,500,000 shares of Common Stock were reserved for
issuance under the 1986 Plan, and a total of 3,017,140 shares of Common Stock
were actually issued thereunder.

The 1986 Plan may be administered by the Board of Directors or a committee
of the Board (the "COMMITTEE"). The Committee has the power to determine the
terms of the options granted, including the exercise price, the number of shares
subject to each option, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, the Committee has the
authority to amend, suspend or terminate the 1986 Plan, provided that no such
action may affect any share of Common Stock previously issued and sold or any
option previously granted under the 1986 Plan.

Options granted under the 1986 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1986 Plan must generally be
exercised within three months of the end of optionee's status as an employee of
Pacific, or within six months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's term. The
exercise price of all incentive stock options granted under the 1986 Plan must
be at least equal to the fair market value of the Common Stock on the date of
grant. The exercise price of nonstatutory stock options granted under the 1986
Plan must be at least equal to 85% of the fair market value of the Common Stock
on the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of Pacific's outstanding
capital stock, the exercise price of an option granted under the 1986 Plan must
equal at least 110% of the fair market value on the date of grant. The term of
options granted under the 1986 Plan generally may not exceed ten years; provided
that the term of an incentive stock option granted to a participant who owns
more than 10% of the voting power of all classes of Pacific's outstanding
capital stock may not exceed five years.

The 1986 Plan provides that in the event of a merger of Pacific with or into
another corporation, a sale of substantially all of Pacific's assets or a like
transaction involving Pacific as a result of which Pacific is not the surviving
corporation or as a result of which the outstanding shares of Pacific are
exchanged for or converted into cash, property or securities not of Pacific,
each outstanding option shall be assumed by the successor corporation or, if not
assumed, shall terminate as of a date fixed by the Committee.

123
<PAGE>
1996 EQUITY INCENTIVE PLAN

Pacific's 1996 Equity Incentive Plan (the "1996 PLAN") provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Code, and for the granting to employees, officers, directors and
consultants of nonstatutory stock options, rights to purchase Common Stock
("PURCHASE RIGHTS") and stock bonuses. The 1996 Plan was approved by the Board
of Directors in March 1996 and by the shareholders in April 1996. Unless
terminated sooner, the 1996 Plan will terminate automatically in March 2006. A
total of 3,000,000 shares of Common Stock were reserved for issuance pursuant to
the 1996 Plan. As of March 19, 1998, 1,935,500 shares of Common Stock are
subject to outstanding awards under the 1996 Plan and 460,000 shares of Common
Stock were issued pursuant to awards thereunder.

The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "COMMITTEE"). The Committee has the power to determine the
terms of the awards granted, including the exercise price, the number of shares
subject to each award, the exercisability thereof, and the form of consideration
payable upon such exercise. In addition, the Committee has the authority to
amend, suspend or terminate the 1996 Plan, provided that no such action may
affect any share of Common Stock previously issued and sold or any award
previously granted under the 1996 Plan.

Awards granted under the 1996 Plan are not generally transferable by the
optionee, and each award is exercisable during the lifetime of the optionee only
by such optionee. Options granted under the 1996 Plan must generally be
exercised within three months of the end of optionee's status as an employee or
consultant of Pacific, or within twelve months after such optionee's termination
by death or disability, but in no event later than the expiration of the
option's term. In the case of Purchase Rights and stock bonuses, the Restricted
Stock Purchase Agreement or Stock Bonus Agreement shall impose such restrictions
on the shares of Common Stock acquired pursuant thereto as the Committee shall
determine. The exercise price of all incentive stock options granted under the
1996 Plan must be at least equal to the fair market value of the Common Stock on
the date of grant. The exercise price of nonstatutory stock options granted
under the 1996 Plan must be at least equal to 85% of the fair market value on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of Pacific's outstanding
capital stock, the exercise price of an option granted under the 1996 Plan must
equal at least 110% of the fair market value on the date of grant. The term of
options granted under the 1996 Plan generally may not exceed ten years; provided
that the term of an incentive stock option granted to a participant who owns
more than 10% of the voting power of all classes of Pacific's outstanding stock
may not exceed five years. The exercise price of Purchase Rights granted under
the 1996 Plan must equal at least 85% of the fair market value on the date of
grant. With respect to any participant who owns stock possessing more than 10%
of the voting power of all classes of Pacific's outstanding capital stock, the
exercise price of Purchase Rights must be at least equal to the fair market
value of the common stock on the date of grant.

The 1996 Plan provides that in the event of a merger of Pacific with or into
another corporation, a dissolution or liquidation of Pacific, a sale of
substantially all of Pacific's assets or a like transaction involving Pacific,
each option shall be assumed or an equivalent option substituted by the
successor corporation. If the outstanding awards are not assumed or substituted
for as described in the preceding sentence, they will terminate upon the
expiration of such period thereafter as the Committee determines.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Pacific's Amended and Restated Articles of Incorporation limit the liability
of Pacific's directors for monetary damages to the maximum extent permitted by
California law. Such limitation of liability has no effect on the availability
of equitable remedies, such as injunctive relief or recision.

Pacific's By-laws provide that Pacific shall indemnify its officers and
directors, it may indemnify its employees and other agents to the fullest extent
provided by California law. Pacific has entered into

124
<PAGE>
indemnification agreements with each of its current officers and directors that
provide for indemnification of, and advancement of expenses to, such person to
the maximum extent provided by California law.

At the present time, there is no pending litigation or proceeding involving
any director or officer, employee, or agent of Pacific where indemnification
will be required or permitted. Pacific is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.

CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS

Pacific has granted options to certain of its executive officers. SEE
"--OPTION GRANTS IN LAST FISCAL YEAR" above and "SECURITY OWNERSHIP OF PACIFIC."

Pacific has entered into indemnification agreements with each of its
officers and directors. SEE "--LIMITATION OF LIABILITY AND INDEMNIFICATION
MATTERS" ABOVE.

Pacific has, in past and currently does, retain the services of M-Squared
Media and Technology, an investment and consulting firm, which Mr. Matthew D.
Miller, the Chairman of the Board of Pacific, serves as President. In fiscal
year 1997, Pacific paid consulting fees totaling $40,000 to the consulting firm
and in fiscal 1998 Pacific is paying it $5,000 per month for consulting
services. Such agreement is on a month to month basis.

In June 1996 and September , 1997, Pacific entered into bridge loan
agreements with, and issued promissory notes and warrants to purchase Pacific
Common Stock to, certain 5% or greater shareholders of Pacific including Accel
IV L.P., Accel Investors '94 L.P., Accel Keiretsu L.P., Ellmore C. Patterson
Partners, Prosper Partners, Institutional Venture Partners III, Institutional
Venture Management III, Jafco, Oak Investment Partners III and certain of their
affiliates (collectively, the "INVESTORS"), whereby the Investors loaned an
aggregate amount of $1.0 million and $750,000, respectively, to Pacific and were
issued an aggregate of 450,000 warrants by Pacific. In connection with the
Merger, the promissory notes are expected to be repaid in full, together with
accrued interest. See "PROPOSAL NO. 1: THE MERGER--APPROVAL OF THE
MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER."

Pacific believes that all of the transactions set forth above were made on
terms no less favorable to Pacific than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
Pacific and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested directors, and will continue to be on terms
no less favorable to Pacific than could be obtained from unaffiliated third
parties.

125
<PAGE>
SECURITY OWNERSHIP OF THE COMBINED COMPANY

The following table sets forth certain information with respect to
beneficial ownership of Hybrid's Common Stock after giving effect to the Merger,
as of April 30, 1998 by (i) each Hybrid stockholder and Pacific Shareholder
expected to be the beneficial owner of more than 5% of Hybrid's Common Stock,
(ii) each person expected to be a director of the Combined Company, (iii) each
of the Hybrid Named Executive Officers and Pacific Named Executive Officers and
(iv) all persons expected to be executive officers and directors as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER OWNED(1)(2) BENEFICIALLY OWNED(1)(2)
- --------------------------------------------- ---------------------- -------------------------
<S> <C> <C>
Intel Corporation (3)........................ 1,207,020 10.0%
James R. Flach
Accel Partners (4)......................... 1,107,152 9.0
Strachman Family Revocable Trust (5)......... 916,710 7.6
Douglas M. Leone
Sequoia Capital (6)........................ 870,691 7.1
Eduardo J. Moura (7)......................... 687,532 5.7
Carl S. Ledbetter (8)........................ 313,711 2.6
Gary M. Lauder (9)........................... 294,570 2.4
Richard B. Gold (10)......................... 73,367 *
William H. Fry (11).......................... 56,260 *
Dan E. Steimle (12).......................... 48,795 *
Gustavo Ezcurra (13)......................... 39,531 *
Matthew D. Miller (14)....................... 38,418 *
Stephen E. Halprin (15)...................... 1,543 *
All executive officers and directors as a
group (11 persons) (16).................... 2,882,086 21.7%
---------- -----
</TABLE>

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

* Represents less than 1% of the outstanding Hybrid Common Stock expected to
be outstanding after consummation of the Merger.

(1) Reflects beneficial ownership as of April 30, 1998 and is based on the
Assumed Exchange Ratio of 0.0894714 shares of Hybrid Common Stock for each
outstanding share of Pacific Common Stock and Pacific Preferred Stock,
resulting in an aggregate of approximately 12,023,518 shares of Hybrid
Common Stock after the Merger.

(2) Based upon information supplied by Hybrid and Pacific officers, directors
and principal shareholders. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission that deem shares to
be beneficially owned by any person who has or shares voting power or
investment power with respect to such shares. Unless otherwise power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of Hybrid Common Stock that will be issuable to the
identified person or entity pursuant to stock options and warrants that are
either immediately exercisable or exercisable within sixty days of April 30,
1998 are deemed to be outstanding and to be beneficially owned by the person
holding such options or warrants for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.

(3) Intel's address is 2200 Mission College Boulevard, Santa Clara, CA 95052.

(4) Represents ownership by the following entities associated with Accel
Partners some of which owned shares of Hybrid and some of which owned shares
of Pacific before the Merger: 729,078 shares and 275,264 shares subject to
warrants held by Accel IV, L.P., 25,594 shares and 11,769 shares subject to
warrants held by Accel Investors '95 L.P., 17,511 shares and 6,613 shares
subject to warrants held by

126
<PAGE>
Ellmore C. Patterson Partners, 15,123 shares and 5,712 shares subject to
warrants held by Accel Keiretsu L.P., 7,432 shares and 990 shares subject to
warrants held by Accel Investors, '94 L.P and 1,204 shares and 161 shares
subject to warrants held by Prosper Partners. Also includes 10,701 shares
subject to options exercisable within 60 days of April 30, 1998 held by Mr.
Flach granted in connection with services performed by Mr. Flach for Hybrid.
Mr. Flach, a director of Hybrid, is an executive partner of Accel Partners
and holds no voting or dispositive power with respect to any of these
shares. The address of Mr. Flach and the Accel partnerships is 428
University Ave., Palo Alto, CA 94301.

(5) Mr. Strachman, a trustee of the Strachman Family Revocable Trust, was a
co-founder of Hybrid and served as its President and Chief Executive Officer
from June 1990 until his resignation in July 1995. Mr. Strachman resigned as
a director of Hybrid in February 1998. Mr. Strachman's address is c/o
Ultracom Communications, Inc., 21580 Stevens Creek Blvd., Cupertino, CA
95014.

(6) Represents 541,621 shares and 250,703 shares subject to warrants held by
Sequoia Capital VI, 29,761 shares and 13,776 shares subject to warrants held
by Sequoia Technology Partners VI, ("STP VI"), 16,932 shares and 440 shares
subject to warrants held by Sequoia XXIV and 6,877 shares and 10,581 shares
subject to warrants held by Sequoia 1995. Mr. Leone, a director of Hybrid,
is a general partner of STP VI and of the general partner of Sequoia Capital
VI. The address of Mr. Leone and the Sequoia funds is 3000 Sand Hill Road,
Menlo Park, CA 94025. Mr. Leone is expected to resign from the Board of
Hybrid immediately after the Merger.

(7) Mr. Moura was a co-founder of Hybrid and served as its Vice President,
Network Systems from June 1990 until his resignation in November 1996 and as
a director until his resignation in January 1996. Mr. Moura's address is
3509 Mt. Davidson Court, San Jose, CA 95124.

(8) Includes 312,614 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Ledbetter is expected to remain as the Chief Executive
Officer and Chairman of the Board of Directors of Hybrid after the Merger.

(9) Includes 83,018 shares subject to warrants and 18,519 shares subject to
options exercisable within 60 days of April 30, 1998. Mr. Lauder is a
director of Hybrid.

(10) Includes 47,420 shares subject to options exercisable within 60 days of
April 30, 1998 to be assumed by Hybrid. Mr. Gold is expected to be appointed
President and Chief Operating Officer and a director of Hybrid after the
Merger.

(11) Includes 51,215 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Fry is Vice President, Operations of Hybrid.

(12) Represents 25,460 shares subject to options exercisable within 60 days of
April 30, 1998 and 18,335 shares subject to currently exercisable warrants,
half of which were issued to Mr. Steimle's spouse. Mr. Steimle is Vice
President, Finance and Administration and Chief Financial Officer of Hybrid.

(13) Includes 39,316 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Ezcurra is Vice President, Sales of Hybrid.

(14) Includes 16,050 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Miller is expected to be appointed a director of Hybrid
after the Merger.

(15) Represents shares subject to options exercisable within 60 days of April
30, 1998. Does not include 429,852 shares of Common Stock and 66,553 shares
subject to warrants held by OSCCO III, L.P., an entity which Mr. Halprin is
affiliated with. Mr. Halprin is a director of Hybrid, but is expected to
resign immediately after the Merger.

(16) Includes 677,364 shares subject to warrants and 559,950 shares subject to
options exercisable within 60 days of April 30, 1998 held by executive
officers and directors of Hybrid.

127
<PAGE>
The following table sets forth certain information known to Hybrid with
respect to beneficial ownership of Hybrid's Common Stock as of April 30, 1998 by
(i) each stockholder known by Hybrid to be the beneficial owner of more than 5%
of Hybrid's Common Stock, (ii) each director of Hybrid, (iii) each of the Hybrid
Named Executive Officers and (iv) all executive officers and directors as a
group.

SECURITY OWNERSHIP OF HYBRID

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER OWNED(1) BENEFICIALLY OWNED
- ----------------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Intel Corporation (2).................................................. 1,207,020 11.6%
Strachman Family Revocable Trust (3)................................... 916,710 8.8
James R. Flach
Accel Partners (4)................................................... 879,562 8.2
Douglas M. Leone
Sequoia Capital (5).................................................. 870,691 8.2
Eduardo J. Moura (6)................................................... 687,532 6.6
Carl S. Ledbetter (7).................................................. 313,711 2.9
Gary M. Lauder (8)..................................................... 294,570 2.8
William H. Fry (9)..................................................... 56,260 *
Dan E. Steimle (10).................................................... 48,795 *
Gustavo Ezcurra (11)................................................... 39,531 *
Stephen E. Halprin (12)................................................ 1,543 *
All executive officers and directors as a group (9 persons) (13)....... 2,542,712 22.0
</TABLE>

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

* Represents less than 1% of Hybrid's Common Stock.

(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Hybrid's Common Stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of April 30, 1998, are
deemed to be outstanding and to be beneficially owned by the person holding
such options warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.

(2) Intel's address is 2200 Mission College Boulevard, Santa Clara, CA 95052.

(3) Mr. Strachman, a trustee of the Strachman Family Revocable Trust, was a
co-founder of Hybrid and served as its President and Chief Executive Officer
from June 1990 until his resignation in July 1995. Mr. Strachman resigned as
a director of Hybrid in February 1998. Mr. Strachman's address is c/o
Ultracom Communications, Inc., 21580 Stevens Creek Blvd., Cupertino, CA
95014.

(4) Represents ownership by the following entities associated with Accel
Partners: 545,193 shares and 250,677 shares subject to warrants held by
Accel IV, L.P., 25,594 shares and 11,769 shares subject to warrants held by
Accel Investors '95 L.P., 13,095 shares and 6,022 shares subject to warrants
held by Ellmore C. Patterson Partners, 11,309 shares and 5,202 shares
subject to warrants held by Accel Keiretsu L.P. Also includes 10,701 shares
subject to options exercisable within 60 days of April 30, 1998 held by Mr.
Flach granted in connection with services performed by Mr. Flach for Hybrid.
Mr. Flach, a director of Hybrid, is an executive partner of Accel Partners
and holds no voting or dispositive power with respect to any of these
shares. The address of Mr. Flach and the Accel partnerships is 428
University Ave., Palo Alto, CA 94301.

(5) Represents 541,621 shares and 250,703 shares subject to warrants held by
Sequoia Capital VI, 29,761 shares and 13,776 shares subject to warrants held
by STP VI, 16,932 shares and 440 shares subject to

128
<PAGE>
warrants held by Sequoia XXIV and 6,877 shares and 10,581 shares subject to
warrants held by Sequoia 1995. Mr. Leone, a director of Hybrid, is a general
partner of STP VI and of the general partner of Sequoia Capital VI. The
address of Mr. Leone and the Sequoia funds is 3000 Sand Hill Road, Menlo
Park, CA 94025.

(6) Mr. Moura was a co-founder of Hybrid and served as its Vice President,
Network Systems from June 1990 until his resignation in November 1996 and as
a director until his resignation in January 1996. Mr. Moura's address is
3509 Mt. Davidson Court, San Jose, CA 95124.

(7) Includes 312,614 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Ledbetter is the President, Chief Executive Officer and
Chairman of the Board of Directors of Hybrid.

(8) Includes 83,018 shares subject to warrants and 18,519 shares subject to
options exercisable within 60 days of April 30, 1998. Mr. Lauder is a
director of Hybrid.

(9) Includes 51,215 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Fry is Vice President, Operations of Hybrid.

(10) Represents 25,460 shares subject to options exercisable within 60 days of
April 30, 1998 and 18,335 shares subject to currently exercisable warrants,
half of which were issued to Mr. Steimle's spouse. Mr. Steimle is Vice
President, Finance and Administration and Chief Financial Officer of Hybrid.

(11) Includes 39,316 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Ezcurra is Vice President, Sales of Hybrid.

(12) Represents shares subject to options exercisable within 60 days of April
30, 1998. Does not include 429,852 shares and 66,553 shares subject to
warrants held by OSCCO III, L.P., an entity which Mr. Halprin is affiliated
with. Mr. Halprin is a director of Hybrid.

(13) Includes 650,523 shares subject to warrants and 496,480 shares subject to
options exercisable within 60 days of April 30, 1998 held by executive
officers and directors of Hybrid.

129
<PAGE>
SECURITY OWNERSHIP OF PACIFIC

The following table sets forth certain information with respect to the
beneficial ownership of Pacific Capital Stock as of April 30, 1998, by (i) each
person (or group of affiliated persons) who is known by Pacific to own
beneficially 5% or more of Pacific Common Stock, (ii) each of Pacific's
directors, (iii) each of the Pacific Named Executive Officers, and (iv) all
directors and officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of Pacific Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PREFERRED PERCENTAGE OF PERCENTAGE OF
SHARES STOCK COMMON STOCK CAPITAL STOCK
5% BENEFICIAL OWNERS, DIRECTORS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
AND NAMED EXECUTIVE OFFICERS OWNED(1) OWNED(1) OWNED(1) OWNED(1)
- -------------------------------------------------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Oak Investment Partners III(2) 3,050,813 21.4% 7.0% 16.6%
Institutional Venture Partners III(3)................... 2,925,353 21.4 4.9 16.0
Accel Partners(4)....................................... 2,506,102 18.2 4.4 13.7
Shaw Venture Partners IV, L.P. (5)...................... 1,440,092 11.7 -- 8.0
U.S. Information Technology Investment
Enterprise Partnership(6)............................. 1,366,595 10.4 1.6 7.5
Vanguard Associates II(7)............................... 1,194,728 9.1 1.4 6.6

OFFICERS
Allen F. Podell(8)...................................... 1,117,200 -- 19.6 6.2
Richard B. Gold(9)...................................... 820,000 -- 13.1 4.4

DIRECTORS
Reid W. Dennis(3)....................................... 2,925,353 21.4 4.9 16.0
Christopher J. Weseloh(10).............................. 1,424,065 -- 25.0 7.9
Matthew D. Miller....................................... 250,000 -- 4.4 1.4
Alan S. Dishlip(11)..................................... 109,450 -- 1.9 *
James F. Gibbons........................................ 100,000 -- 1.8 *
All Directors and Executive Officers as a
group(12 persons)(12)................................. 7,327,056 21.4% 67.4% 38.0%
</TABLE>

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

* Less than 1%

(1) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of April 30, 1998 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such shareholder's name.

(2) Represents 125,123 shares of Pacific Common Stock, 2,632,965 shares of
Pacific Preferred Stock and warrants exercisable within 60 days of April
30, 1998 to purchase 292,725 Pacific Common Stock shares. The address for
Oak Investment Partners is 525 University Avenue, Suite 1300, Palo Alto,
California 94301.

(3) Represents ownership by the following entities affiliated with
Institutional Venture Partners; 2,593,469 shares of Pacific Preferred Stock
and warrants exercisable within 60 days of April 30, 1998 to purchase
288,000 shares of Pacific Common Stock held by Institutional Venture
Partners III; and 39,496 shares of Pacific Preferred Stock and warrants
exercisable within 60 days of April 30, 1998 to purchase 4,388

130
<PAGE>
shares of Pacific Common Stock held by Institutional Venture Management
III. Mr. Reid W. Dennis, a director of Pacific is a General Partner of
Institutional Venture Management. Mr. Dennis disclaims beneficial ownership
of the shares held by the above listed entities. The address for
Institutional Ventures Partners is 3000 Sand Hill Road, Building 2, Suite
290, Menlo Park, California 94025.

(4) Represents ownership by the following entities affiliated with Accel
Partners; 2,055,242 shares of Pacific Preferred Stock and warrants
exercisable within 60 days of April 30, 1998 to purchase 240,338 shares of
Pacific Common Stock held by Accel IV, L.P.; 83,018 shres of Pacific
Preferred Stock and warrants exercisable within 60 days of April 30, 1998
to purchase 9,600 shares of Pacific Common Stock held by Accel Investors
94, L.P.; 42,630 shares of Pacific Preferred Stock and warrants exercisable
within 60 days of April 30, 1998 to purchase 4,875 shares of Pacific Common
Stock held by Accel Keiretsu L.P.; 49,362 shares of Pacific Preferred Stock
and warrants exercisable within 60 days of April 30, 1998 to purchase 6,000
shares of Pacific Common Stock held by Elmore C. Patterson Partrners; and
13,462 shares of Pacific Preferred Stock and warrants exercisable within 60
days of April 30, 1998 to purchase 1,575 shares of Pacific Common Stock
held by Prosper Partners. The address for Accel Partners is 428 University
Avenue, Palo Alto, California 94301.

(5) Represents 1,440,092 shares of Pacific Preferred Stock. The address for
Shaw Venture Partners IV, L.P. is 400 Southwest 6th Avenue, Suite 1100,
Portland, Oregon 97204.

(6) Represents ownership by the following entities affiliated with U.S.
Information Technology Investment Enterprise Partnership: 1,021,276 shares
of Pacific Preferred Stock and warrants exercisable within 60 days of April
30, 1998 to purchase 72,000 shares of Pacific Common Stock held by U.S.
Information Technology Investment Enterprise Partnership; 204,255 shares of
Pacific Preferred Stock and warrants exercisable within 60 days of April
30, 1998 to purchase 14,400 shares of Pacific Common Stock held by JAFCO G5
Partnership; and 51,064 shares of Pacific Preferred Stock and warrants
exercisable within 60 days of April 30, 1998 to purchase 3,600 shares of
Pacific Common Stock held by Japan Associated Finance Co. Ltd. The address
for U.S. Information Technology Investment Enterprise Partnership is 505
Hamilton Avenue, Suite 310, Palo Alto, California 94301.

(7) Represents 77,982 shares of Pacific Common Stock and 1,116,746 shares of
Pacific Preferred Stock. The address for Vanguard Associates II is 325
Distal Circle, Suite 100, Los Altos, California 94022.

(8) Mr. Podell is Chief Technical Officer and a director of Pacific.
Correspondence should be sent c/o Pacific Monolithics, Inc., 1308 Moffett
Park Drive, Sunnyvale, California 94089.

(9) Includes 530,000 shares subject to options exercisable within 60 days of
April 30, 1998, and 140,000 shares that were purchased pursuant to a
Restricted Stock Purchase Agreement of which 49,583 shares will be vested
within 60 days of April 30, 1998. Mr. Gold is President, Chief Executive
Officer and a director of Pacific.

(10) Correspondence should be sent c/o Pacific Monolithics, Inc., 1308 Moffett
Park Drive, Sunnyvale, California 94089.

(11) Includes 58,323 shares subject to options exercisable within 60 days of
April 30, 1998. Mr. Dishlip is a General Partner of Utah Venture Partners.

(12) Includes 1,247,999 shares subject to options and warrants exercisable
within 60 days of April 30, 1998.

131
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1998
Second Quarter (through May 1, 1998).......................................................... $ 7.38 $ 6.00
First Quarter................................................................................. 13.00 3.88
FISCAL YEAR ENDED DECEMBER 31, 1997
Fourth Quarter (beginning November 12, 1997).................................................. $ 24.25 $ 9.25
</TABLE>

The Pacific Common Stock and Pacific Preferred Stock are not listed on any
exchange and do not trade publicly.

The following table sets forth the closing sales prices per share of Hybrid
Common Stock on the Nasdaq National Market on March 19, 1998, the last trading
day before the announcement of the proposed Merger and on May 1, and the
equivalent per share price for Pacific Capital Stock. The "equivalent per share
price" for Pacific Common Stock and Pacific Preferred Stock as of such dates
equal the closing sale price per share of Hybrid Common Stock on such dates
multiplied by the Assumed Exchange Ratio of 0.0894714. See "PROPOSAL NO. 1: THE
MERGER--TERMS OF THE MERGER--MERGER CONSIDERATION."

Hybrid and Pacific have never paid cash dividends on their respective shares
of Common Stock or Preferred Stock. Pursuant to the Reorganization Agreement,
each of Hybrid and Pacific have agreed not to pay cash dividends pending the
consummation of the Merger without the written consent of the other. Subject to
the completion of the Merger, the Hybrid Board intends to continue a policy of
retaining all earnings to finance the expansion of its business. The terms of an
outstanding $5.5 Million Debenture prevent Hybrid from paying any cash dividends
for so long as the $5.5 Million Debenture remains outstanding. In addition, in
October 1997, Hybrid entered into the $4.0 Million Credit Facility, the terms of
which prohibit the declaration of dividends. The Pacific Board currently intends
to retain all earnings for use in the business of the combined companies and has
no present intention to pay cash dividends.

132
<PAGE>
DESCRIPTION OF HYBRID CAPITAL STOCK

The authorized capital stock of Hybrid consists of 100,000,000 shares of
Hybrid Common Stock, $0.001 par value per share, and 5,000,000 shares of Hybrid
Preferred Stock, $0.001 par value per share. Based on the Assumed Exchange Ratio
of approximately 0.0894714, and on the shares, options and warrants of Hybrid
and Pacific outstanding as of April 30, 1998, immediately following the
consummation of the Merger there will be outstanding approximately 12,023,518
shares of Hybrid Common Stock, options and warrants to purchase approximately
3,915,018 shares of Hybrid Common Stock and the $5.5 Million Debenture which
will be convertible into 851,393 shares of Hybrid Common Stock, assuming the
Merger is consummated and Hybrid Common Stock is valued at $6.46 per share at
the closing of the Merger.

COMMON STOCK

Subject to preferences that may apply to shares of Hybrid Preferred Stock
outstanding at the time, the holders of outstanding shares of Hybrid Common
Stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as the Hybrid Board of Directors may from time
to time determine. Each stockholder is entitled to one vote for each share of
Hybrid Common Stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in Hybrid's
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
Hybrid Common Stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon a liquidation, dissolution or winding-up of
Hybrid, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Hybrid Common Stock and any
participating Hybrid Preferred Stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding Hybrid Preferred Stock and
payment of other claims of creditors. Each outstanding share of Hybrid Common
Stock is, and all shares of Hybrid Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, subject to limitations prescribed by
Delaware law, to provide for the issuance of additional shares of Hybrid
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the powers, designations,
preferences and rights of the shares of each wholly unissued series and
designate any qualifications, limitations or restrictions thereon 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) without any further vote or
action by the stockholders. The issuance of Hybrid Preferred Stock with voting
or conversion rights could adversely affect the voting power or other rights of
the holders of Hybrid Common Stock and may have the effect of delaying,
deferring or preventing a change in control of Hybrid. Hybrid has no current
plan to issue any shares of Hybrid Preferred Stock.

WARRANTS

As of April 30, 1998, Hybrid had outstanding exercisable warrants to
purchase 1,340,649 shares of Common Stock at a weighted average exercise price
of $7.59 per share. Such warrants expire between June 2001 and August 2006.

CONVERTIBLE $5.5 MILLION DEBENTURE

Hybrid has outstanding a senior secured convertible debenture due 2002 in
the principal amount of $5.5 million to BG Services Limited. The loan accrues
interest at a rate of 12% per annum, payable quarterly and its term ends in
April 2002, at which time the full principal amount is due. The debenture is

133
<PAGE>
convertible, at the option of the holder, at any time, into common stock at
$10.71 per share. The debenture contains "full ratchet" antidilution provisions
under which the number of shares of the Company's Common Stock into which the
debenture will be convertible may be increased if the Company issues any shares
(with certain exceptions for employee stock options and the like) prior to
October 1998 for consideration less than $10.71 per share. Commencing with
October 1998, any such issuance would be subject to certain "weighted average"
antidilution provisions. The $5.5 Million Debenture is currently convertible
into 513,423 shares of Hybrid Common Stock, assuming a conversion price of
approximately $10.71 per share, at the option of the holder at any time. Due to
the antidilution provisions of the $5.5 Million Debenture, if the Merger is
consummated and closes before October 1998, the $5.5 Million Debenture would be
convertible into 851,393 shares of Hybrid Common Stock assuming that Hybrid
Common Stock is valued at the closing of the Merger at $6.46 per share (the ten
day average prior to the execution of the Reorganization Agreement). The $5.5
Million Debenture is collateralized by substantially all of Hybrid's assets, and
as long as the $5.5 Million Debenture is outstanding Hybrid is subject to
certain restrictive covenants, including limitations on the amount of capital
expenditures it may incur in any 12 month period, and may not declare dividends,
retire any subordinated debt other than in accordance with its terms, or
distribute its assets to any stockholder.

ANTI-TAKEOVER PROVISIONS

DELAWARE LAW

Section 203 ("SECTION 203") of the of the Delaware General Corporation Law
(the "DGCL") is applicable to corporate takeovers of Delaware corporations.
Subject to certain exceptions set forth therein, Section 203 provides that a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless (a) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares) or (c) on or subsequent to such
date, the business combination is approved by the board of directors of the
corporation and by the affirmative votes of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, or is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation any
time within three years immediately prior to the relevant date, and the
affiliates and associates of such person. Under certain circumstances, Section
203 makes it more difficult for an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or bylaws, elect not to be governed by this section, effective 12
months after adoption. Hybrid's certificate of incorporation and the bylaws do
not exclude Hybrid from the restrictions imposed under Section 203. It is
anticipated that the provisions of Section 203 may encourage companies
interested in acquiring Hybrid to negotiate in advance with the Hybrid Board of
Directors since the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control of Hybrid, which could depress the market price
of the Hybrid Common Stock and which could deprive the stockholders of
opportunities to realize a premium on shares of the Hybrid Common Stock held by
them.

134
<PAGE>
CHARTER AND BYLAW PROVISIONS

Hybrid's certificate of incorporation and bylaws contain certain provisions
that could discourage potential takeover attempts and make more difficult
attempts by stockholders to change management. The certificate of incorporation
and the bylaws provide for a classified Board of Directors and permit the Hybrid
Board to create new directorships and to elect new directors to serve for the
full term of the class of director in which the new directorship was created.
The terms of the directors are staggered to provide for the election of
approximately one-third of the Hybrid Board members each year, with each
director serving a three-year term. The Hybrid Board (or its remaining members,
even though less than a quorum) is also empowered to fill vacancies on the
Hybrid Board occurring for any reason for the remainder of the term of the class
of directors in which the vacancy occurred. Stockholders may remove a director
or the entire Hybrid Board, and such removal requires the affirmative vote of a
majority of the outstanding voting stock. Hybrid's certificate of incorporation
provides that stockholders may not take action by written consent but only at a
stockholders' meeting, and that special meetings of the stockholders of Hybrid
may only be called by the Chairman of the Hybrid Board or a majority of the
Hybrid Board.

REGISTRATION RIGHTS

Beginning in May 1998, the holders of 6,164,823 shares of Hybrid Common
Stock, the holders of warrants to purchase 1,340,656 shares of Hybrid Common
Stock and the holder of the $5.5 Million Debenture currently convertible into
513,423 shares of Hybrid Common Stock (collectively, the "REGISTRABLE
SECURITIES") will have certain rights with respect to the registration of those
shares under the Securities Act. If Hybrid proposes to register any of its
shares of Common Stock under the Securities Act other than in connection with a
Hybrid employee benefit plan or certain corporate acquisitions, mergers or
reorganizations, the holders of the Registrable Securities may require to
include all or a portion of their shares in such registration, subject to
certain rights of the managing underwriter to limit the number of shares in any
such offering.

Further, holders of Registrable Securities holding at least 30% of the
outstanding shares of Registrable Securities may require Hybrid to register all
or any portion of their Registrable Securities on Form S-3 when such form
becomes available to Hybrid, subject to certain conditions and limitations.
Hybrid may be required to effect up to one such registration per year. In
addition certain holders of warrants may require Hybrid to register one time all
or any portion of the shares issuable upon exercise of such warrants on Form S-3
commencing one year after the offering and, subject to certain limitations, to
keep the registration effective for no less than 180 days.

All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) will be borne by Hybrid. The
registration rights expire in November 2003. In addition, no holder of
Registrable Securities shall be entitled to registration rights if an so long as
such holder can sell the Registrable Securities in compliance with Rule 144 of
the Securities Act.

In addition, certain individuals and entities receiving Hybrid Common Stock
in the Merger will enter into an Investor Rights Agreement with respect to the
shares they are to receive in the Merger. See "PROPOSAL NO. 1: THE MERGER--TERMS
OF THE MERGER--INVESTOR RIGHTS AGREEMENTS".

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for Hybrid's Common Stock in Boston
EquiServe.

COMPARATIVE RIGHTS OF HYBRID STOCKHOLDERS AND PACIFIC SHAREHOLDERS

If the Merger is consummated, holders of Pacific Capital Stock will become
holders of Hybrid Common Stock and the rights of the former Pacific shareholders
will be governed by the DGCL and by the Certificate of Incorporation of Hybrid
(the "HYBRID CERTIFICATE OF INCORPORATION" ) and the Bylaws of Hybrid

135
<PAGE>
(the "HYBRID BYLAWS"). The rights of Hybrid stockholders under the DGCL and the
Hybrid Certificate of Incorporation and Bylaws differ in certain limited
respects from the rights of Pacific shareholders under the California Code and
the Amended and Restated Articles of Incorporation of Pacific (the "PACIFIC
ARTICLES") and the Bylaws of Pacific (the "PACIFIC BYLAWS" ). Certain
differences between the rights of Hybrid stockholders and Pacific shareholders
are summarized below. This summary is qualified in its entirety by reference to
the full text of such documents. For information as to how such documents may be
obtained, see "AVAILABLE INFORMATION."

SIZE OF THE BOARD OF DIRECTORS

Under the California Code, although changes in the number of directors must
in general be approved by a majority of the outstanding shares, the board of
directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if that stated range has been
approved by the shareholders. The DGCL permits the board of directors alone to
change the authorized number, or the range, of directors by amendment to the
bylaws, unless the directors are not authorized to amend the bylaws or the
number of directors is fixed in the certificate of incorporation, in which case
a change in the number of directors may be made only by amendment to the
certificate of incorporation following approval of such change by the
stockholders. The Hybrid Certificate of Incorporation and the Hybrid Bylaws
provide, consistent with the DGCL, that the size of the Board of Directors may
be changed by amending the Bylaws either with the approval of the Board of
Directors acting alone or by Hybrid's stockholders. While the Pacific Bylaws
provide for a Board of Directors consisting of between four and seven members,
the Hybrid Bylaws specify a five member Board.

POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS

Under the California Code, a special meeting of shareholders may be called
by the board of directors, the chairman of the board, the president, the holders
of shares entitled to cast not less than 10% percent of the votes at such
meeting and such additional persons as are authorized by the articles of
incorporation or the bylaws. Under the DGCL, a special meeting of stockholders
may be called by the board of directors or by any other person authorized to do
so in the certificate of incorporation or the bylaws. The Hybrid Certificate of
Incorporation and the Hybrid Bylaws do not grant stockholders the right to call
a special meeting of stockholders. The Hybrid Certificate of Incorporation and
the Hybrid Bylaws authorize only the Board of Directors or the Chairman of the
Board to call a special meeting of stockholders. Former Pacific shareholders
would thus not retain their right to call a special meeting.

REMOVAL OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS

Under the California Code, any director or the entire board of directors may
be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
Under the DGCL, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
with the approval of a majority of the outstanding shares entitled to vote.
However, a director of a corporation with a classified board of directors may be
removed only for cause, unless the certificate of incorporation otherwise
provides. The Hybrid Certificate of Incorporation and the Hybrid Bylaws provide
for a classified board of directors and provide for the removal of a director by
the affirmative vote of at least a majority of all shares of Hybrid.
Consequently, members of the Hybrid Board of Directors can be removed for any
reason.

FILLING VACANCIES ON THE BOARD OF DIRECTORS

Under the California Code, any vacancy on the board of directors other than
one created by removal of a director may be filled by the board of directors. If
the number of directors is less than a quorum, a

136
<PAGE>
vacancy may be filled by the unanimous written consent of the directors then in
office, by the affirmative vote of a majority of the directors at a meeting held
pursuant to notice or waivers of notice or by a sole remaining director. A
vacancy created by removal of a director may be filled by the board of directors
only if the board is so authorized by a corporation's articles of incorporation
or by a bylaw approved by the corporation's shareholders.

Under the DGCL, vacancies and newly created directorships may be filled by a
majority of the directors then in office, even if less than a quorum, unless
otherwise provided in the certificate of incorporation or bylaws, and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill such vacancy. The Hybrid Bylaws are in accord,
and contain no provision for the allocation of directors between classes of
stock.

DIRECTORS' COMMITTEES

Under the Hybrid Bylaws, the Board of Directors may, by resolution passed by
a majority of the whole Board, delegate certain limited powers normally held
only by the Board in its entirety to a committee comprised of one or more
members of the Board. Such committees may exercise any power normally held by
the entire Board, but may not adopt an agreement of merger or consolidation
under Section 251 or 252 of the DGCL, recommend to the stockholders the sale,
lease, or exchange of all or substantially all of the corporation's property and
assets, recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amend the Bylaws. Neither can such a committee
amend the Certificate of Incorporation, except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the board of directors as provided in Section 151(a)
of the DGCL, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series.

The Pacific Bylaws contain provisions for the delegation of authority by the
Board of Directors to a committee of members of the Board.

DIVIDENDS AND REPURCHASES OF SHARES

The California Code dispenses with the concepts of par value of shares as
well as statutory definitions of capital, surplus and the like. The concepts of
par value, capital and surplus are retained under the DGCL.

Under the California Code, a corporation may not make any distribution
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.

The DGCL permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that

137
<PAGE>
a corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.

STOCKHOLDER VOTING

Both the California Code and the DGCL generally require that a majority of
the stockholders of acquiring and target corporations approve statutory mergers.
The DGCL does not require a stockholder vote of the surviving corporation in a
merger (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the merger agreement does not amend the existing
certificate of incorporation, (b) each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger, and (c) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. The California Code contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity.

INTERESTED DIRECTOR TRANSACTIONS

Under both the California Code and the DGCL, certain contracts or
transactions in which one or more of a corporation's directors has an interest
are not void or voidable because of such interest provided that certain
conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under the California Code and the DGCL.
Under the California Code and the DGCL, (a) either the stockholders or the board
of directors must approve any such contract or transaction after full disclosure
of the material facts, and in the case of board approval the contract or
transaction must also be "just and reasonable" (in California) or "fair" (in
Delaware) to the corporation, or (b) the contract or transaction must have been
just and reasonable or fair as to the corporation at the time it was approved.
In the latter case, the California Code explicitly places the burden of proof on
the interested director. Under the California Code, if shareholder approval is
sought, the interested director is not entitled to vote his shares at a
shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum). Under the DGCL, if board
approval is sought, the contract or transaction must be approved by a majority
of the disinterested directors, even though less than a majority of a quorum.

STOCKHOLDER DERIVATIVE SUITS

The California Code provides that a shareholder bringing a derivative action
on behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under the DGCL, a
stockholder may only bring a derivative action on behalf of the corporation if
the stockholder was a stockholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or her
by operation of law. The California Code also provides that the corporation or
the defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding requirement.

APPRAISAL RIGHTS

Under both the California Code and the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under the DGCL, such appraisal rights are not available (a) with
respect to the sale, lease or exchange of all or substantially

138
<PAGE>
all of the assets of a corporation, (b) with respect to a merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange, or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or are held of record by more than 2,000 holders if such
stockholders receive only shares of the surviving corporation or shares of any
other corporation which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders, plus cash in lieu of fractional shares, or (c) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger because the
merger agreement does not amend the existing certificate of incorporation, each
share of the surviving corporation outstanding prior to the merger is an
identical outstanding or treasury share after the merger, and the number of
shares to be issued in the merger does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the merger and if certain
other conditions are met.

The limitations on the availability of appraisal rights under the California
Code are different from those under the DGCL. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have appraisal rights unless the holders
of at least 5% percent of the class of outstanding shares claim the right or
unless the corporation or any law restricts the transfer of such shares.
Appraisal rights are unavailable, however, if the shareholders of a corporation
or the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five sixths of the voting power of the surviving or acquiring corporation
or its parent entity, and if the shares of the surviving corporation have the
same rights, preferences, privileges and restrictions as the shares of the
disappearing corporation that are surrendered in exchange.

"BLANK CHECK" PREFERRED STOCK AND COMMON STOCK RIGHTS

The Hybrid Certificate of Incorporation permits the Board of Directors to
determine the rights, preferences, privileges and restrictions of authorized but
unissued Preferred Stock, commonly referred to as "blank check" Preferred Stock.
The issuance of Preferred Stock with extraordinary rights may be used to deter
hostile takeover attempts. Although Hybrid's Board of Directors has no present
intention of issuing such Preferred Stock, it could do so in the future without
stockholder approval. The Pacific Articles also permit its Board of Directors to
issue "blank check" Preferred Stock.

139
<PAGE>
ADDITIONAL MATTERS FOR CONSIDERATION OF
HYBRID STOCKHOLDERS
PROPOSAL NO. 2 FOR HYBRID STOCKHOLDERS:
ELECTION OF HYBRID DIRECTORS

At the Hybrid Annual Meeting, stockholders will elect two (2) Class I
directors to hold office from the time of election and qualification until the
third annual meeting of stockholders following election and until their
respective successors have been elected and qualified or until such directors'
earlier resignation or removal. Hybrid's Certificate of Incorporation provides
for a classified Board of Directors (the "HYBRID BOARD") composed of five (5)
directors. The terms of office of the Hybrid Board are divided into three
classes. Class I will expire at the Hybrid Annual Meeting; Class II will expire
at the annual meeting of the stockholders of Hybrid to be held in 1999; and
Class III will expire at the annual meeting of the stockholders of Hybrid to be
held in 2000. Stephen E. Halprin and Douglas M. Leone are designated as Class I
directors. Accordingly, two nominees will be elected at the Annual Meeting to be
Class I directors of Hybrid. If any nominee for any reason is unable to serve,
or for good cause, will not serve as a director, the proxies may be voted for
such substitute nominee as the proxy holder may determine. Hybrid is not aware
of any nominee who will be unable to or, for good cause, will not serve as a
director.

DIRECTORS/NOMINEES

The names of the nominees, and certain information about them, are set forth
below:

<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------------------------- --- ----------------------------------------------------------------- -------
<S> <C> <C> <C>
Stephen E. Halprin............... 60 Venture Capitalist 1992

Douglas M. Leone................. 40 Venture Capitalist 1995
</TABLE>

STEPHEN E. HALPRIN. Mr. Halprin has been a director of Hybrid since
September 1992. He has been a general partner of OSCCO Management Partners, a
venture capital firm since 1984 and a general partner of OSCCO Management
Partners III since 1989. He currently serves as a director of Landec
Corporation, a materials science company. He holds a B.S. in Industrial
Management from the Massachusetts Institute of Technology and an M.B.A. from the
Stanford University Graduate School of Business.

DOUGLAS M. LEONE. Mr. Leone has been a director of Hybrid since May 1995. He
has been associated with Sequoia Capital, a venture capital firm, since June
1988 and has been a general partner of that firm since April 1993. Mr. Leone
holds a B.S. from Cornell University, an M.S. from Columbia University and an
M.S. in Management from the Massachusetts Institute of Technology.

Pursuant to the Reorganization Agreement, Hybrid has agreed that in the
event that the Reorganization Agreement is adopted and approved and the Merger
is approved, upon the Effective Time of the Merger Richard B. Gold and Matthew
D. Miller will be appointed to the Hybrid Board as Class I directors and Messrs.
Halprin and Leone will resign as directors assuming that they are elected to the
Hybrid Board at the Hybrid Annual Meeting.

Executive officers are chosen by, and serve at the discretion of, the Hybrid
Board. There are no family relationships among any of the directors and
executive officers of Hybrid.

BOARD OF DIRECTORS' MEETINGS AND COMMITTEES

The Hybrid Board met ten times, including telephone conference meetings,
during 1997. No director attended fewer than 75% of the aggregate of the total
number of meetings of the Hybrid Board (held during the period for which such
director was a director) and the total number of meetings held by all committees
of the Hybrid Board on which such director served (during the period that such
director served).

140
<PAGE>
Standing committees of the Hybrid Board include an Audit Committee and a
Compensation Committee. The Hybrid Board does not have a nominating committee or
a committee performing similar functions.

The Audit Committee of the Hybrid Board consists of Mr. Flach and Mr.
Halprin. The Audit Committee did not meet during 1997 and has met on several
occasions during 1998. The Audit Committee reviews Hybrid's financial statements
and accounting practices, makes recommendations to the Hybrid Board regarding
the selection of independent auditors and reviews the results and scope of the
audit and other services provided by Hybrid's independent auditors.

The Compensation Committee of the Hybrid Board consists of Mr. Flach and Mr.
Leone. The Compensation Committee met once during 1997 and has met on several
occasions during 1998. The Compensation Committee makes recommendations to the
Hybrid Board concerning salaries and incentive compensation for Hybrid's
officers and employees and administers Hybrid's employee benefit plans.

DIRECTOR COMPENSATION

See "SELECTED INFORMATION WITH RESPECT TO HYBRID--DIRECTOR COMPENSATION" for
a description of Hybrid director compensation.

THE HYBRID BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINATED
DIRECTORS.

PROPOSAL NO. 3 FOR HYBRID STOCKHOLDERS:
AMENDMENT OF THE 1997 EQUITY INCENTIVE PLAN

Stockholders are being asked to approve an amendment to Hybrid's 1997 Equity
Incentive Plan (the "INCENTIVE PLAN") to increase the number of shares of Common
Stock reserved for issuance thereunder by 500,000 shares, from 2,267,101 shares
(which includes 517,101 shares automatically added to the Incentive Plan on
January 1, 1998, pursuant to the terms of the Incentive Plan) to 2,767,101
shares.

The Hybrid Board believes that the increase in the number of shares reserved
for issuance under the Incentive Plan is in the best interests of Hybrid because
of the large increase in employees that it is expecting to hire in connection
with the acquisition of Pacific. The granting of equity incentives under the
Incentive Plan plays an important role in Hybrid's efforts to attract and retain
employees of outstanding ability. Competition for skilled engineers and other
key employees is intense and the use of significant stock options for retention
and motivation of such personnel is pervasive in the high technology industries.
The Hybrid Board believes that the additional reserve of shares with respect to
which equity incentives may be granted will provide Hybrid with adequate
flexibility to ensure that Hybrid can continue to meet those goals and
facilitate Hybrid's expansion of its employee base.

The Hybrid Board approved the proposed amendment on March 18, 1998, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Incentive Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Incentive Plan.

INCENTIVE PLAN HISTORY

The Incentive Plan was adopted by the Hybrid Board in September 1997 and
approved by the stockholders of Hybrid in October 1997. The purpose of the
Incentive Plan is to offer eligible persons an opportunity to participate in
Hybrid's future performance through awards of stock options, restricted stock
and stock bonuses.

From inception of the Incentive Plan in November 1997 to April 30, 1998,
options to purchase an aggregate of 303,438 shares of Hybrid's Common Stock were
granted under the Incentive Plan. Of these,

141
<PAGE>
options to purchase a total of 213,438 shares were granted to all employees as a
group (including all current officers who are non-executive officers. Options to
purchase 90,000 shares were granted to executive officers and directors of
Hybrid.

SHARES SUBJECT TO THE INCENTIVE PLAN

The stock subject to issuance under the Incentive Plan consists of shares of
Hybrid's authorized but unissued Common Stock. The Board has reserved an
aggregate of 2,767,101 shares of Common Stock for issuance under the Incentive
Plan (taking into account the amount of shares automatically added to the
Incentive Plan on January 1, 1998 and the proposed amendment). In addition, any
shares remaining unissued under Hybrid's 1992 Stock Issuance Plan, the Executive
Officer Incentive Plan, the 1993 Equity Incentive Plan and the 1996 Equity
Incentive Plan (the "PRIOR PLANS") on the effective date of the Incentive Plan,
and any shares issuable upon exercise of options granted pursuant to the Prior
Plans that expire or become unexercisable for any reason without having been
exercised in full, will no longer be available for distribution under the Prior
Plans but shall be available for distribution under the Incentive Plan. Shares
subject to an option granted pursuant to the Incentive Plan that expires or
terminates for any reason without being exercised or shares subject to an award
granted pursuant to the Incentive Plan that are forfeited or are repurchased by
Hybrid at the original issue price or are subject to an award granted pursuant
to the Incentive Plan that otherwise terminates without shares being issued,
will again become available for grant and issuance pursuant to awards under the
Incentive Plan. On the first business day of each fiscal year of Hybrid during
the term of the Incentive Plan, the aggregate number of shares reserved and
available for issuance pursuant to the Incentive Plan will be increased
automatically by a number of shares equal to 5% of the total outstanding shares
of Hybrid, unless the Board determines prior to the commencement of any fiscal
year that such increase will not occur for such fiscal year. The number of
shares subject to issuance under the Incentive Plan is subject to proportional
adjustment to reflect stock splits, stock dividends and other similar events.

ELIGIBILITY

Employees, officers, directors, consultants, independent contractors and
advisors of Hybrid (and of any subsidiaries and affiliates) are eligible to
receive awards under the Incentive Plan (the "PARTICIPANTS"). No Participant is
eligible to receive more than 700,000 shares of Common Stock in any calendar
year under the Incentive Plan, other than new employees of Hybrid (including
directors and officers who are also new employees) who are eligible to receive
up to a maximum of 1,000,000 shares of Common Stock in the calendar year in
which they commence their employment with Hybrid. As of April 30, 1998,
approximately 100 persons were in the class of persons eligible to participate
in the Incentive Plan, no shares had been issued upon exercise of options,
293,780 shares were subject to outstanding options and 500 shares had been
issued pursuant to stock bonus awards. As of that date, 2,693,534 shares were
available for future grant, after taking into account the proposed amendment to
the Incentive Plan and any shares issuable upon exercise of options granted
pursuant to the Prior Plans that have expired or become unexercisable without
having been exercised in full and that have become available for distribution
under the Incentive Plan. The closing price of Hybrid's Common Stock on the
Nasdaq National Market was $6.13 per share as of April 29, 1998, the last
trading day before the Record Date.

ADMINISTRATION

The Incentive Plan is administered by the Compensation Committee (the
"COMMITTEE"), the members of which are appointed by the Board. The Committee
currently consists of James R. Flach and Douglas M. Leone, both of whom are
"non-employee directors," as defined in Rule 16b-3 promulgated under the
Exchange Act and "outside directors," as defined pursuant to Section 162(m) of
the Code.

Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award, and the terms and conditions of such awards.

142
<PAGE>
The Committee also has the authority to construe and interpret any of the
provisions of the Incentive Plan or any awards granted thereunder.

STOCK OPTIONS

The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOS") or Nonqualified Stock Options
("NQSOS"). ISOs may be granted only to employees (including officers and
directors who are also employees) of Hybrid or any parent or subsidiary of
Hybrid. The option exercise price for each ISO share must be no less than 100%
of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. The per share exercise price of an
ISO granted to a 10% stockholder must be no less than 110% of the fair market
value of a share of Common Stock at the time the ISO is granted. The total
number of shares issued under the Incentive Plan upon exercising ISOs will in no
event exceed 2,750,000 shares (subject to adjustment for stock splits and
similar events). The option exercise price for each NQSO share must be no less
than 85% of the fair market value of a share of Common Stock at the time of
grant.

The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of Hybrid to the Participant; (3) by surrender
of shares of Hybrid's Common Stock owned by the Participant for at least six
months and having a fair market value on the date of surrender equal to the
aggregate exercise price of the option; (4) by tender of a full recourse
promissory note: (5) by waiver of compensation due to or accrued by the
Participant for services rendered; (6) by a "same-day sale" commitment from the
Participant and a National Association of Securities Dealers, Inc. ("NASD")
broker; (7) by a "margin" commitment from the Participant and a NASD broker; or
(8) by any combination of the foregoing.

RESTRICTED STOCK AWARDS

The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the Incentive
Plan, under such terms, conditions and restrictions as the Committee may
determine. The purchase price for such awards must be no less than 85% of the
fair market value of Hybrid's Common Stock on the date of the award (and in the
case of an award granted to a 10% stockholder, the purchase price shall be 100%
of fair market value) and can be paid for in any of the forms of consideration
listed in items (1) through (5) in "Stock Options" above, as are approved by the
Committee at the time of grant. A total of 300,000 shares (subject to adjustment
for stock splits and similar events) may be issued as Restricted Stock and Stock
Bonus Awards.

MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL

In the event of a merger, consolidation, dissolution or liquidation of
Hybrid, the sale of substantially all of the assets of Hybrid or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent awards in exchange for those granted under the Incentive
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of Hybrid (after taking into account provisions of
the awards). In the event that the successor corporation does not assume or
substitute awards, such awards will expire upon the closing of such transaction
at the time and upon the conditions as the Board determines; provided, however,
that the Committee may, in its sole discretion, provide that the vesting of any
and all awards will accelerate.

AMENDMENT OF THE INCENTIVE PLAN

The Board may at any time terminate or amend the Incentive Plan, including
amending any form of award agreement or instrument to be executed pursuant to
the Incentive Plan. However, the Board may not without stockholder approval
amend the Incentive Plan in any manner that requires stockholder

143
<PAGE>
approval pursuant to the Code or the regulations promulgated thereunder, or
pursuant to the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.

TERM OF THE INCENTIVE PLAN

Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will expire in September 2007, ten years from the date the Incentive Plan
was adopted by the Board.

FEDERAL INCOME TAX INFORMATION

THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO HYBRID AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF
A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE
INCENTIVE PLAN.

INCENTIVE STOCK OPTIONS. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT")). If the Participant holds shares acquired
upon exercise of an ISO (the "ISO SHARES") for more than one year after the date
the option was exercised and for more than two years after the date the option
was granted, the Participant generally will realize capital gain or loss (rather
than ordinary income or loss) upon disposition of the ISO Shares. This gain or
loss will be equal to the difference between the amount realized upon such
disposition and the amount paid for the ISO Shares.

If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term, mid-term or short-term capital gain,
depending upon the amount of time the ISO Shares were held by the Participant.

ALTERNATIVE MINIMUM TAX. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of that portion of an individual taxpayer's
alternative minimum taxable income that would otherwise be taxable as ordinary
income (28% in the case of alternative minimum taxable income in excess of
$175,000). A maximum 20% AMT rate applies to the portion of alternative minimum
taxable income that would otherwise be taxable as net capital gain. Alternative
minimum taxable income is determined by adjusting regular taxable income for
certain items, increasing that income by certain tax preference items (including
the difference between the fair market value of the ISO Shares on the date of
exercise and the exercise price), and reducing this amount by the applicable
exemption amount ($45,000 in case of a joint return, subject to reduction under
certain circumstances). If a disqualifying disposition of the ISO Shares occurs
in the same calendar year as exercise of the ISO, there is no AMT adjustment
with respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.

NONQUALIFIED STOCK OPTIONS. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by

144
<PAGE>
the Participant and may be subject to withholding by Hybrid (either by payment
in cash or withholding out of the Participant's salary). Upon resale of the
shares by the Participant, any subsequent appreciation or depreciation in the
value of the shares will be treated as capital gain or loss.

RESTRICTED STOCK AND STOCK BONUS AWARDS. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.

MAXIMUM TAX RATES. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum rate of 20%. For this
purpose, in order to receive long-term capital gain treatment, the shares must
be held for more than eighteen months. Mid-term capital gain will be taxed at a
maximum rate of 28%. For this purpose, in order to receive mid-term capital gain
treatment, the shares must be held for more than one year but not more than
eighteen months. Capital gains may be offset by capital losses and up to $3,000
of capital losses may be offset annually against ordinary income.

TAX TREATMENT OF HYBRID. Hybrid generally will be entitled to a deduction
in connection with the exercise of an NQSO by a Participant or the receipt of
restricted stock or stock bonuses by a Participant to the extent that the
Participant recognizes ordinary income and Hybrid withholds tax. Hybrid will be
entitled to a deduction in connection with the disposition of ISO Shares only to
the extent that the Participant recognizes ordinary income on a disqualifying
disposition of the ISO Shares.

ERISA. The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.

THE HYBRID BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1997 EQUITY
INCENTIVE PLAN

PROPOSAL NO. 4 FOR HYBRID STOCKHOLDERS:
AMENDMENT OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN

Stockholders are being asked to approve an amendment to Hybrid's 1997
Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN") to increase the number
of shares of Common Stock reserved for issuance thereunder by 100,000 shares,
from 225,000 shares to 325,000 shares. The Board believes that the increase in
the number of shares reserved for issuance under the Stock Purchase Plan is in
the best interests of Hybrid because of the large increase in employees that it
is expecting to hire in connection with the acquisition of Pacific. The Stock
Purchase Plan plays an important role in Hybrid's efforts to attract and retain
employees of outstanding ability.

The Board approved the proposed amendment on March 18, 1998, to be effective
upon stockholder approval. Below is a summary of the principal provisions of the
Stock Purchase Plan, assuming stockholder approval of the amendment. The summary
is not necessarily complete, and reference is made to the full text of the Stock
Purchase Plan.

STOCK PURCHASE PLAN HISTORY

The Board adopted the Stock Purchase Plan in September 1997 and it was
approved by the stockholders of Hybrid in October 1997. The purpose of the Stock
Purchase Plan is to provide employees of Hybrid and its subsidiaries and
affiliates designated by the Board as eligible to participate in the Stock
Purchase Plan ("PARTICIPATING EMPLOYEES") with a convenient means to acquire an
equity interest in Hybrid through payroll deductions and to provide an incentive
for continued employment. Hybrid intends that the Stock Purchase Plan will
qualify as an "employee stock purchase plan" under Section 423 of the Code.

145
<PAGE>
SHARES SUBJECT TO THE STOCK PURCHASE PLAN

The stock subject to issuance under the Stock Purchase Plan consists of
shares of Hybrid's authorized but unissued Common Stock. An aggregate of 325,000
shares of Common Stock has been reserved by the Board for issuance under the
Stock Purchase Plan (taking into account the proposed amendment). This number of
shares is subject to proportional adjustment to reflect stock splits, stock
dividends and other similar events.

ADMINISTRATION

The Stock Purchase Plan is administered by the Committee. The interpretation
or construction by the Committee of any provisions of the Stock Purchase Plan or
of any option granted under it will be final and binding on all Participating
Employees.

ELIGIBILITY

All employees of Hybrid, or any parent or subsidiary, are eligible to
participate in an Offering Period (as defined below) under the Stock Purchase
Plan, except the following:

(a) employees who are not employed by Hybrid five days before the
beginning of such Offering Period;

(b) employees who are customarily employed for 20 hours or less per
week;

(d) employees who own stock or hold options to purchase stock or who, as
a result of participation in the Stock Purchase Plan, would own stock or
hold options to purchase stock, possessing 5% or more of the total combined
voting power or value of all classes of stock of Hybrid.

As of April 30, 1998, approximately 80 persons were eligible to participate
in the Stock Purchase Plan and no shares had been issued pursuant to the Stock
Purchase Plan. On April 30, 1998, no shares were issued pursuant to the Stock
Purchase Plan. As of that date, 225,000 shares were available for future
issuance under the Stock Purchase Plan, not including the proposed amendment to
the Stock Purchase Plan. As of April 29, 1998 (the last trading day prior to the
Record Date), the closing price of Hybrid's Common Stock on the Nasdaq National
Market was $6.13 per share.

Participating Employees participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 15% of the Participating
Employee's W-2 compensation, including, but not limited to, base salary, wages,
commissions, shift premiums and bonuses not to exceed $250,000 before any
deductions from the Participating Employee's salary pursuant to Sections 125 or
401(k) of the Code. No Participating Employee is permitted to purchase shares
under the Stock Purchase Plan at a rate which, when aggregated with such
employee's rights to purchase stock under all similar purchase plans of Hybrid,
exceeds $25,000 in fair market value determined as of the Offering Date for each
calendar year.

OFFERING PERIODS

Each offering of Common Stock under the Stock Purchase Plan is for a period
of 24 months (the "OFFERING PERIOD"). Offering Periods are planned to commence
on February 1 and August 1 of each year and end on January 31 and July 31 of
each year, respectively; provided, however, that the initial Offering Period
commenced on November 12, 1997 and will expire on July 31, 1999. Each Offering
Period shall consist of four six-month purchase periods (individually, a
"PURCHASE PERIOD") during which payroll deductions of the Participating
Employees are accumulated under the Stock Purchase Plan. The Board has the power
to set the beginning of any Offering Period and to change dates or the duration
of Offering Periods or Purchase Periods without stockholder approval if such
change is announced at least 15 days

146
<PAGE>
before the scheduled beginning of the first Offering Period or Purchase Period
to be affected. The first day of each Offering Period is the "Offering Date" for
such Offering Period and the last business day of each Purchase Period is the
"Purchase Date" for such Purchase Period.

Participating Employees will participate in the Stock Purchase Plan during
each Offering Period through regular payroll deductions as described above.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the Stock Purchase Plan. Once enrolled,
a Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the Stock Purchase Plan is terminated. After the rate of payroll
deductions for an Offering Period has been set by a Participating Employee, that
rate will continue to be effective for the remainder of the Offering Period (and
for all subsequent Offering Periods in which the Participating Employee is
automatically enrolled) unless otherwise changed by the Participating Employee.
The Participating Employee may increase or lower the rate of payroll deductions
for any subsequent Offering Period, but may only lower the rate of payroll
deductions for an ongoing Offering Period. No more than one change may be made
during a single Offering Period.

PURCHASE PRICE

The purchase price of shares that may be acquired in any Purchase Period
under the Stock Purchase Plan is 85% of the lesser of: (i) the fair market value
of the shares on the Offering Date; or (ii) the fair market value of the shares
on the Purchase Date. The fair market value of a share of Hybrid's Common Stock
is deemed to be the closing price of Hybrid's Common Stock on the Nasdaq
National Market on the date of determination as reported in THE WALL STREET
JOURNAL, except that the fair market value of a share of Hybrid's Common Stock
on the Offering Date of the first Offering Period was the price per share at
which shares of Hybrid's Common Stock were offered for sale to the public in
Hybrid's initial public offering of shares of its Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act.

PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN

The number of whole shares a Participating Employee will be able to purchase
in any Purchase Period will be determined by dividing the total payroll amount
withheld from the Participating Employee during the Purchase Period pursuant to
the Stock Purchase Plan by the purchase price for each share determined as
described above. The purchase will take place automatically on the Purchase Date
of such Purchase Period.

WITHDRAWAL

A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest, provided that the withdrawal occurs at
least 15 days before the related Purchase Date. If the withdrawal occurs less
than 15 days before such Purchase Date, payroll deductions will continue for the
remainder of that Purchase Period. No further payroll deductions for the
purchase of shares will be made for the succeeding Offering Period unless the
Participating Employee enrolls in the new Offering Period at least 15 days
before the Offering Date.

AMENDMENT OF THE STOCK PURCHASE PLAN

The Board may at any time amend, terminate or extend the term of the Stock
Purchase Plan, except that any such termination cannot affect the terms of
shares previously granted under the Stock Purchase Plan, nor may any amendment
make any change in the terms of shares previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
stockholder approval if such amendment would: (a) increase the number of shares
that may be issued under the Stock

147
<PAGE>
Purchase Plan; (b) change the designation of the employees (or class of
employees) eligible for participation in the Stock Purchase Plan; or (c)
constitute an amendment for which stockholder approval is required in order to
comply with Rule 16b-3 (or any successor rule) of the Exchange Act.

TERM OF THE STOCK PURCHASE PLAN

The Stock Purchase Plan will continue until the earlier to occur of: (i)
termination of the Stock Purchase Plan by the Board; (ii) the issuance of all
the shares of Common Stock reserved for issuance under the Stock Purchase Plan;
or (iii) September 2007, ten years after the date the Stock Purchase Plan was
adopted by the Board.

FEDERAL INCOME TAX INFORMATION

THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO HYBRID AND EMPLOYEES PARTICIPATING IN THE
STOCK PURCHASE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND UPON HIS OR
HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS BEEN AND IS
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE STOCK PURCHASE PLAN.

The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.

TAX TREATMENT OF THE PARTICIPATING EMPLOYEE. Participating Employees will
not recognize income for federal income tax purposes either upon enrollment in
the Stock Purchase Plan or upon the purchase of shares. All tax consequences are
deferred until a Participating Employee sells the shares, disposes of the shares
by gift or dies.

If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of: (i) 15% of the fair market value of
the shares at the beginning of the Offering Period; or (ii) the actual gain (the
amount by which the market value of the shares on the date of sale, gift or
death exceeds the purchase price). All additional gain upon the sale of shares
is treated as mid-term or long-term capital gain. If the shares are sold and the
sale price is less than the purchase price, there is no ordinary income and the
Participating Employee has a capital loss for the difference between the sale
price and the purchase price.

If the shares are sold or are otherwise disposed of including by way of gift
(but not death, bequest or inheritance) (in any case, a "DISQUALIFYING
DISPOSITION") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (not currently subject to withholding) in
the year of the sale or other disposition even if no gain is realized on the
sale or if a gratuitous transfer is made. The difference, if any, between the
proceeds of sale and the aggregate fair market value of the shares at the date
of purchase is a capital gain or loss. Capital gains may be offset by capital
losses, and up to $3,000 of capital losses may be used annually against ordinary
income.

TAX TREATMENT OF HYBRID. Hybrid will be entitled to a deduction in
connection with the disposition of shares acquired under the Stock Purchase Plan
only to the extent that the Participating Employee recognizes ordinary income on
a disqualifying disposition of the shares. Hybrid will treat any transfer of
record ownership of shares as a disposition, unless it is notified to the
contrary. In order to enable Hybrid

148
<PAGE>
to learn of disqualifying dispositions and ascertain the amount of the
deductions to which it is entitled, Participating Employees will be required to
notify the Company in writing of the date and terms of any disposition of shares
purchased under the Stock Purchase Plan.

ERISA. The Stock Purchase Plan is not subject to any of the provisions of
ERISA nor is it qualified under Section 401(a) of the Code.

THE HYBRID BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1997 EMPLOYEE
STOCK PURCHASE PLAN

NEW PLAN BENEFITS

<TABLE>
<CAPTION>
STOCK PURCHASE
INCENTIVE PLAN(1) PLAN(1)
----------------- -------------------
DOLLAR NUMBER OF DOLLAR NUMBER OF
NAME AND POSITIONS VALUE SHARES VALUE SHARES
- ---------------------------------------- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Carl S. Ledbetter....................... $ -- -- $ -- --

Gustavo Ezcurra......................... -- -- -- --

William H. Fry.......................... -- -- -- --

Dan E. Steimle.......................... -- -- -- --

All current executive officers as a
group (4 persons)..................... -- -- -- --

All current directors who are not
executive officers as a group (4
persons).............................. -- -- -- --

All employees, including all current
officers who are not executive
officers, as a group.................. -- -- -- --
</TABLE>

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

(1) The amounts of future option grants under the Incentive Plan and future
purchases under the Stock Purchase Plan to (i) the Named Executive Officers;
(ii) all current executive officers as a group; (iii) all current directors
who are not executive officers as a group; and (iv) all employees, including
all officers who are not executive officers, as a group are not determinable
because, under the terms of the Incentive Plan, such grants are made in the
discretion of the Committee or its designees and under the terms of the
Stock Purchase Plan, such purchases are based on participant contributions.
Future option exercise prices under the Incentive Plan are not determinable
because they are based upon the fair market value of Hybrid's Common Stock
on the date of grant, and future purchase prices under the Stock Purchase
Plan are not determinable because they are based on the fair market value of
Hybrid's Common Stock at the beginning and end of each Purchase Period.

PROPOSAL NO. 5 FOR HYBRID STOCKHOLDERS:
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

Hybrid has selected Coopers & Lybrand L.L.P. as its independent accountants
to perform the audit of Hybrid's financial statement for the fiscal year ending
December 31, 1998, and the stockholders are being asked to ratify such
selection. Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Hybrid Annual Meeting, will have the opportunity to make a
statement at the Hybrid Annual Meeting if they desire to do so and are expected
to be available to respond to appropriate questions.

THE HYBRID BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF
COOPERS & LYBRAND L.L.P. AS HYBRID'S INDEPENDENT ACCOUNTANTS.

149
<PAGE>
STOCKHOLDER PROPOSALS

Proposals of stockholders of Hybrid intended to be presented at Hybrid's
1999 Annual Meeting of Stockholders must be received by Hybrid at its principal
executive offices no later than January 28, 1999 in order to be included in
Hybrid's Proxy Statement and form of proxy relating to the meeting.

SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934, as amended, requires
Hybrid's directors and certain of its officers, and persons who own more than
10% of Hybrid's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulation
to furnish Hybrid with copies of all Section 16(a) forms that they file.

Based solely on its review of the copies of such forms furnished to Hybrid
and written representations from the executive officers and directors, Hybrid
believes that all Section 16(a) filing requirements for the year ended December
31, 1997 were met.

OTHER BUSINESS

The Hybrid Board does not presently intend to bring any other business
before the Hybrid Annual Meeting and, so far as is known to the Hybrid Board, no
matters are to be brought before the Hybrid Annual Meeting except as specified
in the Notice of the Hybrid Annual Meeting. As to any business that may properly
come before the Hybrid Annual Meeting, however, it is intended that proxies in
the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.

EXPERTS

The balance sheets of Hybrid Networks, Inc. as of December 31, 1997 and
1996, and the statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997, included in this
Joint Proxy Statement/Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of that firm as experts in accounting and auditing.

The financial statements of Pacific Monolithics, Inc. as of September 30,
1997 and 1996 and for each of the three years in the period ended September 30,
1997 included in this Joint Proxy Statement/ Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report thereon
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

LEGAL MATTERS

The validity of the Hybrid Common Stock issuable pursuant to the Merger will
be passed on by Fenwick & West LLP, Palo Alto, California. Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California, is acting as
counsel for Pacific in connection with certain legal matters relating to the
Reorganization Agreement and the transactions contemplated thereby.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANING PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.

150
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Hybrid Networks, Inc.

<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants........................ F-2

Balance Sheets as of December 31, 1997 and 1996.................................... F-3

Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995...... F-4

Statements for Stockholders' Equity for the Years Ended December 31, 1997, 1996 and
1995............................................................................. F-5

Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995...... F-6

Notes to Financial Statements...................................................... F-7

Balance Sheets as of March 31, 1998 and December 31, 1997 (unaudited).............. F-20

Statements of Operations for the Three Months Ended March 31, 1998 and 1997
(unaudited)...................................................................... F-21

Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997
(unaudited)...................................................................... F-22

Notes to Unaudited Financial Statements............................................ F-23

Pacific Monolithics, Inc.

Independent Auditors' Report--Deloitte & Touche LLP................................ F-25

Balance Sheets as of September 30, 1997 and 1996 and March 31, 1998 (unaudited).... F-26

Statements of Operations for the Years Ended September 30, 1997, 1996 and 1995 and
for the Three Months and Six Months Ended March 31, 1998 and 1997 (unaudited).... F-27

Statements of Shareholders' Equity for the Years Ended September 30, 1997, 1996 and
1995 and for the Six Months Ended March 31, 1998 (unaudited)..................... F-28

Statements of Cash Flows for the Years Ended September 30, 1997, 1996 and 1995 and
for the Six Months Ended March 31, 1998 and 1997 (unaudited)..................... F-29

Notes to Financial Statements...................................................... F-30
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Hybrid Networks, Inc.

We have audited the accompanying balance sheets of Hybrid Networks, Inc. as
of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hybrid Networks, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Jose, California
January 20, 1998, except for note 16,
for which the date is March 19, 1998

F-2
<PAGE>
HYBRID NETWORKS, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 26,167 $ 6,886
Short-term investments.................................................................. 981 --
Accounts receivable, net of allowance for doubtful accounts of $1,175 in 1997 and none
in 1996............................................................................... 8,870 1,348
Inventories............................................................................. 3,368 943
Prepaid expenses and other current assets............................................... 362 125
---------- ----------
Total current assets.................................................................. 39,748 9,302
Property and equipment, net............................................................... 1,808 1,178
Intangibles and other assets.............................................................. 1,563 59
---------- ----------
Total assets........................................................................ $ 43,119 $ 10,539
---------- ----------
---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 2,033 $ 1,424
Accrued liabilities..................................................................... 1,394 712
Current portion of capital lease obligations............................................ 410 222
---------- ----------
Total current liabilities............................................................. 3,837 2,358
Convertible debenture..................................................................... 5,500 --
Capital lease obligations, less current portion........................................... 618 438
Other liabilities......................................................................... -- 34
---------- ----------
Total liabilities..................................................................... 9,955 2,830
---------- ----------

Commitments and contingencies (Note 10)
Stockholders' equity:
Convertible preferred stock, $.001 par value:
Authorized: 5,000 shares in 1997 and 18,000 shares in 1996;
Issued and outstanding: no shares in 1997 and 12,069 shares in 1996..................... -- 12
Common stock, $.001 par value:
Authorized: 100,000 shares;
Issued and outstanding: 10,342 shares in 1997 and 2,520 shares in 1996.................. 10 2
Additional paid-in capital................................................................ 64,086 25,037
Accumulated deficit....................................................................... (30,932) (17,342)
---------- ----------
Total stockholders' equity.............................................................. 33,164 7,709
---------- ----------
Total liabilities and stockholders' equity............................................ $ 43,119 $ 10,539
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
HYBRID NETWORKS, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................................ $ 14,270 $ 2,962 $ 630
Cost of sales.................................................................... 12,258 3,130 761
---------- --------- ---------
Gross profit (loss).......................................................... 2,012 (168) (131)
---------- --------- ---------

Operating expenses:
Research and development....................................................... 7,108 5,076 3,862
Sales and marketing............................................................ 4,319 1,786 390
General and administrative..................................................... 3,606 1,714 748
---------- --------- ---------
Total operating expenses..................................................... 15,033 8,576 5,000
---------- --------- ---------
Loss from operations....................................................... (13,021) (8,744) (5,131)

Interest income and other expenses, net.......................................... 399 257 166
Interest expense................................................................. (968) (28) (304)
---------- --------- ---------
Net loss................................................................... $ (13,590) $ (8,515) $ (5,269)
---------- --------- ---------
---------- --------- ---------
Basic and diluted loss per share................................................. $ (3.84) $ (3.36) $ (2.37)
---------- --------- ---------
---------- --------- ---------
Shares used in basic and diluted per share calculation........................... 3,541 2,535 2,223
---------- --------- ---------
---------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
HYBRID NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ---------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
------- ------ ------ -------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995..... 2,860 $ 3 2,176 $ 2 $ 2,845 $ (3,558) $ (708)
Exercise of common stock
options................... -- -- 9 -- 3 -- 3
Exercise of stock purchase
rights.................... -- -- 44 -- 24 -- 24
Grant of stock bonus
awards.................... -- -- 6 -- 3 -- 3
Issuance of common stock for
technology license........ -- -- 262 -- 141 -- 141
Issuance of Series B and
Series D preferred stock
warrants.................. -- -- -- -- 18 -- 18
Issuance of Series D
preferred stock, net of
issuance costs of $42..... 3,200 3 -- -- 5,555 -- 5,558
Issuance of Series E
preferred stock upon
conversions of notes
payable................... 1,316 1 -- -- 1,999 -- 2,000
Additional paid-in capital
in connection with accrued
interest forgiven from
conversion of notes
payable to Series E
preferred stock........... -- -- -- -- 402 -- 402
Issuance of Series F
preferred stock from
conversion of prepaid
royalties, net of issuance
costs of $11.............. 987 1 -- -- 1,488 -- 1,489
Net loss.................... -- -- -- -- -- (5,269) (5,269)
------- ------ ------ --- --------------- ----------- --------
Balances, December 31, 1995... 8,363 8 2,497 2 12,478 (8,827) 3,661
Exercise of common stock
options................... -- -- 65 -- 34 -- 34
Repurchase of common
stock..................... -- -- (42) -- (9) -- (9)
Issuance of Series B
preferred stock upon net
exercise of warrants...... 248 -- -- -- -- -- --
Issuance of Series G
preferred stock for cash
and conversion of notes
payable, net of issuance
costs of $704............. 3,458 4 -- -- 12,534 -- 12,538
Net loss.................... -- -- -- -- -- (8,515) (8,515)
------- ------ ------ --- --------------- ----------- --------
Balances, December 31, 1996... 12,069 12 2,520 2 25,037 (17,342) 7,709
Exercise of common stock
options................... -- -- 150 -- 85 -- 85
Repurchase of common
stock..................... -- -- (12) -- (7) -- (7)
Grant of stock bonus
awards.................... -- -- 13 -- 38 -- 38
Issuance of common stock for
services rendered......... -- -- 6 -- 34 -- 34
Issuance of Series H
preferred stock........... 494 1 -- -- 1,999 -- 2,000
Issuance of warrants in
connection with
convertible subordinated
notes..................... -- -- -- -- 250 -- 250
Issuance of warrants in
connection with technology
license agreement......... -- -- -- -- 1,000 -- 1,000
Issuance of common stock,
net of issuance costs of
$1,280.................... -- -- 2,836 3 35,642 -- 35,645
Conversion of preferred
stock to common stock..... (12,563) (13) 4,653 5 8 -- --
Issuance of common stock
upon net exercise of
warrants.................. -- -- 176 -- -- -- --
Net loss.................... -- -- -- -- -- (13,590) (13,590)
------- ------ ------ --- --------------- ----------- --------
Balances, December 31, 1997... -- $-- 10,342 $ 10 $64,086 $(30,932) $ 33,164
------- ------ ------ --- --------------- ----------- --------
------- ------ ------ --- --------------- ----------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
HYBRID NETWORKS, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (13,590) $ (8,515) $ (5,269)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................... 760 322 162
Provision for doubtful accounts............................................. 1,175 -- --
Provision for excess and obsolete inventory................................. 452 126 137
Interest converted to Series E preferred stock.............................. -- -- 402
Common stock issued for technology license.................................. -- -- 141
Convertible Subordinated Note interest related to the issuance of
warrants.................................................................. 250 -- --
Common Stock issued for services rendered................................... 72 -- 3
Change in assets and liabilities:
Accounts receivable......................................................... (8,697) (1,061) (224)
Inventories................................................................. (2,877) (873) (218)
Prepaid expenses and other current assets................................... (237) (115) 7
Accounts payable............................................................ 609 1,144 102
Accrued liabilities and other............................................... 648 395 1,418
---------- --------- ---------
Net cash used in operating activities..................................... (21,435) (8,577) (3,339)
---------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment............................................ (643) (321) (295)
Change in other assets........................................................ (76) (26) (22)
Purchase of short-term investments............................................ (981) -- (490)
Proceeds from maturity of short-term investments.............................. -- 490 199
---------- --------- ---------
Net cash provided by (used in) investing activities....................... (1,700) 143 (608)
---------- --------- ---------
Cash flows from financing activities:
Repayment of capital lease obligations........................................ (307) (106) (20)
Repayment of convertible subordinated note payable............................ (6,882) -- --
Proceeds from issuance of preferred stock warrants............................ -- -- 18
Proceeds from convertible subordinated note payable........................... 6,882 -- --
Net proceeds from issuance of convertible debenture........................... 5,000 3,160 --
Net proceeds from issuance of preferred stock................................. 2,000 9,378 5,558
Net proceeds from issuance of common stock.................................... 35,730 34 27
Repurchase of common stock.................................................... (7) (9) --
---------- --------- ---------
Net cash provided by financing activities................................. 42,416 12,457 5,583
---------- --------- ---------
Increase in cash and cash equivalents........................................... 19,281 4,023 1,636
Cash and cash equivalents, beginning of period.................................. 6,886 2,863 1,227
---------- --------- ---------
Cash and cash equivalents, end of period........................................ $ 26,167 $ 6,886 $ 2,863
---------- --------- ---------
---------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Conversion of notes payable into preferred stock.............................. -- $ 3,160 $ 2,000
Conversion of prepaid royalties to Series F preferred stock................... -- -- 1,500
Property and equipment acquired under capital leases.......................... $ 675 472 314
Capitalization of finance costs............................................... 500 -- --
Issuance of warrants in connection with subordinated notes payable............ 250 -- --
Issuance of warrants in connection with technology license agreement.......... 1,000 -- --
Supplemental disclosure of cash flow information:
Interest paid................................................................. $ 718 $ 28 $ 5
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

1. FORMATION AND BUSINESS OF THE COMPANY

The Company, which was incorporated in Delaware on June 6, 1990, is a
broadband access equipment company that designs, develops, manufactures and
markets wireless and cable systems that provide high speed access to the
Internet and corporate intranets for both businesses and consumers. The
Company's products remove the bottleneck over the "last mile" connection to the
end user which causes slow response time for those accessing bandwidth-intensive
information over the Internet and corporate intranets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CHANGE IN FISCAL YEAR

In 1997, the Company changed its fiscal year end from March 31 to December
31, effective January 1, 1992.

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS, BUSINESS RISKS AND CREDIT CONCENTRATION

The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term cash investments, accounts
receivable, accounts payable, capital leases, subordinated debt and other
accrued liabilities' approximate fair value due to their short maturities.

The Company sells its products primarily to cable system operators,
broadband wireless system operators, Internet Service Providers, third party
distributors and other companies that provide broadband networking systems or
services, principally in North America. The Company performs ongoing credit
evaluations of its customers and does not require collateral. The Company also
maintains allowances for potential losses on collectibility of accounts
receivable and such losses have been within Management's expectations. As of
December 31, 1997, one customer represented 21% of accounts receivable and as of
December 31, 1996, two customers represented 51% and 10% of accounts receivable,
respectively.

The Company operates in the intensely competitive and rapidly changing
communications industry which has been characterized by rapid technological
change, evolving industry standards and federal, state and local regulation
which may impede the Company's penetration of certain markets.

The Company currently operates with one product line. The Company's future
success depends upon its ability to develop, introduce and market new products,
its ability to obtain components from key suppliers, obtaining sufficient
manufacturing capacity, and the success of the broadband access business. The
Company may experience future fluctuations in operating results and declines in
selling prices.

CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid instruments with an original or
remaining maturity of three months or less to be cash equivalents. Instruments
with a maturity greater than three months at the date of

F-7
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
purchase and maturing within one year from the balance sheet date are included
in short-term investments. The Company's cash and cash equivalents as of
December 31, 1997 are in three demand accounts with two major banks. Short-term
investments as of December 31, 1997 are classified as available for sale and are
carried at cost which approximates fair market value, and consists of corporate
commercial paper maturing in April 1998.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out basis) or
market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the related assets of
three to five years. Leasehold improvements are amortized over their estimated
useful lives or the remaining lease term, whichever is less.

INTANGIBLES AND OTHER ASSETS

Intangibles and other assets include deferred financing costs relating to
fees incurred in connection with the issuance of a senior convertible debenture
in April 1997 and the value of the transfer of certain technologies relating to
a technology support and development agreement signed in November 1997. The
deferred financing costs are amortized over the five year life of the debenture
(see Note 7) and the value of the technologies will be amortized on a straight
line basis over a four year life. Total accumulated amortization as of December
31, 1997 was $20,833. The Company periodically assesses the recoverability of
intangible assets by determining whether the amortization of the asset balance
over the remaining life can be recovered through undiscounted future operating
cash flows. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows and is recognized as a write down of the
asset to a net realizable value.

REVENUE RECOGNITION

The Company recognizes revenue and accrues for estimated warranty costs upon
shipment of products. The Company's third party manufacturer provides a fifteen
month warranty period on all cable modems manufactured by them. The warranty
period begins on the date the modems are completely assembled. The Company
provides a twelve month warranty on all headend equipment sold. Actual warranty
costs incurred have not materially differed from those provided.

PRODUCT DEVELOPMENT COSTS

Costs related to research, design and development of products are charged to
research and development expenses as incurred.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company's financial
statements for the year ended December 31, 1996. SFAS No. 123 allows companies
to either account for stock-based compensation under the new provisions of SFAS
No. 123 or

F-8
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
under the provisions of Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company has continued to account for its
stock based compensation in accordance with the provisions of APB 25 and
provides the required pro forma disclosures (see Note 11).

COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

The Company adopted Financial Accounting Standards Board No. 128 "Earnings
Per Share" and accordingly all prior periods have been restated. Basic and
diluted loss per share are computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
preferred stock are excluded from the computation of diluted loss per share as
their effect is antidilutive. In February 1998, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 98, which addresses the
computation of earnings per share in an initial public offering. The Company has
determined that no incremental shares should be included in the computation of
earnings per share in accordance with the SAB and basic and diluted loss per
share has been restated accordingly. Stock Options to purchase 1,926,000 shares
of Common Stock at prices ranging from $0.27 to $11.05 per share were
outstanding at December 31, 1997, but were not included in the computation of
diluted loss per share because they were antidilutive. Warrants to purchase
1,340,656 shares of Common Stock at prices ranging from $0.001 to $10.91 per
share were outstanding at December 31, 1997, but were not included in the
computation of diluted loss per share because they were antidilutive. The
aforementioned stock options and Warrants could potentially dilute earnings per
share in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. The impact of adopting SFAS No. 130, which
is effective for the Company in 1998, has not been determined.

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 is
effective for the Company in 1998 and the impact of adoption has not been
determined.

F-9
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. INVENTORIES

Inventories are comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 1,952 $ 526
Work in progress........................................................... 292 267
Finished goods............................................................. 1,124 150
--------- ---------
$ 3,368 $ 943
--------- ---------
--------- ---------
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment, including furniture and equipment under capital
leases, (cost of $1,461,000 and $786,000 and accumulated amortization of
$541,000 and $177,000 as of December 31, 1997 and 1996, respectively) consist of
the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Machinery and equipment................................................... $ 2,780 $ 1,440
Office furniture and fixtures............................................. 164 107
Leasehold improvements.................................................... 110 189
--------- ---------
3,054 1,736
Less accumulated depreciation and amortization............................ (1,246) (558)
--------- ---------
$ 1,808 $ 1,178
--------- ---------
--------- ---------
</TABLE>

5. CONVERTIBLE SUBORDINATED NOTE PAYABLE

In September 1997, the Company entered into a Convertible Subordinated
Promissory Note Purchase Agreement to issue $6,882,000 of subordinated notes at
10% interest (increasing to 18% after March 30, 1998 under certain
circumstances). The principal amount of the notes was payable at the earliest of
September 30, 1998 or the effective date of an initial public offering of the
Company's common stock. In connection with the Convertible Subordinated Note
Purchase Agreement, the Company issued warrants to purchase 252,381 shares of
its common stock at $10.91 per share. The warrant becomes exercisable at the
earliest of 180 days after issuance or the effective date of an initial public
stock offering and expires in five years. The amount attributed to the value of
the warrants is $250,000 which has been allocated to stockholders' equity and
was charged to interest expense upon repayment of the note. At December 31, 1997
no amount was outstanding under the convertible subordinated note payable.

6. SHORT TERM BORROWINGS

In October 1997, the Company entered into a credit facility agreement with a
bank which provides for borrowings up to a maximum of $4.0 Million. Borrowings
under the credit facility, which expires in October 1998, bear interest at the
prime rate (8.50% at December 31, 1997) and are collateralized by certain of the
Company's assets. The agreement contains restrictive covenants including
maintenance of certain financial ratios, limitations of quarterly losses and
prohibits the Company from paying any cash dividends. The Company had no
outstanding borrowings under this credit facility at December 31, 1997.

F-10
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. CONVERTIBLE DEBENTURE

On April 30, 1997, the Company issued a senior convertible debenture in the
amount of $5,500,000, bearing interest at 12% per annum, payable quarterly, and
maturing on April 30, 2002. An arrangement fee of $500,000 was paid by the
Company, the arrangement fee has been capitalized and is being amortized over
the life of the debenture through operations. The debenture is convertible, at
the option of the holder, at any time, into common stock at $10.71 per share.
The debenture contains "full ratchet" antidilution provisions under which the
number of shares of the Company's Common Stock into which the debenture will be
convertible may be increased if the Company issues any shares (with certain
exceptions for employee stock options and the like) prior to October 1998 for
consideration less than $10.71 per share. Commencing with October 1998, any such
issuance would be subject to certain "weighted average" antidilution provisions.

The debenture is collateralized by certain of the Company's assets. Subject
to certain upgrade adjustments, the Company may not make capital expenditures in
excess of $1,500,000, $2,500,000, $5,500,000 and $11,000,000 during the twelve
months ending March 31, 1998, 1999, 2000 and 2001, respectively. Additionally,
the Company may not declare dividends, retire any subordinated debt other than
in accordance with its terms, or distribute its assets to any stockholder as
long as the debenture remains outstanding.

8. ACCRUED LIABILITIES

Accrued liabilities consist of the following (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accrued payroll and related accruals....................................... $ 795 $ 425
Other liabilities.......................................................... 599 287
--------- ---------
$ 1,394 $ 712
--------- ---------
--------- ---------
</TABLE>

9. CAPITAL LEASE OBLIGATIONS

Capital leases at December 31, 1997 expire at various dates through March
2001 and bear interest at rates ranging from 7.6% to 10.8%.

Future minimum lease payments under all capital leases are as follows (IN
THOUSANDS):

<TABLE>
<S> <C>
1998........................................................ $ 474
1999........................................................ 407
2000........................................................ 244
2001........................................................ 10
---------
1,135
Less amount representing interest........................... (107)
---------
1,028
Less current portion........................................ (410)
---------
$ 618
---------
---------
</TABLE>

F-11
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES:

The Company leases its facilities and equipment under operating leases
expiring at various dates from May 1998 through March 2002. Under the terms of
two of the facilities leases, the Company is responsible for its share of common
area expenses.

Future minimum lease payments are as follows (IN THOUSANDS):

Rent expense for 1997, 1996, 1995 was approximately $494,000, $263,000, and
$191,000 respectively.

The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes that any liabilities resulting from such proceedings, or claims which
are pending or known to be threatened, will not have a material adverse effect
on the Company's financial position or results of operations.

The Company initiated a civil action for patent infringement against Com21,
Inc., and Celestica, Inc. on January 23, 1998 in the U.S. District Court for the
Eastern District of Virginia. In response to the Company's action, Com21, Inc.
initiated a declaratory judgment action on January 29, 1998 against the Company
in the U.S. District Court for the Northern District of California to obtain a
declaration of invalidity of the Company's patents and non-infringement of such
patents. The action in the Eastern District of Virginia was subsequently
transferred to the Northern District of California on February 23, 1998. The
litigation is expected to be time consuming and costly, and, although no
monetary claim is asserted against the Company, the action, if resolved
adversely to the Company, could have a material adverse effect on the Company's
business, operating results and financial condition.

11. STOCKHOLDERS' EQUITY

REVERSE STOCK SPLIT

In September 1997, the Company's Board of Directors approved a 1-for-2.7
reverse split of the Company's common stock and a corresponding change in the
preferred stock conversion ratios. All common and preferred stock and per share
amounts in these financial statements have been adjusted retroactively to give
effect to the split. In addition, the Company's Board of Directors approved an
Amended and Restated Certificate of Incorporation which eliminated the existing
convertible preferred stock and changed the number of authorized shares of
preferred stock to 5,000,000 shares, $0.001 par value, and increased the shares
of common stock authorized to 100,000,000 shares. In October 1997, the
stockholders of the Company approved the 1- for -2.7 reverse split of the
Company's common stock and a corresponding change in the preferred stock
conversion ratios.

F-12
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
INITIAL PUBLIC OFFERING AND CONVERSION OF PREFERRED STOCK

In November 1997, the Company filed a registration statement with the
Securities and Exchange Commission permitting the Company to sell shares of its
common stock to the public. In connection with the Initial Public Offering, all
outstanding shares of Preferred Stock were converted into shares of common stock
adjusted for the 1-for-2.7 reverse stock split.

WARRANTS

The Company has historically issued warrants in connection with its various
rounds of financing, equipment lease lines, and transfers of technology. The
value of the warrants has been assessed using the Black-Scholes Model and valued
as appropriate for financial reporting purposes.

In connection with the issuance of Series G preferred stock in July 1996,
and the 1996 equipment lease line, the Company issued warrants to purchase
58,021 and 5,802 shares of common stock, respectively, at $10.34 per share.
These warrants are exercisable at any time and expire in July 2001 and August
2006, respectively. The Company has reserved 63,823 shares of common stock for
issuance upon exercise of these warrants.

In connection with the issuance of convertible promissory notes in June
1996, which were later converted into Series G preferred stock, the Company
issued warrants to purchase 167,037 shares of common stock at $4.73 per share.
In connection with the issuance of Series D preferred stock May 1995, the
Company issued warrants, at $.001 per warrant, to purchase 592,593 shares of
common stock at $4.73 per share. In December 1997, a warrant to purchase 132,225
shares was exercised for a net exercise of 99,850 shares a common stock. The
remaining warrants are exercisable at any time and expire in June 2001. The
Company has reserved 627,405 shares of common stock for issuance upon exercise
of these warrants.

During 1996, the Company issued warrants, at $.001 per warrant, to purchase
76,245 shares of Common stock at $4.73 per share. In connection with the
technology transfer discussed in Note 14 and the 1995 equipment lease line, the
Company issued warrants to purchase 169,259 and 8,466 shares of common stock,
respectively, at $4.73 per share. During 1996, a warrant to purchase 169,259
shares was exercised for a net exercise of 91,921 shares of common stock. The
remaining warrants are exercisable at any time and expire in June 2001 and
August 2005, respectively. The Company has reserved 84,710 shares of common
stock for issuance upon exercise of these warrants.

In September 1997, the Company issued warrants to purchase 252,381 shares of
common stock in connection with their convertible subordinated note payable, at
an exercise price of $10.91. In October 1997, the Company issued warrants to
purchase 2,659 shares of common stock in connection with obtaining a bank credit
facility at an exercise price of $10.91. In November 1997, warrants to purchase
148,617 shares of common stock were exercised for a net exercise of 76,096
shares of common stock. (See Note 5).

In November 1997, the Company issued a five year warrant to purchase 458,295
shares of common stock at an exercise price of $10.91 per share, in connection
with a technology support and development arrangement.

F-13
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS

In September 1997, the Board of Directors approved the 1997 Equity Incentive
Plan and reserved a total of 1,750,000 shares for issuance to employees,
officers, directors, consultants, independent contractors, and advisors. In
addition, any shares that, upon the effectiveness of the 1997 plan, were
available for the grant of options under earlier plans are rolled over and are
available for issuance under the 1997 plan; also, any shares that subsequently
became available under the earlier plans, roll over and became available for
issuance under the 1997 plan. The 1997 Equity Incentive Plan expires in
September 2007. Also in September 1997, the Board of Directors adopted 1997
Directors' Stock Option Plan under which 100,000 shares of common stock have
been reserved for issuance. The Directors' Plan provides for the grant of
nonstatutory stock options to non-employee directors of the Company and expires
in September 2007.

In December 1996, the Company adopted the 1996 Equity Incentive Plan and
reserved 185,185 shares of common stock for issuance to employees, officers,
directors, consultants, independent contractors and advisors. In June 1997, the
Company increased the number of shares reserved for issuance under the 1996
Equity Incentive Plan by 222,222. The 1996 Equity Incentive Plan expires in
December 2006.

In December 1995, the Company adopted the Executive Officer Incentive Plan
and reserved 370,370 shares of common stock for issuance to the Company's chief
executive officer and other senior executive officers. In 1996 and 1997, the
Company increased the number of shares reserved under this plan by 129,630 and
271,111, respectively. In the event of a merger, consolidation, liquidation or
similar change of control transaction as a result of which the participants'
responsibilities and position with the Company are materially diminished,
options granted under this plan become fully exercisable and remain so for one
year thereafter. This plan will expire in December 2005.

In October 1993, the Company adopted the 1993 Equity Incentive Plan, and
reserved 185,185 shares of common stock for issuance to employees, officers,
directors, consultants and advisors. In 1995, 1996 and 1997, the Company
increased the number of shares reserved for issuance under the 1993 Equity
Incentive Plan by 351,851, 425,925 and 66,340 shares, respectively. The 1993
Equity Incentive Plan expires in October 2003.

Options, under all of the above plans, may be granted at prices not less
than fair market value at the date of grant, as determined by the Board of
Directors, in case of incentive options (110% in certain instances), and not
less than 85% of fair market value at the date of grant, as determined by the
Board of Directors, in case of nonqualified options, restricted stock awards and
stock bonus awards (100% in certain instances). Options and stock awards
generally vest 12.5% six months from date of grant and 2.0833% per month
thereafter; stock options expire three months after termination of employment
and five years from date of grant.

F-14
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
Activity under the Plans is set forth below (IN THOUSANDS, EXCEPT PER SHARE
DATA):

<TABLE>
<CAPTION>
VALUE OF
OPTIONS AND OPTIONS AND WEIGHTED
PURCHASE PURCHASE AVERAGE
SHARES RIGHTS EXERCISE PRICE RIGHTS EXERCISE
AVAILABLE OUTSTANDING PER SHARE OUTSTANDING PRICE
----------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995...................... 169 173 $0.27-$0.54 $ 57 $ 0.33
Additional shares reserved................... 722 -- -- -- --
Options granted.............................. (235) 235 0.54 127 0.54
Purchase rights granted...................... (44) 44 0.54 24 0.54
Purchase rights exercised.................... -- (44) 0.54 (24) 0.54
Stock bonus awards........................... (6) -- 0.54 -- 0.54
Options canceled............................. 90 (90) 0.27-0.54 (35) 0.39
Options exercised............................ -- (9) 0.27-0.54 (3) 0.33
----------- ----- -----------

Balances, December 31, 1995.................... 696 309 0.27-0.54 146 0.47
Additional shares reserved................... 741 -- -- -- --
Options granted.............................. (1,267) 1,267 0.54-1.08 865 0.68
Stock repurchased............................ 11 -- 0.54 -- --
Options canceled............................. 32 (32) 0.27-0.54 (14) 0.44
Options exercised............................ -- (65) 0.54 (34) 0.65
----------- ----- -----------

Balances, December 31, 1996.................... 213 1,479 0.27-1.08 963 0.65
Additional shares reserved................... 2,409 -- -- -- --
Options granted.............................. (862) 862 1.08-11.05 5,332 6.19
Stock bonus awards........................... (13) -- 1.08-5.40 -- --
Stock repurchased............................ 12 -- 0.54 -- --
Options canceled............................. 265 (265) 0.27-1.08 (316) 1.19
Options exercised............................ -- (150) 0.27-1.08 (85) 0.57
----------- ----- -----------

Balances, December 31, 1997.................... 2,024 1,926 $0.27-$11.05 $ 5,894 $ 3.06
----------- ----- -----------
----------- ----- -----------
</TABLE>

For the years ended December 31, 1997, 1996 and 1995, the weighted average
fair value of options granted was $5.48, $0.81 and $0.42 per share,
respectively.

F-15
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS

As of December 31, 1997, the stock options outstanding were as follows (IN
THOUSANDS, EXCEPT PER SHARE DATA):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING WEIGHTED ------------------------------
EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE NUMBER WEIGHED AVERAGE
PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- ------------- ----------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.27 42 1.45 $ 0.27 37 $ 0.27
0.54 887 3.15 0.54 398 0.54
1.08 258 3.81 1.08 67 1.08
2.16 46 4.23 2.16 11 2.16
2.70 153 4.38 2.70 23 2.70
5.40 195 4.54 5.40 3 5.40
8.78 114 4.66 8.78 -- 8.78
11.04 170 4.71 11.04 -- 11.04
11.05 61 4.80 11.05 -- 11.05
----- -----
1,926 $ 3.06 539 $ 0.76
----- -----
----- -----
</TABLE>

As of December 31, 1996 and 1995, options to purchase 294,000 and 125,000
shares were exercisable at an average weighted exercise price of $0.54 and $0.46
per share, respectively.

The Company has elected to continue to follow the provisions of APB No. 25,
"Accounting for Stock Issued to Employees," for financial reporting purposes and
has adopted the disclosure-only provisions of SFAS No. 123 ("SFAS No. 123").
Accordingly, no compensation cost has been recognized for the Company's stock
option plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in years ended
1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share for 1997, 1996, and 1995 would have
been increased to the pro forma amounts indicated below (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net loss as reported............................................ $ 13,590 $ 8,515 $ 5,269
--------- --------- ---------
--------- --------- ---------
Net loss--pro forma............................................. $ 13,733 $ 8,548 $ 5,275
--------- --------- ---------
--------- --------- ---------
Net loss per share--as reported................................. $ (3.84) $ (3.36) $ (2.37)
--------- --------- ---------
--------- --------- ---------
Net loss per share--pro forma................................... $ (3.88) $ (3.37) $ (2.37)
--------- --------- ---------
--------- --------- ---------
</TABLE>

The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.

F-16
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
In accordance with the provisions of SFAS No. 123, the fair value of each
option is estimated using the following assumptions used for grants during 1997,
1996 and 1995; dividend yield of 0%, volatility of 0% for options issued prior
to the Company's Initial Public Offering and 75% thereafter, risk-free interest
rates of 5.18% to 7.68% at the date of grant and an expected term of four years.

EMPLOYEE STOCK PURCHASE PLAN

In September 1997, the Company's Board of Directors approved an Employee
Stock Purchase Plan. Under this plan, employees of the Company can purchase
Common Stock through payroll deductions. A total of 225,000 shares have been
reserved for issuance under this plan. As of December 31, 1997, no shares have
been purchased under the Employee Stock Purchase Plan.

12. INCOME TAXES

There was no provision for income taxes for the years ended December 31,
1997, 1996 and 1995. The provision for income taxes differs from the amount
computed by applying the federal statutory rate to the loss before income taxes
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal tax at statutory rate......................................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit................................... 5.9 6.2 6.2
Tax credits........................................................... (2.8) (3.7) (2.4)
Other................................................................. .5 1.0 .4
Change in valuation allowance......................................... (38.6) (38.5) (39.2)
--------- --------- ---------
Tax provision......................................................... -- % -- % -- %
--------- --------- ---------
--------- --------- ---------
</TABLE>

Temporary differences which gave rise to significant portions of deferred
tax assets are as follows (IN THOUSANDS):

<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................ $ 6,279 $ 4,119
Capitalized research expenditures....................................... 5,669 3,553
Tax credit carryforwards................................................ 1,172 637
Inventory reserves...................................................... 178 103
Other accrued liabilities............................................... 754 104
---------- ---------
Total deferred assets............................................... 14,052 8,516
Valuation allowance..................................................... (14,052) (8,516)
---------- ---------
Net deferred assets................................................. $ -- $ --
---------- ---------
---------- ---------
</TABLE>

In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Management believes
that, based on a number of factors, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation

F-17
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)
allowance has been recorded. These factors include the Company's history of
losses, recent increases in expense levels, the fact that the market in which
the Company competes is intensely competitive and characterized by rapidly
changing technology, the lack of carryback capacity to realize deferred tax
assets, and the uncertainty regarding market acceptance of the Company's
products. The Company will continue to assess the realizability of the deferred
tax assets in future periods. The valuation allowance increased by $5,536,000,
and $4,561,000 in 1997 and 1996, respectively. The Company had federal and state
net operating loss carryforwards of approximately $16,589,000 and $10,945,000,
respectively, as of December 31, 1997 available to offset future regular and
alternative minimum taxable income. The Company's net operating loss
carryforwards expire in 1997 through 2012, if not utilized.

<TABLE>
<CAPTION>
TAX EXPIRATION
REPORTING DATES
---------- -----------
<S> <C> <C>
Research and development credit..................................... $ 768,000 2007-2012
State research and development credit............................... 404,000
</TABLE>

The Company's net operating loss and tax credit carryforwards are subject to
a limitation of approximately $5,120,000 upon an ownership change, as defined by
tax laws.

13. EMPLOYEE BENEFIT PLAN

The Company adopted a defined contribution retirement plan (the "Plan"),
which qualifies under Section 401(k) of the Internal Revenue Code of 1986. The
Plan covers essentially all employees. Eligible employees may make voluntary
contributions to the Plan up to 15% of their annual compensation and the
employer is allowed to make discretionary contributions. In 1997, 1996, 1995,
the Company made no employer contributions.

14. RELATED PARTY TRANSACTIONS

During 1994, the Company entered into borrowing agreements with two parties.
At the time of each borrowing, the Company was required to issue warrants to
purchase its preferred stock. In December 1994, one of the lenders applied its
outstanding balance of $1,250,000 to the exercise of its warrants. In December
1995, the second lender used its outstanding balance of $2,000,000 to exercise
its warrants. Accrued interest on the note was forgiven. However, the Company
recorded the related accrued interest of $402,000 as an additional capital
contribution related to the issuance of the Series E preferred stock.

In connection with these borrowing agreements the Company granted an
exclusive royalty bearing license to certain technology to one of the lenders.
In December 1995, advance royalties in the amount of $1,500,000 were converted
into 365,517 shares of Series F preferred stock at $4.10 per share. At the same
time, the above license became nonexclusive, and the Company received a
nonexclusive license to certain technology, consideration for which was the
issuance of 262,222 shares of the Company's common stock at $.54 per share.

The Company had net sales to two stockholders of $578,000 and $534,000,
respectively, for the year ending December 31, 1997.

An executive officer of the Company contributed $500,000 or 7% of the
proceeds received from the issuance of the $6,882,000 convertible subordinated
note payable as referred to in Note 5.

F-18
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. RELATED PARTY TRANSACTIONS (CONTINUED)
As per the terms of the convertible subordinated note payable, the entire
$500,000 note was repaid to the executive officer out of the proceeds received
from the initial public offering.

15. BUSINESS SEGMENT AND MAJOR CUSTOMERS

The Company operates in a single industry segment and primarily sells its
products to customers in North America. Products sold to customers in other
geographic regions are insignificant.

Individual customers that comprise 10% or more of the Company's net sales
are as follows:

The Company's export sales for 1997 and 1995 were less than 10%. In 1996
export sales to Europe and Asia were 7.3% and 2.8% respectively, of net sales.

16. SUBSEQUENT EVENTS

In March 1998, the Company announced its intent to acquire Pacific
Monolithics, Inc., a privately held Company, for approximately $12.5 million of
the Company's common stock.

In February 1998, the Company entered into a sublease agreement for
approximately 55,000 square feet of office, research and development and
manufacturing space in San Jose, CA. The new facility will become the Company's
headquarters and principal facility, and will replace the existing facilities
leases that expire in May 1998 through September 1998. The sublease provides for
initial monthly lease payments of approximately $68,888 and expires in April
2004.

F-19
<PAGE>
HYBRID NETWORKS, INC.

BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 7,248 $ 26,167
Short-term investments.............................................................. 12,753 981
Accounts receivable, net of allowance for doubtful accounts of $2,307 in 1998 and
$1,175 in 1997.................................................................... 9,846 8,870
Inventories......................................................................... 5,582 3,368
Prepaid expenses and other current assets........................................... 369 362
----------- ------------
Total current assets.............................................................. 35,798 39,748
Property and equipment, net........................................................... 1,768 1,808
Intangibles and other assets.......................................................... 1,628 1,563
----------- ------------
Total assets.................................................................... $ 39,194 $ 43,119
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 2,080 $ 2,033
Accrued liabilities................................................................. 1,278 1,394
Current portion of capital lease obligations........................................ 455 410
----------- ------------
Total current liabilities......................................................... 3,813 3,837
Convertible debenture................................................................. 5,500 5,500
Capital lease obligations, less current portion....................................... 587 618
----------- ------------
Total liabilities............................................................... 9,900 9,955
Contingencies
Stockholders' equity:
Convertible preferred stock, $.001 par value:
Authorized: 5,000 shares;
Issued and outstanding: no shares in 1998 or 1997................................. -- --
Common stock, $.001 par value:
Authorized: 100,000 shares;
Issued and outstanding: 10,364 shares in 1998 and 10,342 shares in 1997........... 10 10
Additional paid-in capital............................................................ 63,916 64,086
Accumulated deficit................................................................... (34,632) (30,932)
----------- ------------
Total stockholders' equity........................................................ 29,294 33,164
----------- ------------
Total liabilities and stockholders' equity...................................... $ 39,194 $ 43,119
----------- ------------
----------- ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-20
<PAGE>
HYBRID NETWORKS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................................................. $ 3,528 $ 1,852
Cost of sales............................................................................. 2,897 1,974
--------- ---------
Gross profit (loss)..................................................................... 631 (122)
--------- ---------
Operating expenses:
Research and development................................................................ 2,042 1,726
Sales and marketing..................................................................... 977 1,274
General and administrative.............................................................. 1,390 1,233
--------- ---------
Total operating expenses.............................................................. 4,409 4,233
--------- ---------
Loss from operations................................................................ (3,778) (4,355)
Interest income and other expenses, net................................................... 302 87
Interest expense.......................................................................... (224) (12)
--------- ---------
Net loss............................................................................ $ (3,700) $ (4,280)
--------- ---------
--------- ---------
Basic and diluted loss per share.......................................................... $ (0.36) $ (1.67)
--------- ---------
--------- ---------
Shares used in basic and diluted per share calculation.................................... 10,353 2,561
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-21
<PAGE>
HYBRID NETWORKS, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................ $ (3,700) $ (4,280)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................................... 304 131
Provision for sales returns........................................................... 800 --
Provision for doubtful accounts....................................................... 450 640
Change in assets and liabilities:
Accounts receivable................................................................... (2,226) (234)
Inventories........................................................................... (2,214) (757)
Prepaid expenses and other current assets............................................. (7) 31
Accounts payable...................................................................... 47 397
Accrued liabilities and other......................................................... (116) 6
---------- ----------
Net cash used in operating activities............................................... (6,662) (4,066)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment...................................................... (51) (228)
Change in other assets.................................................................. (154) (18)
Purchase of short-term investments...................................................... (12,753) --
Proceeds from maturity of short-term investments........................................ 981 --
---------- ----------
Net cash used in investing activities............................................... (11,977) (246)
---------- ----------
Cash flows from financing activities:
Repayment of capital lease obligations.................................................. (110) (51)
Net proceeds from issuance of preferred stock........................................... -- 2,000
Net proceeds from issuance of common stock.............................................. (170) 30
---------- ----------
Net cash provided by (used in) financing activities................................. (280) 1,979
---------- ----------
Decrease in cash and cash equivalents..................................................... (18,919) (2,333)
Cash and cash equivalents, beginning of period............................................ 26,167 6,886
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 7,248 4,553
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Property and equipment acquired under capital leases.................................... $ 124 $ 268
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid........................................................................... $ 224 $ 12
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-22
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The accompanying condensed financial statements of Hybrid Networks, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. The balance sheet
as of March 31, 1998, and the statements of operations for the three months
ended March 31, 1998 and 1997, and the statement of cash flows for the three
month periods ended March 31, 1998 and 1997 are unaudited but include all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
dates and the operating results and cash flows for those periods. Although the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading, certain information normally
included in financial statements and related footnotes prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The December 31, 1997 condensed balance sheet data was derived from audited
Financial Statements, but does not include all disclosures required by generally
accepted accounting principals. The accompanying financial statements should be
read in conjunction with the financial statements as contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

Results for any interim period are not necessarily indicative of results for
any other interim period or for the entire year.

COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

The Company adopted Financial Accounting Standards Board No. 128 "Earnings
Per Share" and accordingly all prior periods have been restated. Basic and
diluted loss per share are computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
preferred stock are excluded from the computation of diluted loss per share as
their effect is antidilutive. In February 1998, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 98, which addresses the
computation of earnings per share in an initial public offering. The Company has
determined that no incremental shares should be included in the computation of
earnings per share in accordance with the SAB and basic and diluted loss per
share has been restated accordingly. Stock options and warrants to purchase
3,493,885 shares of common stock at prices ranging from $0.01 to $11.05 per
share were outstanding as of March 31, 1998, but were not included in the
computation of diluted loss per share because they were antidilutive. The
aforementioned stock options and warrants could potentially dilute earnings per
share in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." This Statement 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. Such items may include foreign currency translation adjustments,
unrealized gains/losses from investing and hedging activities, and other
transactions. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement was adopted in the Company's first
quarter of 1998, and its effect on the financial statements was not material.

F-23
<PAGE>
HYBRID NETWORKS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This Statement is required to be adopted
for fiscal years beginning after December 15, 1997. The Company has yet to
determine the affect of adoption of this statement.

INVENTORIES

INVENTORIES COMPRISE THE FOLLOWING:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
Raw materials........................................................................... $ 2,467 $ 1,952
Work in progress........................................................................ 469 292
Finished goods.......................................................................... 2,646 1,124
----------- ------
$ 5,582 $ 3,368
----------- ------
----------- ------
</TABLE>

CONTINGENCIES

The Company initiated a civil action for patent infringement against Com21,
Inc., and Celestica, Inc. on January 23, 1998 in the U.S. District Court for the
Eastern District of Virginia. In response to the Company's action, Com21, Inc.
initiated a declaratory judgment action on January 29, 1998 against the Company
in the U.S. District Court for the Northern District of California to obtain a
declaration of invalidity, unenforceability and non-infringement of the
Company's patents and the collection of attorneys fees. The action in the
Eastern District of Virginia was subsequently transferred to the Northern
District of California on February 23, 1998. The litigation is expected to be
time consuming and costly, and, although no monetary claim other than attorneys
fees is asserted against the Company, the action, if resolved adversely to the
Company, could have a material adverse effect on the Company's business,
operating results or financial condition.

F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders

of Pacific Monolithics, Inc.:

We have audited the accompanying balance sheets of Pacific Monolithics, Inc.
as of September 30, 1997 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended September 30, 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 financial statements present fairly, in all material
respects, the financial position of Pacific Monolithics, Inc. at September 30,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1997 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California

November 28, 1997

(March 19, 1998 as to Note 10)

F-25
<PAGE>
PACIFIC MONOLITHICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)

<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................... $ 162,000 $ 1,506,000 $ 475,000
Restricted short-term investments.................................. -- 425,000 425,000
Accounts receivable (net of allowances for $532,000 at March 1998,
$489,000 at September 1997 and $1,419,000 at September 1996)..... 7,119,000 4,908,000 8,150,000
Inventories........................................................ 6,498,000 6,426,000 6,718,000
Prepaid expenses and other assets.................................. 281,000 172,000 163,000
Employee and other receivables..................................... 66,000 284,000 43,000
------------- ------------- -------------
Total current assets........................................... 14,126,000 13,721,000 15,974,000
Property and equipment--net.......................................... 2,583,000 2,816,000 2,893,000
Deposits and other assets............................................ 110,000 132,000 124,000
------------- ------------- -------------
Total assets......................................................... $ 16,819,000 $16,669,000 $18,991,000
------------- ------------- -------------
------------- ------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit..................................................... $ 4,298,000 $ 1,730,000 $ 2,991,000
Notes payable to shareholders...................................... 1,750,000 1,750,000 1,000,000
Accounts payable................................................... 4,407,000 4,465,000 4,795,000
Accrued liabilities................................................ 1,045,000 946,000 951,000
Provision for losses on contracts.................................. -- -- 134,000
Current portion of long-term obligations........................... 465,000 583,000 624,000
Deferred revenue................................................... 24,000 66,000 71,000
Deferred rent...................................................... 18,000 18,000 18,000
------------- ------------- -------------
Total current liabilities...................................... 12,007,000 9,558,000 10,584,000
------------- ------------- -------------
Long-term obligations................................................ 458,000 442,000 383,000
Deferred revenue..................................................... -- -- 30,000
Deferred rent........................................................ 90,000 99,000 118,000
Commitments and contingencies (Note 6)
Shareholders' equity
Convertible preferred stock--no par value; 12,510,722 shares
authorized (aggregate liquidation preference of $14,264,000):
Series A, 7,249,269 shares designated;
7,249,269 shares outstanding................................... 4,273,000 4,273,000 4,273,000
Series B, 2,861,453 shares designated;
2,861,453 shares outstanding................................... 4,642,000 4,642,000 4,642,000
Series C, 2,400,000 shares designated;
2,209,959 shares outstanding................................... 5,153,000 5,153,000 5,153,000
Common stock--no par value; 25,000,000 shares authorized; shares
outstanding: March 31, 1998, 5,692,668; September 1997, 5,554,046
and September 1996, 4,835,381.................................... 15,591,000 15,577,000 15,381,000
Notes receivable from sale of stock................................ (150,000) (145,000) (50,000)
Accumulated deficit................................................ (25,245,000) (22,930,000) (21,523,000)
------------- ------------- -------------
Total shareholders' equity..................................... 4,264,000 6,570,000 7,876,000
------------- ------------- -------------
Total liabilities and shareholders' equity........................... $ 16,819,000 $16,669,000 $18,991,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See notes to financial statements.

F-26
<PAGE>
PACIFIC MONOLITHICS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH SIX MONTHS ENDED MARCH
31, 31, YEARS ENDED SEPTEMBER 30,
------------------------ ------------------------ -------------------------------------
1998 1997 1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product sales................ $ 5,003,000 $ 8,235,000 $11,951,000 $21,270,000 $35,081,000 $28,065,000 $18,867,000
Development contracts and
licensing revenue.......... 15,000 115,000 30,000 230,000 288,000 1,076,000 6,058,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues............. 5,018,000 8,350,000 11,981,000 21,500,000 35,369,000 29,141,000 24,925,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Cost of product sales........ 4,140,000 5,938,000 9,686,000 15,467,000 25,824,000 22,078,000 13,891,000
Cost of development
contracts.................. -- (34,000) -- 66,000 190,000 1,168,000 2,073,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues..... 4,140,000 5,904,000 9,686,000 15,533,000 26,014,000 23,246,000 15,964,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................... 878,000 2,446,000 2,295,000 5,967,000 9,355,000 5,895,000 8,961,000
Operating expenses:
Research and development..... 1,059,000 1,319,000 2,021,000 2,639,000 4,824,000 5,421,000 3,169,000
Sales and marketing.......... 633,000 917,000 1,306,000 1,907,000 3,690,000 3,104,000 2,514,000
General and administrative... 453,000 228,000 874,000 966,000 1,649,000 2,839,000 2,434,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses... 2,145,000 2,464,000 4,201,000 5,512,000 10,163,000 11,364,000 8,117,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations.. (1,267,000) (18,000) (1,906,000) 455,000 (808,000) (5,469,000) 844,000
Other income (expense), net:
Interest income.............. 6,000 6,000 12,000 11,000 25,000 37,000 28,000
Interest expense............. (201,000) (131,000) (348,000) (259,000) (554,000) (462,000) (400,000)
Other........................ (34,000) (26,000) (73,000) (44,000) (70,000) (49,000) 72,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense),
net...................... (229,000) (151,000) (409,000) (292,000) (599,000) (474,000) (300,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................ (1,496,000) (169,000) (2,315,000) 163,000 (1,407,000) (5,943,000) 544,000
Income taxes................... -- -- -- -- -- -- 3,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income.............. $(1,496,000) $ (169,000) $(2,315,000) $ 163,000 $(1,407,000) $(5,943,000) $ 541,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) per share:
Basic........................ $ (.28) $ (.04) $ (.45) $ .04 $ (0.29) $ (1.42) $ 0.15
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Diluted...................... $ (.28) $ (.04) $ (.45) $ .01 $ (0.29) $ (1.42) $ 0.03
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Shares used in per share
calculations:
Basic........................ 5,285,000 4,619,000 5,186,000 4,600,000 4,866,000 4,184,000 3,701,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Diluted...................... 5,285,000 4,619,000 5,186,000 19,142,000 4,866,000 4,184,000 15,553,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-27
<PAGE>
PACIFIC MONOLITHICS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
--------------------- --------------------- NOTES ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
--------- ---------- --------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1994......... 7,249,269 $4,277,000 4,131,882 $15,303,000 $ (59,000) ($16,121,000) $ 3,400,000
Issuance of common stock to
director........................ 150,000 22,000 22,000
Sales of Series B preferred stock
(net of issuance costs of
$100,000)....................... 2,861,453 4,642,000 4,642,000
Exercise stock options............ 97,874 5,000 5,000
Common stock repurchased.......... (25,000) (1,000) (1,000)
Series A preferred stock legal
expenses........................ (4,000) (4,000)
Collection of notes receivable.... 6,000 6,000
Interest on notes receivable...... (3,000) (3,000)
Net income........................ 541,000 541,000
--------- ---------- --------- ---------- ----------- ------------ -------------
Balances, September 30, 1995...... 10,110,722 8,915,000 4,354,756 15,329,000 (56,000) (15,580,000) 8,608,000
Issuance of Series C preferred
stock (net of issuance costs of
$33,000)........................ 2,209,959 5,153,000 5,153,000
Exercise of stock options......... 480,625 33,000 33,000
Forgiveness of notes receivable... 7,000 7,000
Interest on notes receivable...... (1,000) (1,000)
Common stock warrants issued in
connection with notes payable to
stockholders.................... 19,000 19,000
Net loss.......................... (5,943,000) (5,943,000)
--------- ---------- --------- ---------- ----------- ------------ -------------
Balances, September 30, 1996...... 12,320,681 14,068,000 4,835,381 15,381,000 (50,000) (21,523,000) 7,876,000
Sales of common stock............. 480,000 120,000 (83,000) 37,000
Exercise stock options............ 238,665 32,000 32,000
Interest on notes receivable...... (12,000) (12,000)
Common stock warrants issued in
connection with notes payable to
stockholders.................... 38,000 38,000
Stock options issued to
consultants..................... 6,000 6,000
Net loss.......................... (1,407,000) (1,407,000)
--------- ---------- --------- ---------- ----------- ------------ -------------
Balances, September 30, 1997...... 12,320,681 14,068,000 5,554,046 15,577,000 (145,000) (22,930,000) 6,570,000
Exercise of stock options*........ 138,622 14,000 14,000
Interest on notes receivable*..... (5,000) (5,000)
Net loss*......................... (2,315,000) (2,315,000)
--------- ---------- --------- ---------- ----------- ------------ -------------
Balances, March 31, 1998.......... 12,320,681 $14,068,000 5,692,668 $15,591,000 $(150,000) ($25,245,000) $ 4,264,000
--------- ---------- --------- ---------- ----------- ------------ -------------
--------- ---------- --------- ---------- ----------- ------------ -------------
</TABLE>

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

* Unaudited

See notes to financial statements.

F-28
<PAGE>
PACIFIC MONOLITHICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(2,315,000) $ 163,000 $(1,407,000) $(5,943,000) $ 541,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 597,000 591,000 1,234,000 934,000 806,000
Provision for anticipated losses on contracts......... (134,000) (134,000) 134,000 (199,000)
(Gain) loss on sale of equipment...................... -- (21,000) 7,000 (13,000)
Noncash interest (income) expense--net................ (5,000) (1,000) (13,000) (1,000) (3,000)
Noncash compensation expense.......................... -- -- 8,000 --
Bad debt expense...................................... -- (930,000) 761,000 334,000
Fair value of warrants and options issued............. -- 44,000 19,000 --
Changes in operating assets and liabilities:
Receivables......................................... (2,211,000) 371,000 3,931,000 (3,840,000) 435,000
Inventories......................................... (72,000) (2,773,000) 292,000 (132,000) (2,124,000)
Prepaid expenses and other assets................... 109,000 (104,000) (10,000) 202,000 (243,000)
Accounts payable.................................... (58,000) 513,000 (330,000) 2,840,000 (665,000)
Accrued liabilities................................. 99,000 200,000 (5,000) 54,000 (48,000)
Income taxes payable................................ -- -- -- (2,000) (31,000)
Deferred rent....................................... (9,000) (136,000) (19,000) 136,000 --
Deferred revenue.................................... (42,000) 941,000 (35,000) (350,000) (1,085,000)
Deposits and other assets........................... -- -- (14,000) (6,000) (81,000)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities...................................... (3,907,000) (369,000) 2,583,000 (5,179,000) (2,376,000)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Equipment purchases................................... (125,000) (88,000) (375,000) (1,858,000) (765,000)
Proceeds from sale of fixed assets.................... -- -- 27,000 629,000 60,000
Decrease in deposits and other assets................. 22,000 (2,000) -- -- (425,000)
Maturity of restricted short term investments......... 425,000 -- -- --
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by investing
activities...................................... 322,000 (86,000) (348,000) (1,229,000) (1,130,000)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from shareholder loans....................... -- -- 750,000 1,000,000 --
Repayment of capital lease obligations and notes...... (341,000) (344,000) (763,000) (566,000) (563,000)
Repayment of notes payable to shareholder............. -- -- -- (958,000) (469,000)
Proceeds from sale of common stock.................... 14,000 41,000 70,000 33,000 28,000
Repurchase of common stock............................ -- -- -- -- (1,000)
Collection of notes receivable from sale of stock..... -- -- -- -- 6,000
Proceeds from sales of preferred stock................ -- -- -- 5,153,000 4,637,000
Line of credit borrowings (repayments), net........... 2,568,000 337,000 (1,261,000) 1,091,000 300,000
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities...................................... 2,241,000 34,000 (1,204,000) 5,753,000 3,938,000
---------- ---------- ---------- ---------- ----------
Increase (decrease) in cash and equivalents............. (1,344,000) (421,000) 1,031,000 (655,000) 432,000
Cash and equivalents, beginning of period............... 1,506,000 475,000 475,000 1,130,000 698,000
---------- ---------- ---------- ---------- ----------
Cash and equivalents, end of period..................... $ 162,000 $ 54,000 $1,506,000 $ 475,000 $1,130,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental cash flow information:
Interest paid......................................... $ 240,000 $ 180,000 $ 434,000 $ 533,000 $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income taxes paid..................................... $ -- $ -- $ 1,000 $ 1,000 $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Noncash investing and financing activities:
Equipment acquired under capital leases............... $ -- $ 709,000 $ 781,000 $ 110,000 $ 992,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Issuance of common stock for notes receivable......... $ -- $ -- $ 83,000 $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

See notes to financial statements.

F-29
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION--Pacific Monolithics, Inc. (the Company) markets wireless cable
television subsystem products and other products for wireless communications.

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, liabilities,
revenues and expenses as of the dates and for the periods presented. Actual
results could differ from those estimates.

CASH EQUIVALENTS--Cash equivalents consist of certificates of deposit with a
maturity of 90 days or less.

RESTRICTED SHORT-TERM INVESTMENTS--Investments consist of certificates of
deposit with remaining maturities of less than one year and are carried at cost
which approximates market. Such investments are classified as held-to-maturity.

INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out) or market.

PROPERTY--Property is stated at cost. Depreciation and amortization are
computed using the straight-line method based on estimated useful lives of three
to five years or the lease term, if shorter.

REVENUE RECOGNITION--Revenues from product sales are recognized upon
shipment. Estimated future warranty costs are accrued at the time of the sale.

Revenues from cost reimbursement and fixed-price development contracts are
recognized using the percentage of completion method of accounting under which
revenues are recorded based on the relationship of actual costs incurred to
total estimated costs at completion. Estimates are reviewed and revised
periodically throughout the lives of the contracts, and adjustments to profits
resulting from such revisions are recorded in the accounting period in which the
revisions are made. Losses on contracts are recorded in full as they are
identified.

Licensing revenue is recognized in accordance with the terms of the
licensing agreement.

CYPHERPOINT DEVELOPMENT--Operating expenses for the year ended September 30,
1996 include an unusual charge of $2,051,000 associated with a design change of
CypherPoint products.

INCOME TAXES--The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires an asset and liability approach for financial accounting and
reporting of income taxes and requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities, net operating losses and tax credit carryforwards.

CONCENTRATION OF CREDIT RISK--The Company sells its principal products to
customers in many different geographic locations. As of September 30, 1997,
approximately 60% of receivables were concentrated with three customers, one of
whom (30% of receivables) is based in Mexico. To reduce credit risk, the Company
performs periodic credit evaluations of its customers' financial condition.
Collateral is generally not required.

F-30
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FISCAL PERIOD--The Company's fiscal year ends on the Sunday nearest
September 30. The Company's fiscal years in the accompanying financial
statements have been shown as ending on September 30. Fiscal years 1997, 1996
and 1995 each include 52 weeks.

STOCK-BASED AWARDS TO EMPLOYEES--The Company accounts for stock-based awards
to employees using the intrinsic value method under Accounting Principles Board
Opinion No. 25. The Company adopted the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, which requires the disclosure of pro
forma net income and earnings per share as if the Company adopted the fair
value-based method in measuring compensation expense as of the beginning of
fiscal 1997.

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE--Basic earnings (loss) per share
is computed using the weighted average number of common shares outstanding
during the period, excluding shares subject to repurchase. Diluted earnings
(loss) per share is computed assuming the conversion of potentially dilutive
securities such as convertible preferred stock (using the "if converted" method)
and common stock options and warrants (using the treasury stock method).
Potentially dilutive securities are excluded from the computation if their
effect is antidilutive.

UNAUDITED FINANCIAL INFORMATION--The financial information as of March 31,
1998 and 1997 and for the three- and six-month periods then ended are unaudited
but include all adjustments that the Company considers necessary for the fair
presentation of its financial position as of such dates and the results of
operations and cash flows for these periods. Results for the 1998 interim period
are not necessarily indicative of results to be expected from the entire fiscal
year.

2. TRADE RECEIVABLES

Receivables consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ---------------------------
1998 1997 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Billed--commercial................................. $ 7,651,000 $ 5,397,000 $ 9,469,000
Less allowance..................................... (532,000) (489,000) (1,419,000)
------------ ------------ -------------
Net billed......................................... 7,119,000 4,908,000 8,050,000
Unbilled--commercial............................... -- -- 100,000
------------ ------------ -------------
$ 7,119,000 $ 4,908,000 $ 8,150,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

F-31
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

3. INVENTORIES

Inventories consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................... $ 2,958,000 $ 2,592,000 $ 1,951,000
Work in process..................................... 946,000 1,615,000 3,837,000
Finished goods...................................... 2,594,000 2,219,000 930,000
------------ ------------ ------------
Total inventories................................... $ 6,498,000 $ 6,426,000 $ 6,718,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $ 8,832,000 $ 8,468,000 $ 7,712,000
Furniture and fixtures........................... 233,000 233,000 231,000
Leasehold improvements........................... 64,000 64,000 64,000
Deposits for equipment........................... 259,000 259,000 --
------------- ------------- -------------
Total property................................... 9,388,000 9,024,000 8,007,000
Accumulated depreciation and amortization........ (6,805,000) (6,208,000) (5,114,000)
------------- ------------- -------------
Property and equipment--net...................... $ 2,583,000 $ 2,816,000 $ 2,893,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

5. ACCRUED LIABILITIES

Accrued liabilities consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ----------------------
1998 1997 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and related benefits...................... $ 638,000 $ 707,000 $ 787,000
Other.................................................. 407,000 239,000 164,000
------------ ---------- ----------
Total accrued liabilities.............................. $ 1,045,000 $ 946,000 $ 951,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>

6. BORROWING AND LEASE ARRANGEMENTS

At September 30, 1997, the Company had $1,730,000 outstanding under a
$5,000,000 revolving bank line of credit which expires January 31, 1998.
Borrowings bear interest at the bank's prime rate (8.5% at September 30, 1997)
plus 1.5%, cannot exceed 80% of eligible trade receivables and are
collateralized by

F-32
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

6. BORROWING AND LEASE ARRANGEMENTS (CONTINUED)
receivables, inventories and equipment. The agreement includes covenants
regarding profitability, leverage, working capital and minimum net worth. The
Company was not in compliance with these established debt covenants at September
30, 1997.

On November 17, 1997, the Company entered into a new $8,000,000 revolving
line of credit with Coast Business Credit. The term of the line of credit
expires in November 2000. Advances on the line of credit are limited to a
percentage of certain current assets (i.e., accounts receivables and inventory).
The interest rate on the new line is at the bank's reference rate (8.5% at
November 17, 1997) plus 2.25%. In connection with this new financing, the line
of credit outstanding as of September 30, 1997 was repaid and canceled.

As of September 30, 1997, the Company had $1,750,000 of demand notes payable
to shareholders which bear interest at 10% per annum. The shareholders' rights
to repayment and interest are subordinate to all bank borrowings.

In conjunction with obtaining $1,000,000 in notes payable in fiscal year
1996, the Company agreed to issue the shareholders warrants to purchase 50,000
shares of common stock of the Company for $.25 per share for each month that the
notes are outstanding up to a maximum of 600,000 shares. During the years ended
September 30, 1997 and 1996, the Company issued warrants to purchase 400,000 and
200,000, respectively, shares of common stock to the noteholders. The value of
the issued warrants was estimated to be $38,000 and $19,000 in fiscal 1997 and
1996, respectively, which has been included as an addition to shareholders'
equity in the respective year.

In conjunction with obtaining additional $750,000 in notes payable in
September 1997, the Company agreed to issue the shareholders warrants to
purchase 37,500 shares of common stock of the Company for $.25 per share for
each month that the notes are outstanding up to a maximum of 450,000 shares.
During the year ended September 30, 1997, the Company did not issue any of these
warrants to noteholders.

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, --------------------------
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations........................... $ 923,000 $ 1,025,000 $ 1,007,000
Current portion..................................... (465,000) (583,000) (624,000)
----------- ------------ ------------
Long-term portion................................... $ 458,000 $ 442,000 $ 383,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

Included in equipment and leasehold improvements is equipment with a net
book value of $1,101,000 and $1,006,000 at September 30, 1997 and 1996 (net of
accumulated amortization of $1,292,000 and $567,000, respectively), leased under
capital leases and purchased through equipment notes. In addition, the Company
leases its facilities under a noncancelable operating lease expiring in
September 2000. This facilities lease provides for escalating rental payments
over the lease period. Rent expense is to be recognized on a straight-line basis
over the term of the lease.

F-33
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

6. BORROWING AND LEASE ARRANGEMENTS (CONTINUED)
Cash paid for interest related to capital leases in fiscal 1997, 1996 and
1995 was $138,000, $139,000 and $196,000, respectively.

Future minimum annual payments under operating and capital lease obligations
and equipment notes as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING OPERATING LEASES AND
SEPTEMBER 30, LEASES NOTES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
1998............................................................ $ 945,000 $ 654,000
1999............................................................ 954,000 320,000
2000............................................................ 873,000 171,000
2001............................................................ 49,000 --
------------ ------------
Total............................................................. $ 2,821,000 1,145,000
------------
------------
Amount representing interest for capital leases................... (120,000)
------------
Present value of minimum lease payments and equipment notes....... 1,025,000
Less current portion.............................................. (583,000)
------------
Long-term portion................................................. $ 442,000
------------
------------
</TABLE>

Rent expense was $331,000, $331,000, $657,000, $689,000 and $293,000 for the
six months ended March 31, 1998 and 1997 (unaudited) and for the years ended
September 30, 1997, 1996 and 1995, respectively.

7. SHAREHOLDERS' EQUITY

At March 31, 1998, the Company has reserved shares of common stock for
issuance as follows:

<TABLE>
<S> <C>
Conversion of Series A preferred
stock................................. 7,249,269
Conversion of Series B preferred
stock................................. 2,861,453
Conversion of Series C preferred
stock................................. 2,209,959
Warrants................................ 1,075,000
Stock option plan....................... 4,530,749
-------------
Total 17,926,430
-------------
-------------
</TABLE>

CONVERTIBLE PREFERRED STOCK

Significant terms of the Series A, B and C convertible preferred stock are
as follows:

- Each share is convertible at the option of the holder at any time into one
share of common stock (subject to adjustments for events of dilution) and
has the same voting rights as the number of

F-34
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

7. SHAREHOLDERS' EQUITY (CONTINUED)
shares of common stock into which it is convertible. Shares will
automatically be converted upon a public offering of common stock meeting
specified criteria.

- Dividend declarations are at the discretion of the Board of Directors and
are noncumulative. Annual dividends per share of $.03 for Series A, $.0825
for Series B, and $.1175 for Series C may be paid; however, no dividends
shall be paid to common shareholders in any year unless the preferred
shareholders have received their full dividend per share. No dividends
have been declared.

- In the event of liquidation, dissolution or winding up of the Company, the
preferred shareholders shall receive a preference amount of $.60 per share
for Series A, $1.65 per share for Series B, and $2.35 per share for Series
C preferred stock prior to any distribution to the common shareholders.
Any remaining assets will be shared by common shareholders on a pro rata
basis.

RESTRICTED COMMON STOCK

Certain directors and employees purchased stock with cash or full recourse
notes. The related shares of common stock continue to vest in accordance with
the terms of the stock purchase agreement. The related notes bear interest at 8%
and are due on various dates during fiscal years 1998 and 2002. At March 1998,
366,000 outstanding shares of such stock were subject to repurchase. In
addition, the Company has a right of first refusal on any sale of common stock
with the terms specified by the purchase agreement. These rights expire upon the
Company's initial public offering, or upon merger or consolidation with another
company subject to specified criteria.

WARRANTS

As of September 30, 1997, the Company has outstanding warrants to purchase
600,000 shares of common stock in conjunction with certain notes payable at $.25
per share which expire in 2001. The fair value of these warrants issued in the
years ended September 30, 1997 and 1996 was recorded as interest expense as the
warrants were issued. The Company also has outstanding warrants to purchase
25,000 shares of common stock at $2.40 per share which expire in 2001 and were
issued in connection with an expired bank line of credit.

F-35
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

7. SHAREHOLDERS' EQUITY (CONTINUED)

EMPLOYEE STOCK PLANS

Under the Company's 1986 and 1996 Stock Option Plans, incentive and
nonstatutory options to purchase 6,500,000 shares of common stock may be granted
to employees, officers, directors, independent contractors and consultants to
the Company. Incentive stock options may not be granted at less than fair market
value (as determined by the Board of Directors) at the date of grant. Terms for
exercising options are determined by the Board of Directors and options
generally vest over four years and expire at the earlier of ten years from date
of grant or upon termination of employment. The Company has a right of first
refusal to repurchase shares issued under the plan. Under the 1996 stock option
plan, nonqualified options totaling 64,250 at $.25 per share were granted to
consultants during fiscal year 1997, which resulted in compensation of $6,000.
The options were fully vested.

Option activity under the two plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding, October 1, 1994...................................... 2,425,383 $ 0.06

Granted........................................................... 707,500 0.18
Exercised......................................................... (97,874) 0.05
Canceled.......................................................... (613,335) 0.08
----------
Outstanding, September 30, 1995................................... 2,421,674 0.08

Granted........................................................... 937,323 0.25
Exercised......................................................... (480,625) 0.07
Canceled.......................................................... (251,127) 0.16
----------
Outstanding, September 30, 1996 (1,143,002 exercisable at a
weighted average price of $.08)................................. 2,627,245 0.14

Granted........................................................... 985,750 .25
Exercised......................................................... (668,665) 0.14
Canceled.......................................................... (335,073) 0.20
----------
Outstanding, September 30, 1997 (1,705,709 exercisable at a
weighted average price of $.12)................................. 2,609,257 0.16

Granted........................................................... 136,000 0.25
Exercised......................................................... (138,622) 0.19
Canceled.......................................................... (68,133) 0.19
----------
Outstanding, March 31, 1998 (1,735,614 exercisable at a weighted
average price of $.13).......................................... 2,538,502 0.16
----------
----------
</TABLE>

F-36
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

7. SHAREHOLDERS' EQUITY (CONTINUED)
Additional information regarding options outstanding as of September 30,
1997 is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICES
- ----------- ----------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$.05 - .10 1,269,198 6.28 $ .06 1,160,298 $ .06
.25 1,761,673 8.90 .25 601,631 .25
- ----------- ----------- --- --- ---------- ---
$.05 - .25 3,030,871 7.80 $ .17 1,761,929 $ .12
- ----------- ----------- --- --- ---------- ---
- ----------- ----------- --- --- ---------- ---
</TABLE>

The weighted average fair value at the date of grant for options granted
during the years ended September 30, 1997, 1996 and 1995 was $.03, $.05 and
$.05, respectively.

At September 30, 1997, 2,058,500 shares were available for future grants
under the option plans.

ADDITIONAL STOCK PLAN INFORMATION

As discussed in Note 1, the Company continues to follow the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations; accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements with an option exercise price equal to the fair market value of
common stock at the date of grant. Compensation expense has been recognized for
stock options in the period granted to consultants in accordance with APB No.
25.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires disclosure of pro forma net loss
had the Company adopted the fair value method as of the beginning of fiscal
1997. Under SFAS 123, the fair value of stock-based awards to employees are
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values. The Company's calculations were made using
the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 1.6 to 3.9 years; stock volatility, 0%; risk free
interest rate, approximately 10% in fiscal 1997; and no dividend payments during
the expected term. Forfeitures are recognized as they occur. If the computed
fair value of the fiscal 1997 awards had been amortized to expense over the
vesting period of the awards, the effect upon pro forma net loss would have been
insignificant.

8. INCOME TAXES

No federal income taxes were provided for the six months ended March 31,
1998 or for the years ended September 30, 1997 or 1996 due to Pacific
Monolithic, Inc.'s net losses. The provision for income

F-37
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

8. INCOME TAXES (CONTINUED)
taxes differs from the amount computed by applying the federal statutory income
tax rate to the loss before income taxes as follows:

<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED SEPTEMBER 30,
MARCH 31, -------------------------------
1998 1997 1996 1995
------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Taxes computed at federal statutory rate................ 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal effect............... 6.1 6.1 6.1 6.1
Research tax credits and other permanent differences.... 0.2 1.5 0.7 1.5
Change in valuation allowance........................... (41.3) (42.6) (41.8) (42.6)
----- --------- --------- ---------
Total provision......................................... --% --% --% --%
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>

The tax effects of temporary differences that give rise to deferred taxes
were as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Expenses not currently deductible for tax
purposes..................................... $ 549,000 $ 570,000 $ 1,720,000
Tax net operating loss and credit
carryforwards................................ 7,714,000 6,666,000 6,448,000
Research and development expenses capitalized
for tax purposes............................. 1,456,000 1,584,000 197,000
------------- ------------- -------------
Total deferred tax assets........................ 9,719,000 8,820,000 8,365,000
Valuation allowance on deferred tax assets....... (9,719,000) (8,820,000) (8,365,000)
------------- ------------- -------------
Net deferred income taxes........................ $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

At March 31, 1998, net operating loss carryforwards of approximately
$19,717,000 and $4,877,000 were available to offset future federal and state
taxable income, respectively. These carryforwards expire beginning in 2002 and
2000.

At March 31, 1998, research and development credit carryforwards of $284,000
and $151,000 were available to offset future federal and state taxable income,
respectively. These carryforwards expire beginning in 2009 for federal purposes.

The extent to which federal and state carryforwards can be used in any one
year to offset future taxable income may be significantly limited because of
changes in ownership within any three-year period as provided by the Tax Reform
Act of 1986. Such limitations could result in the expiration of carryforwards
prior to their utilization.

F-38
<PAGE>
PACIFIC MONOLITHICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
AND THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

8. INCOME TAXES (CONTINUED)
As a result of the Company's history of recent operating losses, management
believes that recognition of the deferred tax assets is considered less likely
than not. Accordingly, the Company has recorded a valuation allowance against
its net deferred tax assets.

9. MAJOR CUSTOMERS, SEGMENT INFORMATION, AND RELATED PARTIES

One customer accounted for 30%, 36%, 17% of revenues for the years ended
September 30, 1997, 1996 and 1995, respectively, and 28% and 49% for the three
months and six months ended March 31, 1997, respectively. Another customer
accounted for 21% of revenues for the year ended September 30, 1997, 12% and 19%
of revenues for the six months ended March 31, 1998 and 1997, respectively, and
23% for the three months ended March 31, 1997. Another customer accounted for
12% of revenues for each of the years ended September 30, 1996 and 1995. In
addition, one customer accounted for 19% of revenues for the year ended
September 30, 1995 and 36% and 31% of revenues for the three months and six
months ended March 31, 1998, respectively. Two customers accounted for 14% and
10% of revenues for the six months ended March 31, 1998. One customer accounted
for 12% of revenue for the three months ended March 31, 1997. There were no
other customers in the fiscal years ended September 30, 1997, 1996 or 1995 or
for the three months and six months ended March 31, 1998 and 1997 who accounted
for over 10% of revenues for the respective years.

The Company operates in one industry segment. All revenues are denominated
in U.S. dollars and revenues from product exports were as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
United States................................... $ 24,607,000 $ 20,834,000 $ 15,780,000
Central America................................. 4,434,000 1,223,000 4,810,000
South America................................... 2,677,000 2,847,000 1,137,000
South Pacific/Asia.............................. 3,222,000 3,616,000 3,104,000
Other........................................... 429,000 621,000 94,000
------------- ------------- -------------
Total revenues.............................. $ 35,369,000 $ 29,141,000 $ 24,925,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

10. AGREEMENT AND PLAN OF REORGANIZATION WITH HYBRID NETWORKS, INC.

On March 19, 1998, the Company signed an Agreement and Plan of
Reorganization with Hybrid Networks, Inc. (the Agreement). The Agreement
contains an Agreement of Merger under which all outstanding shares of
convertible preferred stock and common stock of the Company will be converted
into the common stock of Hybrid Networks, Inc. based upon the conversion ratio
defined in such Agreement. The Agreement also contains a provision for the
conversion of the options and warrants of Hybrid Networks, Inc. The Agreement is
subject to the approval of the shareholders of the Company and of Hybrid
Networks, Inc.

* * * * *

F-39
<PAGE>
APPENDIX A-1

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

HYBRID NETWORKS, INC.,

PACIFIC MONOLITHICS, INC.

AND

HN ACQUISITION CORP.

MARCH 19, 1998
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
1. PLAN OF REORGANIZATION............................................................................ A-1-1
1.1 The Merger................................................................................ A-1-1
1.2 Fractional Shares......................................................................... A-1-2
1.3 Escrow Agreement.......................................................................... A-1-3
1.4 Effects of the Merger..................................................................... A-1-3
1.5 Further Assurances........................................................................ A-1-4
1.6 Registration on Form S-4.................................................................. A-1-4
1.7 Tax-Free Reorganization................................................................... A-1-4
1.8 Pooling of Interests...................................................................... A-1-5

2. REPRESENTATIONS AND WARRANTIES OF PACIFIC......................................................... A-1-5
2.1 Organization and Good Standing............................................................ A-1-5
2.2 Power, Authorization and Validity......................................................... A-1-5
2.3 Capitalization............................................................................ A-1-6
2.4 Subsidiaries.............................................................................. A-1-6
2.5 No Violation of Existing Agreements....................................................... A-1-6
2.6 Litigation................................................................................ A-1-6
2.7 Pacific Financial Statements.............................................................. A-1-7
2.8 Taxes..................................................................................... A-1-7
2.9 Title to Properties....................................................................... A-1-7
2.10 Absence of Certain Changes................................................................ A-1-8
2.11 Agreements and Commitments................................................................ A-1-9
2.12 Intellectual Property..................................................................... A-1-10
2.13 Compliance with Laws...................................................................... A-1-10
2.14 Certain Transactions and Agreements....................................................... A-1-10
2.15 Employees................................................................................. A-1-11
2.16 Corporate Documents....................................................................... A-1-12
2.17 No Brokers................................................................................ A-1-12
2.18 Disclosure................................................................................ A-1-12
2.19 Books and Records......................................................................... A-1-13
2.20 Insurance................................................................................. A-1-13
2.21 Environmental Matters..................................................................... A-1-13
2.22 Government Contracts...................................................................... A-1-14
2.23 Information Supplied...................................................................... A-1-14
2.24 Board Approval............................................................................ A-1-14
2.25 Pooling of Interests...................................................................... A-1-14

3. REPRESENTATIONS AND WARRANTIES OF HYBRID AND NEWCO................................................ A-1-14
3.1 Organization and Good Standing............................................................ A-1-14
3.2 Power, Authorization and Validity......................................................... A-1-15
3.3 No Violation of Existing Agreements or Laws............................................... A-1-15
3.4 SEC Documents............................................................................. A-1-15
3.5 Authorized/Outstanding Capital Stock...................................................... A-1-16
3.6 No Material Change........................................................................ A-1-16
3.7 Pooling of Interests...................................................................... A-1-16
3.8 Litigation................................................................................ A-1-16
3.9 Board Approval............................................................................ A-1-16
</TABLE>

A-1-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
4. PACIFIC PRECLOSING COVENANTS...................................................................... A-1-16
4.1 Advice of Changes......................................................................... A-1-16
4.2 Maintenance of Business................................................................... A-1-16
4.3 Conduct of Business....................................................................... A-1-17
4.4 Certain Agreements........................................................................ A-1-18
4.5 Shareholder Approval...................................................................... A-1-18
4.6 Employment and Noncompetition Agreements.................................................. A-1-18
4.7 Prospectus/Proxy Statement................................................................ A-1-18
4.8 Regulatory Approvals...................................................................... A-1-19
4.9 Necessary Consents........................................................................ A-1-19
4.10 Litigation................................................................................ A-1-19
4.11 No Other Negotiations..................................................................... A-1-19
4.12 Access to Information..................................................................... A-1-19
4.13 Satisfaction of Conditions Precedent...................................................... A-1-19
4.14 Blue Sky Laws............................................................................. A-1-19
4.15 Notification of Employee Problems......................................................... A-1-20
4.16 Pacific Affiliates Agreement.............................................................. A-1-20
4.17 Principal Shareholder Representation Letters.............................................. A-1-20
4.18 Tax Opinion............................................................................... A-1-20
4.19 Pacific Dissenting Shares................................................................. A-1-20
4.20 Pooling Accounting........................................................................ A-1-20

5. HYBRID PRECLOSING COVENANTS....................................................................... A-1-20
5.1 Advice of Changes......................................................................... A-1-20
5.2 Satisfaction of Conditions Precedent...................................................... A-1-20
5.3 Regulatory Approvals...................................................................... A-1-20
5.4 Hybrid Affiliates Agreements.............................................................. A-1-20
5.5 Tax Opinions.............................................................................. A-1-21
5.6 NMS Listing............................................................................... A-1-21
5.7 Voting Agreements......................................................................... A-1-21
5.8 Maintenance of Business................................................................... A-1-21
5.9 Stockholder Approval...................................................................... A-1-21
5.10 Prospectus/Proxy Statement................................................................ A-1-21
5.11 Necessary Consents........................................................................ A-1-21
5.12 Blue Sky Laws............................................................................. A-1-21
5.13 Pooling Accounting........................................................................ A-1-21
5.14 Filing of Form S-8........................................................................ A-1-22

6. CLOSING MATTERS................................................................................... A-1-22
6.1 The Closing............................................................................... A-1-22
6.2 Exchange of Certificates.................................................................. A-1-22
6.3 Assumption of Options and Warrants........................................................ A-1-23

7. CONDITIONS TO OBLIGATIONS OF PACIFIC.............................................................. A-1-23
7.1 Accuracy of Representations and Warranties................................................ A-1-23
7.2 Covenants................................................................................. A-1-23
7.3 Compliance with Law....................................................................... A-1-23
7.4 Government Consents....................................................................... A-1-23
7.5 Documents................................................................................. A-1-24
7.6 Form S-4.................................................................................. A-1-24
</TABLE>

A-1-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
7.7 Opinion of Hybrid's Counsel............................................................... A-1-24
7.8 Investor Rights Agreement................................................................. A-1-24
7.9 Shareholder and Stockholder Approval...................................................... A-1-24
7.10 Employment and Noncompetition Agreements.................................................. A-1-24
7.11 Board Seats............................................................................... A-1-24

8. CONDITIONS TO OBLIGATIONS OF HYBRID............................................................... A-1-24
8.1 Accuracy of Representations and Warranties................................................ A-1-24
8.2 Covenants................................................................................. A-1-25
8.3 Compliance with Law....................................................................... A-1-25
8.4 Government Consents....................................................................... A-1-25
8.5 Documents................................................................................. A-1-25
8.6 Form S-4.................................................................................. A-1-25
8.7 Opinion of Pacific's Counsel.............................................................. A-1-25
8.8 Requisite Approvals; Dissenting Shares.................................................... A-1-25
8.9 No Litigation............................................................................. A-1-25
8.10 Pooling Opinion........................................................................... A-1-25
8.11 Escrow.................................................................................... A-1-25
8.12 Employment and Noncompetition Agreements.................................................. A-1-25
8.13 Pacific Affiliates Agreement.............................................................. A-1-26

9. TERMINATION OF AGREEMENT.......................................................................... A-1-26
9.1 Termination............................................................................... A-1-26
9.2 Extension of Final Date in Event of Injunction............................................ A-1-26
9.3 Termination Payment....................................................................... A-1-26
9.4 Certain Continuing Obligations............................................................ A-1-27

SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS...................
10. A-1-27
10.1 Survival of Representations............................................................... A-1-27
10.2 Pacific Agreement to Indemnify............................................................ A-1-28

11. MISCELLANEOUS..................................................................................... A-1-29
11.1 Governing Law; Dispute Resolution......................................................... A-1-29
11.2 Assignment; Binding Upon Successors and Assigns........................................... A-1-30
11.3 Severability.............................................................................. A-1-30
11.4 Counterparts.............................................................................. A-1-30
11.5 Other Remedies............................................................................ A-1-30
11.6 Amendment and Waivers..................................................................... A-1-30
11.7 No Waiver................................................................................. A-1-30
11.8 Expenses.................................................................................. A-1-30
11.9 Notices................................................................................... A-1-31
11.10 Construction of Agreement................................................................. A-1-31
11.11 No Joint Venture.......................................................................... A-1-31
11.12 Further Assurances........................................................................ A-1-32
11.13 Absence of Third Party Beneficiary Rights................................................. A-1-32
11.14 Public Announcement....................................................................... A-1-32
11.15 Confidentiality........................................................................... A-1-32
11.16 Time is of the Essence.................................................................... A-1-32
11.17 Entire Agreement.......................................................................... A-1-33
</TABLE>

A-1-iii
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS:
- ------------
<S> <C>

Exhibit A Form of Agreement of Merger
Exhibit B Form of Escrow Agreement
Exhibits C Forms of Officer Certificates
and D
Exhibit E Form of Pacific Intellectual Property Agreement
Exhibit F Parties to Sign Pacific Affiliate Agreement and Pacific Voting Agreement
Exhibit G Form of Employment Agreement
Exhibit H Form of Noncompetition Agreement
Exhibit I Form of Pacific Affiliate Agreement
Exhibit J Form of Hybrid Affiliate Agreement
Exhibit K Parties to Sign Hybrid Affiliate Agreement and Voting Agreement
Exhibit L Form of Hybrid Voting Agreement
Exhibit M Form of Fenwick & West LLP Opinion
Exhibit N Form of Investor Rights Agreement
Exhibit O Form of Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation
Exhibit P List of Consents
Exhibit Q Form of Pacific Voting Agreement
</TABLE>

A-1-iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is entered into
as of March 19, 1998, by and among Hybrid Networks, Inc., a Delaware corporation
("HYBRID"), Pacific Monolithics, Inc., a California corporation ("PACIFIC"), and
HN Acquisition Corp., a Delaware corporation that is a wholly-owned subsidiary
of Hybrid ("NEWCO").

RECITALS

A. The parties intend that, subject to the terms and conditions hereinafter
set forth, Newco will merge with and into Pacific in a reverse triangular merger
(the "MERGER"), with Pacific to be the surviving corporation of the Merger, all
pursuant to the terms and conditions of this Agreement and an Agreement of
Merger substantially in the form of EXHIBIT A (the "AGREEMENT OF MERGER") and
the applicable provisions of the laws of Delaware and California. Upon the
effectiveness of the Merger, all the outstanding Common Stock and Preferred
Stock of Pacific will be converted into Common Stock of Hybrid, in the manner
and on the basis determined herein and as provided in the Agreement of Merger.

B. The Merger is intended to be treated as a "pooling of interests" for
accounting purposes and a tax-free reorganization pursuant to the provisions of
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) of the Code.

NOW, THEREFORE, the parties hereto agree as follows:

1. PLAN OF REORGANIZATION

1.1 THE MERGER. The Agreement of Merger will be filed with the
Secretaries of State of the States of Delaware and California as soon as
practicable after the Closing (as defined in Section 6.1 below). The
effective time of the Merger as specified in the Agreement of Merger (the
"EFFECTIVE TIME") will occur upon the filing of the Agreement of Merger with
the California Secretary of State, or on such other date as the parties
hereto may mutually agree upon. Subject to the terms and conditions of this
Agreement and the Agreement of Merger, Newco will be merged with and into
Pacific (or, at Hybrid's option, Pacific will be merged with and into Hybrid
in a straight in merger or with and into Newco in a forward-triangular
merger) in a statutory merger pursuant to the Agreement of Merger and in
accordance with applicable provisions of Delaware and California laws as
follows:

1.1.1 CONVERSION OF PACIFIC SHARES. Each share of Pacific Common
Stock, no par value (the "PACIFIC COMMON STOCK"), and each share of
Pacific Preferred Stock, no par value (the "PACIFIC PREFERRED STOCK",
and, together with the Pacific Common Stock, the "PACIFIC CAPITAL
STOCK"), that is issued and outstanding immediately prior to the
Effective Time, other than shares, if any, for which dissenters rights
have been or will be perfected in compliance with applicable law, will,
by virtue of the Merger and at the Effective Time, and without further
action on the part of any holder thereof, be converted into the
Applicable Number (determined in accordance with Section 1.1.3 hereof) of
fully paid and nonassessable shares of Hybrid Common Stock, $0.001 par
value ("HYBRID COMMON STOCK").

1.1.2 CONVERSION AND ASSUMPTION OF OPTIONS AND WARRANTS. Each
option or warrant to purchase shares of Pacific Capital Stock that is
outstanding immediately prior to the Effective Time (a "PACIFIC OPTION"
or a "PACIFIC WARRANT," as the case may be) will, by virtue of the Merger
at the Effective Time and without further action on the part of any
holder thereof, be converted and assumed by Hybrid into an option or
warrant (a "HYBRID OPTION" or "HYBRID WARRANT," as the case may be) to
purchase that number of shares of Hybrid Common Stock which equals the
Applicable Number (as defined below) multiplied by the number of shares
of Pacific Capital Stock purchasable immediately prior to the Effective
Time under the Pacific Option or Pacific Warrant, rounded down to the
nearest whole share. The exercise price per share of Hybrid Common Stock
purchasable under each such Hybrid Option or Hybrid Warrant will be equal
to

A-1-1
<PAGE>
the exercise price of the Pacific Option or Pacific Warrant (per share of
Pacific Capital Stock) divided by the Applicable Number, rounded up to
the nearest whole cent. All of the other terms of each Hybrid Option or
Hybrid Warrant will be the same in all material respects as the
corresponding Pacific Option or Pacific Warrant that is being replaced
and converted.

1.1.3 DEFINITIONS. Unless there is an adjustment to the shares to
be issued in the Merger pursuant to Section 1.1.4 below, the "APPLICABLE
NUMBER" shall equal (i) the total number of shares of Pacific Capital
Stock outstanding at the Effective Time plus the total number of shares
of Pacific Capital Stock issuable upon exercise of all Pacific Options
and Pacific Warrants outstanding at the Effective Time divided into (ii)
the total number of shares of Hybrid Common Stock obtained by dividing
(A) $12,500,000 by (B) the "CLOSING PRICE." The "CLOSING PRICE" shall
equal the average of the closing sale prices of one share of Hybrid
Common Stock reported in the WALL STREET JOURNAL, on the basis of
information provided by the Nasdaq Stock Market for each of the ten
trading days ending two (2) trading days preceding the Closing Date;
provided, however, that in no event shall the Closing Price be greater
than $8.40 or less than $5.17.

1.1.4 ADJUSTMENTS FOR CAPITAL CHANGES. If prior to the Merger,
Hybrid or Pacific recapitalizes either through a split-up of its
outstanding shares into a greater number, or through a combination of its
outstanding shares into a lesser number, or reorganizes, reclassifies or
otherwise changes its outstanding shares into the same or a different
number of shares of other classes (other than through a split-up or
combination of shares provided for in the previous clause), or declares a
dividend on its outstanding shares payable in shares or securities
convertible into shares, the calculation of the Applicable Number
governing the conversion of Pacific Capital Stock will be adjusted
appropriately.

1.1.5 CONVERSION OF NEWCO SHARES. Each share of Newco Common Stock,
$0.001 par value ("NEWCO COMMON STOCK"), that is issued and outstanding
immediately prior to the Effective Time will, by virtue of the Merger and
without further action on the part of the sole stockholder of Newco, be
converted into and become one (1) share of Pacific Common Stock that is
issued and outstanding immediately after the Effective Time, and the
shares of Pacific Common Stock into which the shares of Newco Common
Stock are so converted shall be the only shares of Pacific capital stock
that are issued and outstanding immediately after the Effective Time.

1.1.6 DISSENTING SHARES. Holders of shares of Pacific Capital Stock
which are outstanding on the date of the determination of the Pacific
shareholders entitled to vote on the Merger and which were not voted in
favor of the Merger (the "ELIGIBLE DISSENTING SHARES"), will be entitled
to exercise dissenters' rights, pursuant to Sections 1300 through 1304 of
the California Corporations Code, with respect to such Eligible
Dissenting Shares, provided that such holders meet the requirements of
those sections with respect to such shares. (Any Eligible Dissenting
Shares as to which such dissenters' rights are duly exercised are
referred to hereinafter as "PACIFIC DISSENTING SHARES.")

1.1.7 STRAIGHT IN OR FORWARD-TRIANGULAR MERGER. The parties agree
that, upon Hybrid's request, they will amend these documents to cause
Pacific to merge with and into Hybrid or Newco.

1.2 FRACTIONAL SHARES. No fractional shares of Hybrid Common Stock
will be issued in connection with the Merger, but in lieu thereof, the
holder of any shares of Pacific Capital Stock who would otherwise be
entitled to receive a fraction of a share of Hybrid Common Stock will
receive from Hybrid, promptly after the Effective Time, an amount of cash
equal to the Closing Price multiplied by the fraction of a share of Hybrid
Common Stock to which such holder would otherwise be entitled. Holders of
Pacific Options or Pacific Warrants that would otherwise be converted into
Hybrid Options or Hybrid Warrants to purchase a fraction of a share of
Hybrid Common Stock will receive from Hybrid, promptly at the time of any
exercise of such Pacific Option or Pacific Warrant, an amount of

A-1-2
<PAGE>
cash equal to the Closing Price multiplied by the fraction of a share of
Pacific Capital Stock to which such holder would otherwise be entitled upon
exercise of the Pacific Option, less the exercise price per fractional share
of the Pacific Option.

1.3 ESCROW AGREEMENT. Pursuant to an Escrow Agreement to be entered
into on or before the Closing Date in substantially the form of EXHIBIT B
(the "ESCROW AGREEMENT"), among Hybrid, Alan Dishlip as representative for
the holders of outstanding shares of Pacific Capital Stock immediately
before the Effective Time who are entitled to receive shares of Hybrid
Common Stock issued upon the Merger and who do not exercise dissenters
rights, and State Street Bank and Trust Company, as Escrow Agent, Hybrid
will withhold from the shares of Hybrid Common Stock that would otherwise be
delivered to such holders (the "PACIFIC HOLDERS"), 10% of the total number
of shares of Hybrid Common Stock issued to them in the Merger. Promptly
after the Closing Date, Hybrid will deposit or cause to be deposited in
escrow pursuant to the Escrow Agreement certificates representing the shares
thus withheld. The shares of Hybrid Common Stock represented by the
certificates deposited in escrow as provided above in this Section 1.3 (the
"ESCROW SHARES") will be held as collateral for the indemnification
obligations of the Pacific Holders under section 10.2 below and pursuant to
the Escrow Agreement pending their release from escrow pursuant to the
Escrow Agreement.

In the event that the Merger is approved by the Pacific shareholders, as
provided herein, the Pacific shareholders shall, without any further act of any
Pacific shareholder, be deemed to have consented to and approved (i) the use of
the Escrow Shares as collateral for the Pacific Holder's indemnification
obligations under Section 10.2 in the manner set forth in the Escrow Agreement,
(ii) the appointment of Alan Dishlip as the representative of the Pacific
Holders (the "REPRESENTATIVE") under the Escrow Agreement and as the
attorney-in-fact and agent for and on behalf of each Pacific Holder (other than
holders of Dissenting Shares) and the taking by the Representative of any and
all actions and the making of any decisions required or permitted to be taken by
the Representative under the Escrow Agreement (including, without limitation,
the exercise of the power to: (a) authorize delivery to Hybrid of Escrow Shares
in satisfaction of claims by Hybrid; (b) agree to, negotiate, enter into
settlements and compromises of and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims; (c) resolve any
claim made by Indemnified Persons pursuant to Section 10.2; and (d) take all
actions necessary in the judgment of the Representative for the accomplishment
of the foregoing) and (iii) to all of the other terms, conditions and
limitations in the Escrow Agreement.

The Representative shall not be liable for any act done or omitted hereunder
as Representative while acting in good faith and in the exercise of reasonable
judgment. The Pacific Holders on whose behalf the Escrow Shares were contributed
to the escrow shall severally indemnify the Representative and hold the
Representative harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Representative and arising out of or
in connection with the acceptance or administration of the Representative's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Representative.

A decision, act, consent or instruction of the Representative shall
constitute a decision of all the shareholders for whom a portion of the Escrow
Shares otherwise issuable to them are deposited in the escrow and shall be
final, binding and conclusive upon each of such shareholders, and the Escrow
Agent and Hybrid may rely upon any such decision, act, consent or instruction of
the Representative as being the decision, act, consent or instruction of each
such shareholder of the Company. The Escrow Agent and Hybrid are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Representative.

1.4 EFFECTS OF THE MERGER. At the Effective Time: (a) the separate
existence of Newco will cease and Newco will be merged with and into Pacific
and Pacific will be the surviving corporation pursuant to the terms of the
Agreement of Merger; (b) the Articles of Incorporation of Pacific will be
amended in substantially the form attached to the Agreement of Merger as
Exhibit A thereto and the Bylaws of

A-1-3
<PAGE>
Pacific will continue unchanged as the Bylaws of the surviving corporation;
(c) each share of Pacific Capital Stock outstanding immediately prior to the
Effective Time will be converted as provided in this Article 1; (d) each
share of Newco Common Stock outstanding immediately prior to the Effective
Time will be converted into one (1) outstanding share of Pacific Common
Stock; (e) Richard B. Gold and Matt Miller will be appointed to the Board of
Directors of Hybrid as Class I directors, with the current Class I directors
resigning effective as of the Effective Time and Richard B. Gold will be
appointed the President and Chief Operating Officer of Hybrid and the
remaining directors and executive officers of Hybrid otherwise remaining
unchanged and the sole director of Newco immediately prior to the Effective
Time will become the sole director of the surviving corporation and the
officers of Newco immediately prior to the Effective Time will become the
officers of the surviving corporation; and (f) the Merger will, at and after
the Effective Time, have all of the effects provided by applicable law.

1.5 FURTHER ASSURANCES. Pacific agrees that if, at any time after the
Effective Time, Hybrid considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest,
perfect or confirm in Hybrid title to any property or rights of Pacific as
provided herein, Hybrid and any of its officers are hereby authorized by
Pacific to execute and deliver all such proper deeds, assignments and
assurances and do all other things necessary or desirable to vest, perfect
or confirm title to such property or rights in Hybrid and otherwise to carry
out the purposes of this Agreement, in the name of Pacific or otherwise.

1.6 REGISTRATION ON FORM S-4. The Hybrid Common Stock to be issued in
the Merger shall be registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), on a Form S-4 Registration Statement to be filed by
Hybrid (the "FORM S-4"). As promptly as practicable after the date of this
Agreement, Hybrid shall prepare and file with the United States Securities
and Exchange Commission (the "SEC") a prospectus/proxy statement (the
"PROSPECTUS/PROXY STATEMENT") together with the Form S-4 and any other
documents required by the Securities Act or the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), in connection with the Merger. Each
of Hybrid and Pacific will notify the other promptly upon the receipt of any
comments from the SEC or its staff and of any request by the SEC or its
staff or any other government officials for amendments or supplements to the
Form S-4 or the Prospectus/Proxy Statement or for additional information and
will promptly supply the other with copies of all correspondence between
such party or any of its representatives, on the one hand, and the SEC, or
its staff or any other government officials, on the other hand, with respect
to the Form S-4, the Prospectus/Proxy Statement or the Merger, as the case
may be. Hybrid and Pacific shall use all reasonable efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable
after such filing and/or to resolve any stop orders or proceedings initiated
by the SEC with respect to the Merger. Hybrid shall also take any action
required to be taken under any applicable state securities or "blue sky"
laws in connection with the issuance of the Hybrid Common Stock in the
Merger. Pacific shall furnish to Hybrid all information concerning Pacific
and the security holders of Pacific as may be reasonably requested in
connection with any action contemplated by this Section 1.6.

1.7 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger
in accordance with the provisions of Section 368(a)(1)(A) of the Code, by
virtue of the provisions of Section 368(a)(2)(E) of the Code. For purposes
of this Section 1.7, Hybrid and Pacific agree to report the transactions
contemplated in this Agreement in a manner consistent with the
reorganization treatment they intend and will not take any position
inconsistent therewith in any tax return, refund claim, litigation or
otherwise unless required to do so by any governmental authority. The shares
of Hybrid Common Stock issued in the Merger will be issued solely in
exchange for the issued and outstanding shares of Pacific Capital Stock
pursuant to this Agreement, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the
consideration paid for the Pacific Capital Stock. Except for

A-1-4
<PAGE>
cash paid in lieu of fractional shares, no consideration that could
constitute "OTHER PROPERTY" within the meaning of Section 356 of the Code
will be paid by Hybrid for shares of Pacific Capital Stock in the Merger. In
addition, Hybrid represents that it presently intends, and that at the
Effective Time it will intend, to continue Pacific's historic business or
use a significant portion of Pacific's business assets in a business. At the
Closing (as defined in Section 6.1 hereof), officers of Pacific and officers
of Hybrid will execute and deliver officers' certificates in the forms of
Exhibits C and D, respectively, and the representations and other statements
set forth therein are incorporated in this Agreement by this reference to
the same extent as if Pacific or Hybrid, respectively, had made such
statements herein.

1.8 POOLING OF INTERESTS. The parties intend that the Merger be
treated as a "POOLING OF INTERESTS" for accounting purposes.

2. REPRESENTATIONS AND WARRANTIES OF PACIFIC

Pacific hereby represents and warrants that, except as set forth in the
Pacific disclosure letter (the "PACIFIC DISCLOSURE LETTER") delivered by Pacific
to Hybrid herewith, including items in the Pacific Disclosure Letter referred to
as "ITEMS" below:

2.1 ORGANIZATION AND GOOD STANDING. Pacific is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California, has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted and is qualified as a foreign corporation in each
jurisdiction listed on ITEM 2.1. Pacific is qualified as a foreign
corporation in each jurisdiction in which a failure to be so qualified could
reasonably be likely to have a Material Adverse Effect (as defined below) on
its present or expected operations or financial condition. Pacific does not
own or lease any real property, has no employees and does not maintain a
place of business in any foreign country or in any state of the United
States other than California, except as listed on ITEM 2.1. When used in
connection with Pacific, the term "Material Adverse Effect" means any
change, event or effect that is or reasonably likely to be materially
adverse to the business (including, but not limited to the development,
sales and marketing of Pacific's Downconverter and CypherPoint line of
products), assets (including intangible assets), liabilities, financial
condition or results of operations of Pacific; provided, however, that a
Material Adverse Effect shall not include any adverse effect following the
date of this Agreement on the business, financial condition or results of
operations of Pacific, that is directly attributable to adverse reaction to
the Merger contemplated by this Agreement or the announcement of the Merger
or that is consistent with an economic downturn in the industry in which
Pacific operates or a national economic downturn.

2.2 POWER, AUTHORIZATION AND VALIDITY.

2.2.1 Pacific has the corporate right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement
and all agreements to which Pacific is or will be a party that are
required to be executed pursuant to this Agreement (the "PACIFIC
ANCILLARY AGREEMENTS"). This Agreement and the Pacific Ancillary
Agreements have been duly and validly approved by the Pacific Board of
Directors and, as required by applicable law and subject to approval by
the shareholders of Pacific, will be duly and validly approved by the
shareholders of Pacific prior to the Effective Date.

2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Pacific to enter into, and to perform
its obligations under, this Agreement and the Pacific Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Secretaries of State of the States of Delaware and California, the filing
of such officers' certificates and other documents as are required to
effectuate the Merger under Delaware and California law and the filing of
appropriate documents with the relevant authorities of the states other
than California in which Pacific is qualified to do business, if any, (b)
such filings as may be required to comply with

A-1-5
<PAGE>
federal and state securities laws, (c) the approval of this Agreement and
the Agreement of Merger by the shareholders of Pacific and (d) consents
required under contracts disclosed in ITEM 2.5 as exceptions to the
representation made in the last sentence of Section 2.5 below.

2.2.3 This Agreement and the Pacific Ancillary Agreements are, or
when executed and delivered by Pacific and the other parties thereto will
be, valid and binding obligations of Pacific enforceable against Pacific
and the Pacific affiliates (as applicable) in accordance with their
respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally and (b) rules of law governing specific performance, injunctive
relief and other equitable remedies; provided, however, that the Pacific
Ancillary Agreements will not be effective until the earlier of the
Effective Time or the date provided for therein.

2.3 CAPITALIZATION.

(a) AUTHORIZED/OUTSTANDING CAPITAL STOCK. The authorized capital stock
of Pacific consists of 25,000,000 shares of Pacific Common Stock, no par
value, and 12,510,722 shares of Pacific Preferred Stock, no par value, of
which the following series and amounts are authorized Series A--7,249,269;
Series B--2,861,453; and Series C--2,400,000. 5,653,857 shares of Pacific
Common Stock are issued and outstanding as of this date. 12,320,681 shares
of Pacific Preferred Stock are issued and outstanding in the following
series and amounts: Series A--7,249,269; Series B--2,861,453; and Series C--
2,209,959. All issued and outstanding shares of Pacific Common Stock and
Pacific Preferred Stock, which are listed by holder on ITEM 2.3, have been
duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any right of rescission and have been offered, issued, sold
and delivered by Pacific in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of
applicable federal and state securities laws.

(b) OPTIONS/RIGHTS. Except as set forth in ITEM 2.3, there are no
stock appreciation rights, options, warrants, conversion privileges or
preemptive or other rights or agreements outstanding to purchase or
otherwise acquire any of Pacific's authorized but unissued capital stock;
there are no options, warrants, conversion privileges or preemptive or other
rights or agreements to which Pacific is a party involving the purchase or
other acquisition of any shares of Pacific Capital Stock; there is no
liability for dividends accrued but unpaid; and there are no voting
agreements, registration rights, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of Pacific's
outstanding securities.

2.4 SUBSIDIARIES. Pacific does not have any subsidiaries or any equity
interest, direct or indirect, in any corporation, partnership, joint venture
or other business entity.

2.5 NO VIOLATION OF EXISTING AGREEMENTS. Except as set forth in ITEM
2.5, neither the execution and delivery of this Agreement or any Pacific
Ancillary Agreement, nor the consummation of the transactions provided for
herein or therein, will conflict with, or (with or without notice or lapse
of time, or both) result in a termination, breach, impairment or violation
of (a) any provision of the Articles of Incorporation or Bylaws of Pacific,
as currently in effect, (b) any instrument or contract to which Pacific is a
party or by which Pacific is bound, except where such conflict, termination,
breach, impairment or violation would not have a Material Adverse Effect or
(c) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to Pacific or its assets or
properties. The consummation of the Merger and succession by Hybrid to all
rights, licenses, franchises, leases and agreements of Pacific in and of
themselves will not require the consent of any third party and will not have
a Material Adverse Effect other than as set forth in ITEM 2.5.

2.6 LITIGATION. Except as set forth in ITEM 2.6, there is no action,
proceeding or investigation pending or, to the best of Pacific's knowledge
(as defined below), threatened against Pacific before any court or
administrative agency that, if determined adversely to Pacific, is likely to
have a Material

A-1-6
<PAGE>
Adverse Effect or in which the adverse party or parties seek to recover in
excess of $50,000 against Pacific. There is no basis for any person, firm,
corporation or entity to assert a claim against Pacific or Hybrid as
successor in interest to Pacific based upon: (a) ownership or rights to
ownership of any shares of Pacific Capital Stock or other securities, (b)
any rights as a Pacific securities holder, including, without limitation,
any option or other right to acquire any Pacific securities, any preemptive
rights or any rights to notice or to vote or (c) any rights under any
agreement between Pacific and any Pacific securities holder or former
Pacific securities holder in such holder's capacity as such. There is no
action, suit, proceeding, claim, arbitration or investigation pending or as
to which Pacific has received any notice of assertion against Pacific, which
in any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement. As used in
this Agreement, "TO THE BEST OF PACIFIC'S KNOWLEDGE" or "TO PACIFIC'S
KNOWLEDGE" shall mean to the actual knowledge of Pacific's directors and
executive officers after reasonable inquiry.

2.7 PACIFIC FINANCIAL STATEMENTS. Pacific has delivered to Hybrid in
Item 2.7 Pacific's unaudited balance sheet as of September 30, 1997 and
unaudited balance sheet as of February 28, 1998 (the "BALANCE SHEET DATE")
and Pacific's unaudited income statements for the years ended September 30,
1996 and 1997 and unaudited income statement for the period from October 1,
1997 through February 28, 1998 (collectively, the "PACIFIC FINANCIAL
STATEMENTS"). The Pacific Financial Statements, in all material respects,
(a) are in accordance with the books and records of Pacific, (b) fairly and
accurately represent the financial condition of Pacific at the respective
dates specified therein and the results of operations for the respective
periods specified therein and (c) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
Pacific will deliver the audit September 30, 1997 Pacific Financial
Statements to Hybrid as soon as possible after the date of this Agreement.
Except as set forth in Item 2.7, Pacific has no material debt, liability or
obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected, reserved
against or disclosed in the Pacific Financial Statements, except for those
that may have been incurred after the Balance Sheet Date in the ordinary
course of Pacific's business.

2.8 TAXES. Pacific has filed all federal, state, local and foreign tax
and material information returns required to be filed prior to the date
hereof, has paid all taxes required to be paid in respect of all periods
prior to the date hereof for which returns have been filed, has made all
necessary estimated tax payments, and has no liability for taxes in excess
of the amount so paid, except to the extent adequate reserves have been
established in the Pacific Financial Statements. True, correct and complete
copies of all such tax and information returns have been provided or made
available by Pacific to Hybrid. Pacific is not delinquent in the payment of
any tax or in the filing of any tax returns, and no deficiencies for any tax
have been threatened, claimed, proposed or assessed which have not been
settled or paid. Except as set forth in ITEM 2.8, no tax return of Pacific
has ever been audited by the Internal Revenue Service or any state taxing
agency or authority. For the purposes of this Section 2.8, the terms "TAX"
and "TAXES" include all federal, state, local and foreign income, gains,
franchise, excise, property, sales, use, employment, license, payroll,
occupation, recording, value added or transfer taxes, governmental charges,
fees, levies or assessments (whether payable directly or by withholding),
and, with respect to such taxes, any estimated tax, interest and penalties
or additions to tax and interest on such penalties and additions to tax.

2.9 TITLE TO PROPERTIES. Except as set forth in ITEM 2.9, Pacific has
good and marketable title to all of its assets as shown on the balance sheet
as of the Balance Sheet Date included in the Pacific Financial Statements,
free and clear of all liens, charges or encumbrances (other than for taxes
not yet due and payable and Permitted Liens as defined below), other than
such assets (i) that were sold by Pacific in the ordinary course of business
since the Balance Sheet Date or (ii) which are subject to capitalized
leases. "PERMITTED LIENS" means any lien, mortgage, encumbrance or
restriction which is reflected in the Pacific Financial Statements and is
not in excess of $50,000 and which does not

A-1-7
<PAGE>
materially detract from the value or materially interfere with the use, as
currently utilized, of the properties subject thereto or affected thereby or
otherwise materially impair the business operations being conducted thereon.
Except as set forth in ITEM 2.9, there are no UCC financing statements of
record with the State of California naming Pacific as debtor and Pacific
owns no property in any other state. The machinery and equipment included in
such assets are in all material respects in good condition and repair,
normal wear and tear excepted, and all leases of real or personal property
to which Pacific is a party are fully effective and afford Pacific peaceful
and undisturbed possession of the subject matter of the lease, except to the
extent that failure to have such peaceful and undisturbed possession would
have a Material Adverse Effect. Pacific, to its knowledge, is not in
violation of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the
operation of owned or leased properties, and Pacific has not received any
notice of such violation with which it has not complied or had waived,
except to the extent such violation would not have a Material Adverse
Effect.

2.10 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, Pacific
has carried on its business in the ordinary course substantially in
accordance with the procedures and practices in effect on the Balance Sheet
Date, and except as set forth in ITEM 2.10, since the Balance Sheet Date
there has not been with respect to Pacific:

(a) any change in the financial condition, properties, assets,
liabilities, business, results of operations or prospects of Pacific,
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, have had or is
reasonably likely to have a Material Adverse Effect;

(b) any contingent liability incurred by Pacific as guarantor or
surety with respect to the obligations of others;

(d) any material obligation or liability incurred by Pacific other
than in the ordinary course of business;

(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of
the properties or assets of Pacific other than in the ordinary course of
business;

(f) any damage, destruction or loss, whether or not covered by
insurance, would have or is reasonably likely to have a Material Adverse
Effect;

(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of
Pacific, any split, stock dividend, combination or recapitalization of
the capital stock of Pacific or any direct or indirect redemption,
purchase or other acquisition by Pacific of the capital stock of Pacific;

(h) any significant labor dispute or material claim of unfair labor
practices, any material change in the compensation payable or to become
payable to any of Pacific's officers, employees or agents, or any
material bonus payment or arrangement made to or with any of such
officers, employees or agents;

(i) any change with respect to the management, supervisory,
development or other key personnel of Pacific (the management,
supervisory, development and other key personnel of Pacific are listed on
ITEM 2.10 hereof);

(j) any payment or discharge of a material lien or liability thereof,
which lien or liability was not either (i) shown on the balance sheet as
of the Balance Sheet Date included in the Pacific

A-1-8
<PAGE>
Financial Statements or (ii) incurred in the ordinary course of business
after the Balance Sheet Date; or

(k) any obligation or liability incurred by Pacific to any of its
officers, directors, shareholders or affiliates, or any loans or advances
made to any of its officers, directors, shareholders or affiliates,
except normal compensation and expense allowances payable to officers.

2.11 AGREEMENTS AND COMMITMENTS. Except as set forth in ITEM 2.11
delivered by Pacific to Hybrid herewith, or as listed in ITEM 2.12, ITEM
2.15.3 or ITEM 2.15.6 as required by Section 2.12, Section 2.15.3 or Section
2.15.6, as the case may be, Pacific is not a party or subject to any oral or
written executory agreement, obligation or commitment that is material to
Pacific, its financial condition, business or prospects or which is
described below and is not terminable within 60 days without cost or penalty
to Pacific, including but not limited to the following:

(a) Any contract, commitment, letter agreement, quotation or purchase
order providing for payments by or to Pacific in an aggregate amount of
(i) $50,000 or more in the ordinary course of business or (ii) $25,000 or
more not in the ordinary course of business;

(b) Any license agreement under which Pacific is licensor (except for
any nonexclusive software license granted by Pacific to end-user
customers where the form of the license, excluding standard immaterial
deviations, has been provided to Hybrid's counsel); or under which
Pacific is licensee (except for standard "shrink wrap" licenses for
off-the-shelf software products);

(c) Any agreement by Pacific to encumber, transfer or sell rights in
or with respect to any Pacific Intellectual Property (as defined in
Section 2.12 hereof);

(d) Any agreement for the sale or lease of real or personal property
involving more than $50,000 per year;

(e) Any material dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
distribution of Pacific's products;

(f) Any material franchise agreement or financing statement;

(g) Any stock redemption or purchase agreement;

(h) Any joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons or the payment of
royalties to any other person;

(i) Any instrument evidencing indebtedness for borrowed money by way
of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness
or any advance to any employee of Pacific incurred or made in the
ordinary course of business, and except as disclosed in the Pacific
Financial Statements; or

(j) Any contract containing covenants purporting to limit Pacific's
freedom to compete in any line of business in any geographic area.

All agreements, obligations and commitments listed in ITEM 2.11, ITEM 2.12,
ITEM 2.15.3 or ITEM 2.15.6 as required by Section 2.11, Section 2.12, Section
2.15.3 or Section 2.15.6, as the case may be, are valid and in full force and
effect, and except as expressly noted, a true and complete copy of each has been
delivered to Hybrid or Hybrid's counsel. Except as noted on ITEM 2.11, neither
Pacific nor, to the knowledge of Pacific, any other party is in breach of or
default under any material term of any such agreement, obligation or commitment.
Pacific is not a party to any contract or arrangement that it reasonably expects
will have a Material Adverse Effect. Pacific has no liability for renegotiation
of government contracts or subcontracts which are material to Pacific, its
financial condition, business or prospects.

A-1-9
<PAGE>
2.12 INTELLECTUAL PROPERTY. Pacific owns all right, title and interest
in, or has the right to use, all patent applications, patents, trademark
applications, trademarks, service marks, trade names, mask works, copyright
applications, copyrights, trade secrets, know-how, technology and other
intellectual property and proprietary rights used in or reasonably necessary
to the conduct of its business as presently conducted, using such
intellectual property and proprietary rights ("PACIFIC INTELLECTUAL
PROPERTY"), except where the absence of such would not have a Material
Adverse Effect. Pacific has taken reasonable measures to protect all
material Pacific Intellectual Property, and, except as set forth on ITEM
2.12, Pacific is not aware of any infringement of any Pacific Intellectual
Property by any third party. Set forth on ITEM 2.12 delivered to Hybrid
herewith is a true and complete list of all copyright, mask work and
trademark registrations and applications and all patents and patent
applications for Pacific Intellectual Property owned by Pacific. Pacific is
not aware of any material loss, cancellation, termination or expiration of
any such registration or patent except as set forth on ITEM 2.12,
considering Pacific Intellectual Property. Pacific has delivered to Hybrid
copies of agreements entered into with its present and former employees and
consultants with respect to assignments of copyright and other intellectual
property rights; and except as set forth on ITEM 2.12, all present employees
have entered into such agreements. Copies of all forms of nondisclosure or
confidentiality agreements utilized to protect the Pacific Intellectual
Property have been provided to Hybrid. To Pacific's knowledge, the business
of Pacific as conducted as of the date hereof does not, and will not cause
Pacific to, infringe or violate any of the patents, trademarks, service
marks, trade names, mask works, copyrights, trade secrets, proprietary
rights or other intellectual property of any other person, and Pacific has
not received any written or oral claim or notice of infringement or
potential infringement of the intellectual property of any other person
which is reasonably likely to have a Material Adverse Effect. Except as set
forth on Item 2.12, or as a result of U.S. Export Control laws, Pacific has
the unrestricted, worldwide right to reproduce, manufacture, sell, license
and distribute all of its products (such products being set forth in ITEM
2.12), as it currently does so, and the right to use all of its registered
user lists, and is not using any confidential information or trade secrets
of any former employer of any past or present employees.

2.13 COMPLIANCE WITH LAWS. Pacific has complied, or prior to the
Closing Date (as defined in Section 6.1 hereof) will have complied, and is
or will be at the Closing Date (as defined in Section 6.1 hereof) in full
compliance, in all respects material to Pacific, with all applicable laws,
ordinances, regulations and rules, and all orders, writs, injunctions,
awards, judgments and decrees, applicable to Pacific or to the assets,
properties and business of Pacific, including, without limitation: (a) all
applicable federal and state securities laws and regulations, (b) all
applicable federal, state and local laws, ordinances and regulations, and
all orders, writs, injunctions, awards, judgments and decrees, pertaining to
(i) the sale, licensing, leasing, ownership or management of Pacific's
owned, leased or licensed real or personal property, products or technical
data, (ii) employment or employment practices, terms and conditions of
employment, or wages and hours or (iii) safety, health, fire prevention,
environmental protection (including toxic waste disposal and related matters
described in Section 2.21 hereof), building standards, zoning or other
similar matters, (c) the Export Administration Act and regulations
promulgated thereunder or other laws, regulations, rules, orders, writs,
injunctions, judgments or decrees applicable to the export or re-export of
controlled commodities or technical data or (d) the Immigration Reform and
Control Act, except as the noncompliance with (a) through (d) of this
Section 2.13 would not as to any individual event of noncompliance, result
in a Material Adverse Effect. Pacific has received all permits and approvals
from, and has made all filings with, third parties, including government
agencies and authorities, that are necessary to the conduct of its business
as presently conducted.

2.14 CERTAIN TRANSACTIONS AND AGREEMENTS. No person who is an officer
or director of Pacific has any direct or indirect ownership interest
(excluding interests as a general partner or limited partner of an
investment fund or personal holdings in mutual funds) in or any employment
or consulting agreement with any firm or corporation that competes with
Pacific or Hybrid (except with

A-1-10
<PAGE>
respect to any interest in less than 3% of the outstanding voting shares of
any corporation whose stock is publicly traded). Except as set forth in ITEM
2.14, no person who is an officer or director of Pacific, is directly or
indirectly interested in any contract or informal arrangement with Pacific,
including, but not limited to, any loan arrangements, except for
compensation for services as an officer (listed in ITEM 2.15.3), director or
employee of Pacific and except for the normal rights of a shareholder,
warrantholder or optionholder. Except as set forth in ITEM 2.14, none of
such officers or directors or family members has any interest in any
property, real or personal, tangible or intangible, including, without
limitation, inventions, patents, copyrights, trademarks, trade names or
trade secrets, used in the business of Pacific, except for the normal rights
of a shareholder.

2.15 EMPLOYEES.

2.15.1 Except as set forth in ITEM 2.15.1, (i) Pacific has no
material employment contract or material consulting agreement currently
in effect that is not terminable at will without material penalty or
payment of compensation by Pacific (other than agreements with the sole
purpose of providing for the confidentiality of proprietary information
or assignment of inventions) and (ii) all employees and consultants of
Pacific have executed Pacific's standard form of assignments of copyright
and other intellectual property rights to Pacific.

2.15.2 Pacific (a) has never been and is not now subject to a union
organizing effort, (b) is not subject to any collective bargaining
agreement with respect to any of its employees, (c) is not subject to any
other material contract, written or oral, with any trade or labor union,
employees' association or similar organization and (d) has no material
current labor dispute. Pacific has good labor relations, and Pacific has
no knowledge of any facts indicating that the consummation of the
transactions provided for herein (other than the contemplated reductions
in force associated therewith) will have a Material Adverse Effect on its
labor relations, and has no knowledge that any of its key development or
other employees (each of whom is listed on Item 2.15.2) intends to leave
its employ.

2.15.3 ITEM 2.15.3 delivered by Pacific to Hybrid herewith contains
a list of all material employment and consulting agreements, material
pension, retirement, disability, medical, dental or other health plans,
material life insurance or other death benefit plans, material profit
sharing, deferred compensation agreements, stock, option, bonus or other
incentive plans, material vacation, sick, holiday or other paid leave
plans, and material severance plans or other similar material employee
benefit plans maintained by Pacific (the "EMPLOYEE PLANS"), including
without limitation all "employee benefit plans" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Pacific has delivered or made available copies or descriptions
of all the Employee Plans to Hybrid and Hybrid's counsel. Except as set
forth in ITEM 2.15.3, each of the Employee Plans, and its operation and
administration, is, in all material respects, in compliance with each of
the respective Employee Plans' terms and with all applicable, federal,
state, local and other governmental laws and ordinances, orders, rules
and regulations, including the requirements of ERISA and the Code. Except
as set forth in ITEM 2.15.3, all such Employee Plans that are "employee
pension benefit plans" (as defined in Section 3(2) of ERISA) which are
intended to qualify under Section 401(a) of the Code have received
favorable determination opinion, notification or advisory letters with
respect to such plans that consider the Tax Reform Act of 1986 or have
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any
amendments necessary to obtain a favorable determination as to the
qualified states of each such Employee Plan. In addition, Pacific has
never been a participant in any "prohibited transaction," within the
meaning of Section 406 of ERISA with respect to any employee pension
benefit plan (as defined in Section 3(2) of ERISA) which Pacific sponsors
as employer or in which Pacific participates as an employer, which was
not otherwise exempt pursuant to Section 408 of ERISA (including, but not
limited to, any individual exemption granted under

A-1-11
<PAGE>
Section 408(a) of ERISA), or which could result in an excise tax under
the Code. The group health plans, as defined in Section 4980B(g) of the
Code, that benefit employees of Pacific are in material compliance with
the continuation coverage requirements of subsection 4980B of the Code.
There are no material outstanding violations of Section 4980B of the Code
with respect to any Employee Plan, covered employees or qualified
beneficiaries. Except as set forth in Item 2.15.3, no employee of Pacific
and no person subject to any Pacific health plan has made medical claims
through such health plan during the twelve months preceding the date
hereof for more than $50,000 or more, in the aggregate.

2.15.4 To Pacific's knowledge, no employee of Pacific is in
violation of any material term of any employment contract, patent or
trade secret disclosure agreement or noncompetition agreement or any
other contract or agreement, or any restrictive covenant, relating to the
right of any such employee to be employed by Pacific or to use trade
secrets or proprietary information of others, and, to Pacific's
knowledge, the employment of any employee of Pacific does not subject
Pacific to any liability to any third party.

2.15.5 Except as set forth in ITEM 2.15.5, Pacific is not a party to
any (a) agreement with any executive officer or other key employee of
Pacific (i) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving
Pacific in the nature of any of the transactions contemplated by this
Agreement and the Agreement of Merger, (ii) providing any term of
employment or compensation guarantee or (iii) providing material benefits
or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, or (b)
material agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any
of the benefits of which will be materially increased, or the vesting of
benefits of which will be materially accelerated, by the occurrence of
any of the transactions contemplated by this Agreement and the Agreement
of Merger. Pacific is not obligated to make any excess parachute payment,
as defined in Section 280G(b)(1) of the Code as a result of the
transactions contemplated by this Agreement and the Agreement of Merger.

2.15.6 A list of all employees, officers and consultants of Pacific
and their current compensation and benefits as of the date of this
Agreement is set forth on ITEM 2.15.6.

2.15.7 All material contributions due from Pacific with respect to
any of the Employee Plans have been made or accrued on Pacific's
financial statements, and no further material contributions will be due
or will have accrued thereunder as of the Closing Date.

2.16 CORPORATE DOCUMENTS. Pacific has made available to Hybrid for
examination all documents and information listed in ITEMS 2.1 through 2.21
or other exhibits called for by this Agreement which have been reasonably
requested by Hybrid's legal counsel, including, without limitation, the
following: (a) copies of Pacific's Articles of Incorporation and Bylaws as
currently in effect; (b) Pacific's minute book containing all records of all
proceedings, consents, actions and meetings of Pacific's directors and
shareholders; (c) Pacific's stock ledger, journal and other records
reflecting all stock issuances and transfers; and (d) all permits, orders
and consents issued by any regulatory agency with respect to Pacific, or any
securities of Pacific, and all applications for such permits, orders and
consents.

2.17 NO BROKERS. Except as listed on ITEM 2.17, Pacific is not
obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of
this Agreement or the Agreement of Merger or in connection with any
transaction provided for herein or therein.

2.18 DISCLOSURE. This Agreement, its exhibits and schedules, and any
of the certificates or documents to be delivered by Pacific to Hybrid under
this Agreement, taken together, do not contain

A-1-12
<PAGE>
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein and therein, in
light of the circumstances under which such statements were made, not
misleading.

2.19 BOOKS AND RECORDS. The books, records and accounts of Pacific (a)
are in all material respects true and complete, (b) have been maintained in
accordance with reasonable business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of Pacific and (d)
accurately and fairly reflect the basis for the Pacific Financial
Statements.

2.20 INSURANCE. Pacific maintains (as listed on Item 2.20) and at all
times during the prior three years has maintained fire and casualty, workers
compensation, general liability, business interruption and product liability
insurance which it believes to be reasonably prudent for similarly sized and
similarly situated business.

2.21 ENVIRONMENTAL MATTERS.

2.21.1 To the knowledge of Pacific, during the period that Pacific
has leased or owned its properties or leased, owned or operated any
facilities, there have been no disposals, releases or threatened releases
of Hazardous Materials (as defined below) on, from or under any such
properties or facilities. Pacific has no knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have
occurred prior to Pacific having taken possession of any of such
properties or facilities. For purposes of this Agreement, the terms
"DISPOSAL," "RELEASE," and "THREATENED RELEASE" have the definitions
assigned thereto by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ.,
as amended ("CERCLA"). For the purposes of this Section 2.22, "HAZARDOUS
MATERIALS" mean any hazardous or toxic substance, material or waste which
is or becomes prior to the Closing Date (as defined in Section 6.1
hereof) regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous material,"
"toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section
11001 ET SEQ.; (iii) the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, ET SEQ.; (iv) the Toxic Substances Control Act, 15
U.S.C. Section 2601 ET SEQ.; (v) the Occupational Safety and Health Act
of 1970, 29 U.S.C. Section 651 ET SEQ.; (vi) regulations promulgated
under any of the above statutes; or (vii) any other applicable federal,
state or local statute, ordinance, rule or regulation that has a scope or
purpose similar to those identified above.

2.21.2 None of the properties or facilities currently leased or
owned by Pacific or any properties or facilities previously occupied by
Pacific is in violation of any federal, state or local law, ordinance,
regulation or order relating to industrial hygiene or to the
environmental conditions on, under or about such properties or
facilities, including, but not limited to, soil and ground water
condition.

2.21.3 Except as set forth in ITEM 2.21, during Pacific's occupancy
of any properties or facilities owned or leased at any time by Pacific,
neither Pacific, nor to Pacific's knowledge, any third party, has used,
generated, manufactured or stored on, under or about such properties and
facilities or transported to or from such properties and facilities any
Hazardous Materials.

2.21.4 To the knowledge of Pacific, during the time that Pacific has
owned or leased the properties and facilities currently occupied by it or
any properties and facilities previously occupied by Pacific, there has
been no litigation, proceeding or administrative action brought or
threatened against Pacific, or any settlement reached by Pacific with,
any party or parties alleging the presence, disposal, release or
threatened release of any Hazardous Materials on, from or under any of
such properties or facilities.

A-1-13
<PAGE>
2.21.5 To the knowledge of Pacific, during Pacific's occupancy of
any properties or facilities owned or leased at any time by Pacific, no
Hazardous Materials have been transported from such premises to any site
or facility now listed or proposed for listing on the National Priorities
List, at 40 C.F.R. Part 300, or any list with a similar scope or purpose
published by any state authority.

2.22 GOVERNMENT CONTRACTS. All representations, certifications and
disclosures made by Pacific to any Government Contract Party (as defined
below) have been in all material respects current, complete and accurate at
the times they were made. There have been no acts, omissions or
noncompliance with regard to any applicable public contracting statute,
regulation or contract requirement (whether express or incorporated by
reference) relating to any of Pacific's contracts with any Government
Contract Party (as defined below) in either case that have led to or is
reasonably likely to lead to, either before or after the Closing Date (as
defined in Section 6.1 hereof), (a) any material claim or dispute involving
Pacific and/or Hybrid as successor in interest to Pacific and any Government
Contract Party or (b) any suspension, debarment or contract termination, or
proceeding related thereto. There has been no act or omission that relates
to the marketing, licensing or selling to any Government Contract Party (as
defined below) of any of Pacific technical data and products and that has
led to or is reasonably likely to lead to, either before or after the
Closing Date (as defined in Section 6.1 hereof), any material cloud on any
of Pacific's rights in and to its technical data and products. All of
Pacific's development of technical data and products was developed
exclusively at private expense. For purposes of this Section 2.22, the term
"GOVERNMENT CONTRACT PARTY" means any independent or executive agency,
division, subdivision, audit group or procuring office of the federal
government, including any prime contractor of the federal government and any
higher level subcontractor of a prime contractor of the federal government,
and including any employees or agents thereof, in each case acting in such
capacity.

2.23 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Pacific in writing for inclusion in the Form S-4 and the
Prospectus/Proxy Statement, at the date such information is supplied and at
the time of the vote of the Hybrid stockholders related to the Merger and
the Pacific Shareholder Vote (as defined in Section 4.5), contains or will
contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading or will, in the case of the Form S-4, at the
time the Form S-4 becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances under which they are made, not misleading.

2.24 BOARD APPROVAL. The Board of Directors of Pacific has, as of the
date of this Agreement, determined (i) that the Merger is fair to, and in
the best interests of Pacific and its shareholders, and (ii) to recommend
that the shareholders of Pacific approve and adopt this Agreement and
approve the Merger.

2.25 POOLING OF INTERESTS. To Pacific's knowledge, based on
consultation with its independent accountants, neither Pacific nor any of
its directors, officers or shareholders has taken any action which would
interfere with Pacific's or Hybrid's ability to account for the Merger as a
pooling of interests.

3. REPRESENTATIONS AND WARRANTIES OF HYBRID AND NEWCO

Each of Hybrid and Newco, where applicable, hereby represents and warrants,
that, except as set forth on the Hybrid disclosure letter delivered to Pacific
herewith:

3.1 ORGANIZATION AND GOOD STANDING. Each of Hybrid and Newco is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the

A-1-14
<PAGE>
corporate power and authority to own, operate and lease its properties and
to carry on its business as now conducted and as proposed to be conducted.

3.2 POWER, AUTHORIZATION AND VALIDITY.

3.2.1 Each of Hybrid and Newco has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under
this Agreement, and all agreements to which Hybrid is or will be a party
that are required to be executed pursuant to this Agreement (the "HYBRID
ANCILLARY AGREEMENTS"). The execution, delivery and performance of this
Agreement and the Hybrid Ancillary Agreements have been duly and validly
approved and authorized by Hybrid's Board of Directors and Newco's Board
of Directors and as required by applicable law and subject to any
required approval by the stockholders of Hybrid, such stockholder
approval will be duly and validly obtained prior to the Effective Time.

3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Hybrid to enter into, and to perform
its obligations under, this Agreement and the Hybrid Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Secretaries of State of the States of Delaware and California, the filing
of such officers' certificates and other documents as are required to
effectuate the Merger under Delaware and California law and the filing of
appropriate documents with the relevant authorities of other states in
which Hybrid is qualified to do business, if any, (b) such post-closing
filings as may be required to comply with federal and state securities
laws and (c) the approval of this Agreement and the Agreement of Merger
by the stockholders of Hybrid.

3.2.3 This Agreement and the Hybrid Ancillary Agreements are, or
when executed and delivered by Hybrid and Newco (as applicable) and the
other parties thereto will be, valid and binding obligations of Hybrid
and Newco, enforceable against Hybrid and Newco in accordance with their
respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that
the Agreement of Merger and the Hybrid Ancillary Agreements will not be
effective until the earlier of the Effective Time or the date provided
for therein.

3.3 NO VIOLATION OF EXISTING AGREEMENTS OR LAWS. Neither the execution
nor delivery of this Agreement or any Hybrid Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will
conflict with, or (with or without notice or lapse of time, or both) result
in a termination, breach, impairment or violation of (a) any provision of
the Certificate of Incorporation or Bylaws of Hybrid, as currently in
effect, or (b) any contract that is material to Hybrid's business or (c) any
federal, state, local or foreign judgment, writ, decree, order, statute or
regulation applicable to and that would have a Material Adverse Effect (as
defined below) on Hybrid or its assets or properties. When used in
connection with Hybrid, the term "MATERIAL ADVERSE EFFECT" means, for
purposes of this Agreement any change, event or effect that is or is
reasonably likely to be materially adverse to the business, assets
(including intangible assets),, liabilities, financial condition or results
of operations of Hybrid except that a decline in Hybrid's stock price and
its failure to meet its own or analysts' financial expectations for the
quarter ended March 31, 1998 as described in Hybrid's press release dated
March 12, 1998 shall not be deemed to be a Material Adverse Effect.

3.4 SEC DOCUMENTS. Hybrid has furnished Pacific with its registration
statement on Form S-1 and the final prospectus dated November 12, 1997
related to its initial public offering of Common Stock (the "FINAL
PROSPECTUS"), and all other reports or documents required to be filed by
Hybrid pursuant to Section 13(a) or 15(d) of the 1934 Act since the filing
of its Final Prospectus (the "SEC DOCUMENTS"). As of their respective dates,
the SEC Documents were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Documents. The
Hybrid SEC Documents,

A-1-15
<PAGE>
this Agreement, the exhibits and schedules hereto, and any certificates or
documents to be delivered to Pacific pursuant to this Agreement, when taken
together, do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such
statements were made, not misleading.

3.5 AUTHORIZED/OUTSTANDING CAPITAL STOCK. The authorized capital stock
of Hybrid consists of 100,000,000 shares of Hybrid Common Stock, $0.001 par
value per share, of which 10,353,580 shares were issued and outstanding as
of February 27, 1998, and 5,000,000 shares of preferred stock, $0.001 par
value per share, of which no shares are issued and outstanding. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock,
$0.001 par value, of which 1,000 shares are issued and outstanding and held
by Hybrid.

3.6 NO MATERIAL CHANGE. Since the issuance of Hybrid's press release
related to its financial results on March 12, 1998, there has not been with
respect to Hybrid any change in the financial condition, properties, assets,
liabilities, business, results of operations or prospects of Hybrid, which
change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, have had or is likely to
have a Material Adverse Effect.

3.7 POOLING OF INTERESTS. To Hybrid's knowledge, based on consultation
with its independent accountants, neither Hybrid nor any of its directors,
officers or stockholders has taken any action which would interfere with
Hybrid's ability to account for the Merger as a pooling of interests.

3.8 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending or as to which Hybrid has received any
notice of assertion against Hybrid, which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.

3.9 BOARD APPROVAL. The Board of Directors of Hybrid has, as of the
date of this Agreement, determined (i) that the Merger is fair to, and in
the best interests of Pacific and its stockholders, and (ii) to recommend
that the stockholders of Hybrid approve and adopt this Agreement and approve
the Merger.

4. PACIFIC PRECLOSING COVENANTS

During the period from the date of this Agreement until the Effective Time,
Pacific covenants to and agrees with Hybrid as follows:

4.1 ADVICE OF CHANGES. Pacific will promptly advise Hybrid in writing
(a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Pacific contained in this
Agreement, if made on or as of the date of such event or the Closing Date
(as defined in Section 6.1 hereof), untrue or inaccurate in any material
respect and (b) the occurrence of any Material Adverse Effect. To ensure
compliance with this Section 4.1, Pacific shall deliver to Hybrid within
fifteen (15) days after the end of each monthly accounting period ending
after the date of this Agreement and before the Closing Date, an unaudited
balance sheet and statement of operations, which financial statements shall
be prepared in the ordinary course of business, in accordance with Pacific's
books and records and generally accepted accounting principles and shall
fairly present the financial position of Pacific as of their respective
dates and the results of Pacific's operations for the periods then ended.

4.2 MAINTENANCE OF BUSINESS. Pacific will use reasonable efforts to
carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has
prior to the date hereof. If Pacific becomes aware of a material
deterioration in the relationship with any material customer, supplier or
key employee, it will promptly bring such

A-1-16
<PAGE>
information to the attention of Hybrid in writing and, if requested by
Hybrid, will exert all reasonable efforts to restore the relationship.

4.3 CONDUCT OF BUSINESS. Except as provided otherwise herein or as
approved or recommended by Hybrid, Pacific will not, without the prior
written consent of the President of Hybrid, not to be unreasonably withheld:

(a) borrow any money in excess of an aggregate of $50,000 (not
including any amounts borrowed from Hybrid);

(b) enter into any transaction or make any commitment involving an
expense of Pacific or capital expenditure by Pacific in excess of $50,000
that is not in the ordinary course of business;

(c) encumber or permit to be encumbered any of its assets except (i)
in the ordinary course of its business consistent with past practice or
(ii) encumbrances which are not in excess of $50,000;

(d) dispose of any of its material assets except (i) in the ordinary
course of business consistent with past practice or (ii) assets which are
not in excess of $50,000;

(e) enter into any material lease or contract for the purchase or
sale of any property, real or personal, tangible or intangible, or enter
into any agreement of the types described in Section 2.11, except in the
ordinary course of business consistent with past practice;

(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;

(g) pay any bonus, royalty, increased salary (except for annual
increases in the ordinary course of business consistent with past
practice and disclosed to Hybrid in writing) or special remuneration to
any officer, employee or consultant (except pursuant to existing
arrangements heretofore disclosed in writing to Hybrid) or enter into any
new employment or consulting agreement with any such person, or enter
into any new agreement or plan of the type described in Section 2.15.3;

(h) change accounting methods;

(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire
any of its capital stock, except for options granted to new hires for an
aggregate of 50,000 shares of Pacific Common Stock;

(j) amend or terminate any contract, agreement or license to which it
is a party, except those amended or terminated in the ordinary course of
business consistent with past practice or which are not material in
amount or effect;

(k) 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, not material in amount, which travel and
expenses shall be reasonably documented by receipts for the claimed
amounts consistent with past practice;

(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice or which are not
material in amount;

(m) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;

A-1-17
<PAGE>
(n) issue or sell any shares of its capital stock of any class or any
other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, stock appreciation rights
or other commitments to issue shares of capital stock, or accelerate the
vesting of any outstanding option or other security, except for (i) the
conversion of Pacific Preferred Stock or the exercise of Pacific Options
or Pacific Warrants or (ii) the issuance of stock options under Pacific's
stock option plans as provided in Section 4.3(i);

(o) 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;

(p) except for the Merger, merge, consolidate or reorganize with, or
acquire any entity;

(q) amend its Articles of Incorporation or Bylaws;

(r) 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 Hybrid for its review prior to filing;

(s) license any of Pacific's technology or any of Pacific's
Intellectual Property, except in the ordinary course of business
consistent with past practice;

(t) change any insurance coverage or issue any certificates of
insurance;

(u) terminate the employment of any key employee listed in Item
2.10(i); or

(v) agree to do any of the things described in the preceding clauses
4.3(a) through 4.3(u).

4.4 CERTAIN AGREEMENTS. Pacific will use reasonable efforts to cause
all present employees and consultants of Pacific who have not previously
executed Pacific's forms of assignments of copyright and other intellectual
property rights to Pacific to execute such forms, copies of which are
attached hereto as EXHIBIT E.

4.5 SHAREHOLDER APPROVAL. At the earliest practicable date after the
effectiveness of the Form S-4, Pacific will duly call and hold a special
shareholder meeting, whereby this Agreement, the Agreement of Merger and
related matters will be submitted for the consideration and approval of
Pacific's shareholders (the "PACIFIC SHAREHOLDER VOTE"), which approval will
be recommended by Pacific's Board of Directors and management. Such meeting
will be called, held and conducted, and any proxies will be solicited, in
compliance with applicable law. Concurrently with execution of this
Agreement, Pacific will cause the parties listed on EXHIBIT F to sign
agreements in the form of EXHIBIT Q hereto that among other things bind such
shareholders to vote in favor of the Merger.

4.6 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Richard B Gold shall
execute and deliver, and Pacific will use reasonable efforts to cause Mike
Morganstern and Allen Podell to execute and deliver to Hybrid employment
agreements (the "EMPLOYMENT AGREEMENTS") and noncompetition agreements (the
"NONCOMPETITION AGREEMENTS") in the form attached as EXHIBIT G, with respect
to Richard B. Gold, and Exhibit H in a form to be negotiated in good faith
by Pacific and Hybrid, with respect to Messrs. Morganstern and Podell, which
agreements will become effective upon the Effective Time of the Merger.

4.7 PROSPECTUS/PROXY STATEMENT. Pacific will send to its shareholders
in a timely manner, for the purpose of the Pacific Shareholder Vote, the
Agreement of Merger and related matters and the Prospectus/Proxy Statement
in the form filed by Hybrid with the SEC pursuant to Rule 424 under the
Securities Act. Pacific will promptly provide all information relating to
its business or operations necessary for inclusion in the Prospectus/Proxy
Statement to satisfy the parties' respective obligations under applicable
state and federal securities laws. Pacific will be solely responsible for
any statement, information or omission in the Prospectus/Proxy Statement
relating to Pacific or its affiliates and

A-1-18
<PAGE>
based upon written information furnished by Pacific. Pacific will not
provide or publish to its shareholders any material concerning Pacific or
its affiliates that violates the Securities Act, the Exchange Act or any
applicable state securities laws with respect to the transactions provided
for herein.

4.8 REGULATORY APPROVALS. Pacific will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Hybrid may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Pacific
will use reasonable efforts to obtain or assist Hybrid in obtaining all such
authorizations, approvals and consents.

4.9 NECESSARY CONSENTS. Pacific will use reasonable efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate for Pacific, in addition to those set forth in Section 4.8, to
facilitate and allow the consummation of the transactions provided for
herein and to facilitate and allow Hybrid to carry on Pacific's business
after the Closing Date (as defined in Section 6.1 hereof).

4.10 LITIGATION. Pacific will notify Hybrid in writing promptly after
learning of any action, suit, proceeding or investigation by or before any
court, board or governmental agency, initiated by or against Pacific or
threatened against it.

4.11 NO OTHER NEGOTIATIONS. From the date hereof until the termination
of this Agreement (provided such termination is not in breach of this
Agreement) or the consummation of the Merger, Pacific will not, and will not
authorize any officer, director, employee or affiliate of Pacific, or any
other person, on its behalf, directly or indirectly, to (a) solicit,
facilitate, discuss or encourage any offer, inquiry or proposal received
from any party other than Hybrid, concerning the possible disposition of all
or any substantial portion of Pacific's business, assets or capital stock by
merger, sale or any other means or to otherwise solicit, facilitate, discuss
or encourage any such disposition (other than the Merger), or (b) provide
any confidential information to or negotiate with any third party other than
Hybrid in connection with any offer, inquiry or proposal concerning any such
disposition. Pacific will immediately notify Hybrid of any such offer,
inquiry or proposal.

4.12 ACCESS TO INFORMATION. Until the Closing Date (as defined in
Section 6.1 hereof) Pacific will provide Hybrid and its agents with
reasonable access to the files, books, records and offices of Pacific,
including, without limitation, any and all information relating to Pacific
taxes, commitments, contracts, leases, licenses, real, personal and
intangible property, and financial condition. Pacific will cause its
accountants to cooperate with Hybrid and its agents in making available all
financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants and will deliver the audited
September 30, 1997 Pacific Financial Statements to Hybrid as soon as
practicable after the date of this Agreement.

4.13 SATISFACTION OF CONDITIONS PRECEDENT. Pacific will use reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 8, and Pacific will use reasonable efforts to
cause the transactions provided for in this Agreement to be consummated,
and, without limiting the generality of the foregoing, to obtain all
consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for
herein.

4.14 BLUE SKY LAWS. Pacific shall use reasonable efforts to assist
Hybrid to the extent necessary to comply with the securities and Blue Sky
laws of all jurisdictions applicable in connection with the Merger.

A-1-19
<PAGE>
4.15 NOTIFICATION OF EMPLOYEE PROBLEMS. Pacific will promptly notify
Hybrid if any of Pacific's officers becomes aware that any of the key
employees listed in ITEM 2.15.2 intends to leave its employ.

4.16 PACIFIC AFFILIATES AGREEMENT. To ensure that the issuance of
Hybrid Common Stock in the Merger complies with the Securities Act and that
the Merger will be accounted for as a "POOLING OF INTERESTS," concurrently
with the execution of this Agreement, Pacific will use reasonable efforts to
deliver to Hybrid, a written agreement from each of its affiliates (as
listed on EXHIBIT F) (the "PACIFIC AFFILIATES AGREEMENT") in substantially
the form of EXHIBIT I.

4.17 PRINCIPAL SHAREHOLDER REPRESENTATION LETTERS. To ensure that the
Merger will qualify as a "TAX-FREE" reorganization for federal income tax
purposes, Pacific will cause each shareholder who beneficially owns more
than 10% of the capital stock of Pacific (the "PRINCIPAL SHAREHOLDER") to
execute, at or before the Closing, the Pacific Affiliates Agreement in the
form of EXHIBIT I.

4.18 TAX OPINION. Pacific shall use reasonable efforts to obtain a
written opinion from its counsel, Wilson Sonsini Goodrich & Rosati
Professional Corporation, in form and substance reasonably satisfactory to
it, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code. Pacific agrees to make reasonable
representations as requested by such counsel for the purpose of rendering
such opinion.

4.19 PACIFIC DISSENTING SHARES. As promptly as practicable after the
date of the Pacific Shareholder Vote and prior to the Closing Date, Pacific
shall furnish Hybrid with the name and, to the extent of Pacific's
knowledge, the address of each holder of Eligible Dissenting Shares.

4.20 POOLING ACCOUNTING. Pacific shall use reasonable efforts to cause
the business combination to be effected by the Merger to be accounted for as
a pooling of interests. Pacific shall use reasonable efforts to cause its
affiliates not to take any action that would adversely affect the ability of
Hybrid to account for the business combination to be effected by the Merger
as a pooling of interests.

5. HYBRID PRECLOSING COVENANTS

During the period from the date of this Agreement until the Effective Time,
Hybrid covenants to and agrees with Pacific as follows:

5.1 ADVICE OF CHANGES. Hybrid will promptly advise Pacific in writing
(a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Hybrid contained in this
Agreement, if made on or as of the date of such event or the Closing Date
(as defined in Section 6.1 hereof), untrue or inaccurate in any material
respect and (b) the occurrence of any Material Adverse Effect.

5.2 SATISFACTION OF CONDITIONS PRECEDENT. Hybrid will use all
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Hybrid will use all
reasonable efforts to cause the transactions provided for in this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all
filings with, and give all notices to, third parties that may be necessary
or reasonably required on its part in order to effect the transactions
provided for herein.

5.3 REGULATORY APPROVALS. Hybrid will execute and file, or join in the
execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Pacific may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Hybrid will
use all reasonable efforts to obtain all such authorizations, approvals and
consents.

5.4 HYBRID AFFILIATES AGREEMENTS. To ensure that the Merger will be
accounted for as a "POOLING OF INTERESTS," concurrently with the execution
of this Agreement, Hybrid will use reasonable efforts to

A-1-20
<PAGE>
deliver to Pacific a written agreement from each of its affiliates (the
"HYBRID AFFILIATES AGREEMENT") in substantially the form of EXHIBIT J.

5.5 TAX OPINIONS. Hybrid shall use reasonable efforts to obtain a
written opinion from its counsel, Fenwick & West LLP, in form and substance
reasonably satisfactory to it to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn. Hybrid agrees to make reasonable
representations as requested by such counsel for the purpose of rendering
such opinion.

5.6 NMS LISTING. Hybrid agrees to authorize for listing on the Nasdaq
National Market the Hybrid Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice
of issuance.

5.7 VOTING AGREEMENTS. Hybrid will use reasonable efforts to deliver
to Pacific a written agreement from each of the entities listed on EXHIBIT K
(the "VOTING AGREEMENT") in substantially the form of EXHIBIT L providing
that such persons will vote in favor of the Merger.

5.8 MAINTENANCE OF BUSINESS. Hybrid will use reasonable efforts to
carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has
prior to the date hereof. Promptly following the public dissemination of
information related to a material deterioration in the relationship with any
material customer, supplier or key employee, or material litigation related
to the business operations of Hybrid, Hybrid will supply Pacific with a copy
of such public dissemination.

5.9 STOCKHOLDER APPROVAL. If required by law or the Nasdaq Stock
Market, at the earliest practicable date after the effectiveness of the Form
S-4, Hybrid will duly call and hold a stockholder meeting (the "HYBRID
STOCKHOLDER VOTE"), whereby this Agreement, the Agreement of Merger and
related matters will be submitted for the consideration and approval of
Hybrid's stockholders, which approval will be recommended by Pacific's Board
of Directors and management. Such meeting will be called, held and
conducted, and any proxies will be solicited, in compliance with applicable
law.

5.10 PROSPECTUS/PROXY STATEMENT. Hybrid will send to its stockholders
in a timely manner, for the purpose of the Hybrid Stockholder Vote, the
Agreement of Merger and related matters and the Prospectus/Proxy Statement
in the form filed by Hybrid with the SEC pursuant to Rule 424 under the
Securities Act. Hybrid will use reasonable efforts to have the Form S-4
declared effective by the SEC. Hybrid will promptly provide all information
relating to its business or operations necessary for inclusion in the
Prospectus/Proxy Statement to satisfy the parties' respective obligations
under applicable state and federal securities laws. Hybrid will be solely
responsible for any statement, information or omission in the
Prospectus/Proxy Statement relating to Hybrid or its affiliates and based
upon written information furnished by Hybrid. Hybrid will not provide or
publish to its shareholders any material concerning Hybrid or its affiliates
that violates the Securities Act, the Exchange Act or any applicable state
securities laws with respect to the transactions provided for herein.

5.11 NECESSARY CONSENTS. Hybrid will use reasonable efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate for Hybrid to facilitate and allow the consummation of the
transactions provided for herein.

5.12 BLUE SKY LAWS. Hybrid shall use reasonable efforts to comply with
the securities and Blue Sky laws of all jurisdictions applicable in
connection with the Merger.

5.13 POOLING ACCOUNTING. Hybrid shall use reasonable efforts to cause
the business combination to be effected by the Merger to be accounted for as
a pooling of interests. Hybrid shall use reasonable efforts to cause its
affiliates not to take any action that would adversely affect the ability of
Hybrid to account for the business combination to be effected by the Merger
as a pooling of interests.

A-1-21
<PAGE>
5.14 FILING OF FORM S-8. As soon as practicable after the Closing
Date, Hybrid will use reasonable efforts to file a Form S-8 with the SEC to
register the shares underlying the Pacific Options being assumed by Hybrid
in the Merger.

6. CLOSING MATTERS

6.1 THE CLOSING. Subject to termination of this Agreement as provided
in Section 9 below, the closing of the transactions provided for herein (the
"CLOSING") will take place at the offices of Fenwick & West LLP, Two Palo
Alto Square, Palo Alto, California 94306 at 10:00 a.m., Pacific Time on or
before May 31, 1998, or, if all conditions to Closing have not been
satisfied or waived by such date, such other place, time and date as Pacific
and Hybrid may mutually select (the "CLOSING DATE"). The parties agree to
use their best efforts to satisfy all conditions to closing on or before May
31, 1998. Prior to or concurrently with the Closing, the Agreement of Merger
and such officers' certificates or other documents as may be required to
effectuate the Merger will be filed in the office of the California
Secretary of State and the Agreement of Merger and such certificates of
approval or other documents as may be required to effectuate the Merger will
be filed in the office of the Delaware Secretary of State. Accordingly, the
Merger will become effective at the Effective Time.

6.2 EXCHANGE OF CERTIFICATES.

6.2.1 As of the Effective Time, all shares of Pacific Capital Stock
that are 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 Hybrid the number of
shares of Hybrid Common Stock determined as set forth in Section 1.1,
subject to Section 1.2 and 1.3 hereof.

6.2.2 At and after the Effective Time, each certificate representing
outstanding shares of Pacific Capital Stock will represent the number of
shares of Hybrid Common Stock into which such shares of Pacific Capital
Stock have been converted, and such shares of Hybrid Common Stock will be
deemed registered in the name of the holder of such certificate. As soon
as practicable after the Effective Time, each holder of shares of Pacific
Capital Stock will surrender (a) the certificates for such shares (the
"PACIFIC CERTIFICATES") to Hybrid for cancellation or (b) an affidavit of
lost certificate (or nonissued) and a bond in form reasonably
satisfactory to Hybrid (a "BOND"). Promptly following the Effective Time
and receipt of the Pacific Certificates and/or the Bonds, Hybrid will
cause its transfer agent to mail to each holder of record of Pacific
Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Pacific
Certificates shall pass, only upon delivery of the Pacific Certificates
to the transfer agent and shall be in such form and have such other
provisions as Hybrid and Pacific may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Pacific
Certificates in exchange for certificate representing Hybrid Common
Stock. Upon surrender of a Pacific Certificate for cancellation to the
transfer agent, together with a duly executed letter of transmittal and
such other documents as may be reasonably required by the transfer agent,
the transfer agent will issue to such surrendering holder certificate(s)
for the number of shares of Hybrid Common Stock to which such holder is
entitled pursuant to Section 1.1, subject to Section 1.2 hereof, less the
shares of Hybrid Common Stock deposited into escrow pursuant to Section
1.3 hereof, and Hybrid will distribute any cash payable under Section
1.2.

6.2.3 All shares of Hybrid Common Stock (and, if applicable, cash in
lieu of fractional shares) delivered upon the surrender of Pacific
Certificates in accordance with the terms hereof will be delivered to the
registered holder or placed in escrow with the Escrow Agent, as
applicable. After the Effective Time, there will be no further
registration of transfers of the shares of Pacific Capital Stock on the
stock transfer books of Pacific. If, after the Effective Time, Pacific
Certificates are presented for transfer or for any other reason, they
will be canceled and exchanged and certificates therefor will be
delivered or placed in escrow as provided in this

A-1-22
<PAGE>
Section 6.2. Notwithstanding anything herein to the contrary, except to
the extent waived by Hybrid, any Pacific Certificate that is not properly
submitted to Hybrid for exchange and cancellation within three years
after the Effective Time shall no longer evidence ownership of or any
right to receive shares of Hybrid Common Stock and all rights of the
holder of such Pacific Certificate, with respect to the shares previously
evidenced by such Pacific Certificate, shall cease.

6.2.4 Until Pacific Certificates representing Pacific Capital Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2
above, such certificates will be deemed, for all purposes, to evidence
ownership of (a) the number of shares of Hybrid Common Stock into which
the shares of Pacific Capital Stock will have been converted, subject to
the obligation to place a portion thereof in escrow as required hereby,
and (b) if applicable, cash in lieu of fractional shares.

6.3 ASSUMPTION OF OPTIONS AND WARRANTS. Promptly after the Effective
Time, Hybrid will notify in writing each holder of a Pacific Option or
Pacific Warrant of the assumption of such Pacific Option or Pacific Warrant
by Hybrid, and the number of shares of Hybrid Common Stock that are then
subject to such option or warrant and the exercise price of such option or
warrant, as determined pursuant to Sections 1.1 and 1.2 hereof.

7. CONDITIONS TO OBLIGATIONS OF PACIFIC

Pacific's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Pacific, but only in a writing signed on
behalf of Pacific by its President or Chief Financial Officer):

7.1 (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Hybrid contained in this Agreement shall
have been true and correct in all material respects as of the date of this
Agreement. The representations and warranties of Hybrid hereunder shall be
deemed not to be true and correct in all material respects on the date of
this Agreement only if the aggregate amount of losses or damages reasonably
related to, arising out of or expected to arise out of any breach of such
representations and warranties (without regard to any limitations for
materiality that are contained in the individual representations and
warranties) are reasonably expected to have a Material Adverse Effect on
Hybrid. In addition, the representations and warranties of Hybrid contained
in this Agreement shall be true and correct in all material respects on and
as of the Closing Date except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Closing Date, except in such cases where the failure to be so true and
correct would not have a Material Adverse Effect on Hybrid. Pacific shall
have received a certificate with respect to the foregoing signed on behalf
of Hybrid by the Chief Executive Officer and the Chief Financial Officer of
Hybrid.

(b) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with
respect to Hybrid shall have occurred since the date of this Agreement.

7.2 COVENANTS. Hybrid shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or
before the Closing Date, and Pacific shall have received a certificate to
such effect executed on behalf of Hybrid by its President or Chief Financial
Officer.

7.3 COMPLIANCE WITH LAW. There shall be no order, decree, or ruling by
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.

7.4 GOVERNMENT CONSENTS. There shall have been obtained at or prior to
the Closing Date such permits or authorizations, and there shall have been
taken such other actions, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the

A-1-23
<PAGE>
actions herein proposed to be taken, including but not limited to
satisfaction of all requirements under applicable federal and state
securities laws.

7.5 DOCUMENTS. Pacific shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by Pacific's legal counsel to consummate the transactions provided
for herein.

7.6 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of 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 SEC
unless withdrawn.

7.7 OPINION OF HYBRID'S COUNSEL. Pacific shall have received from
Fenwick & West LLP, counsel to Hybrid, an opinion substantially in the form
of EXHIBIT M.

7.8 INVESTOR RIGHTS AGREEMENT. Certain Pacific Holders will have
received registration rights under an Investor Rights Agreement in the form
attached as EXHIBIT N, executed and delivered by Hybrid.

7.9 SHAREHOLDER AND STOCKHOLDER APPROVAL. The principal terms of this
Agreement and the Agreement of Merger shall have been approved and adopted
by the Pacific shareholders, as required by applicable law and Pacific's
Articles of Incorporation and Bylaws, and by the Hybrid stockholders, as
required by applicable law and Hybrid's Certificate of Incorporation and
Bylaws.

7.10 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Hybrid shall have
executed and delivered the Employment Agreements and the Noncompetition
Agreements.

7.11 BOARD SEATS. Richard B. Gold and Matt Miller shall have been
appointed to the Board of Directors of Hybrid and Hybrid shall have executed
its standard form of indemnity agreement with Messrs. Gold and Miller as
Hybrid directors.

8. CONDITIONS TO OBLIGATIONS OF HYBRID

The obligations of Hybrid hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Hybrid, but only in a writing signed on
behalf of Hybrid by its President or Chief Financial Officer):

8.1 (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Pacific contained in this Agreement shall
have been true and correct in all material respects as of the date of this
Agreement. The representations and warranties of Pacific hereunder shall be
deemed not to be true and correct in all material respects on the date of
this Agreement only if the aggregate amount of losses or damages reasonably
related to, arising out of or expected to arise out of any breach of such
representations and warranties (without regard to any limitations for
materiality that are contained in the individual representations and
warranties) are reasonably expected to have a Material Adverse Effect on
Pacific. In addition, the representations and warranties of Pacific
contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date except for changes contemplated by
this Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such particular date), with the same force and effect as if
made on and as of the Closing Date, except in such cases where the failure
to be so true and correct would not have a Material Adverse Effect on
Pacific. Hybrid shall have received a certificate with respect to the
foregoing signed on behalf of Pacific by the Chief Executive Officer and the
Chief Financial Officer of Pacific.

(b) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with
respect to Pacific shall have occurred since the date of this Agreement.

A-1-24
<PAGE>
8.2 COVENANTS. Pacific shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or
before the Closing and Hybrid shall have received a certificate to such
effect signed on behalf of Pacific by its President and Chief Financial
Officer.

8.3 COMPLIANCE WITH LAW. There shall be no order, decree, or ruling by
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
provided for in this Agreement.

8.4 GOVERNMENT CONSENTS. There shall have been obtained at or prior to
the Closing Date such permits or authorizations and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of
all requirements under applicable federal and state securities laws.

8.5 DOCUMENTS. Hybrid shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by Hybrid's legal counsel, as listed on Exhibit P, to provide for
the continuation in full force and effect of any and all material contracts
and leases of Pacific.

8.6 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order and the prospectus/Proxy Statement shall on the Closing
not be subject to any proceedings commenced or threatened by the SEC unless
withdrawn.

8.7 OPINION OF PACIFIC'S COUNSEL. Hybrid shall have received from
Wilson Sonsini Goodrich & Rosati Professional Corporation, counsel to
Pacific, an opinion substantially in the form of EXHIBIT O.

8.8 REQUISITE APPROVALS; DISSENTING SHARES. The principal terms of
this Agreement and the Agreement of Merger shall have been approved and
adopted by the Pacific shareholders, as required by applicable law and
Pacific's Articles of Incorporation and Bylaws, and by the Hybrid
stockholders, as required by applicable law and Hybrid's Certificate of
Incorporation and Bylaws. Pacific shall comply with the California
Corporations Code with respect to any Pacific dissenting shares. No more
than five percent (5%) of Pacific's Capital Stock shall be Eligible
Dissenting Shares.

8.9 NO LITIGATION. No litigation or proceeding shall be pending which
will have the probable effect of enjoining or preventing the consummation of
any of the transactions provided for in this Agreement. No litigation or
proceeding shall be pending which could reasonably be expected to have a
Material Adverse Effect that has not been previously disclosed to Hybrid
herein.

8.10 POOLING OPINION. Hybrid shall have received from Coopers &
Lybrand L.L.P. an opinion, in form and substance satisfactory to Hybrid,
that the Merger will be treated as a "pooling of interests" for accounting
purposes; provided that the failure of Coopers & Lybrand L.L.P. to deliver
such opinion shall not constitute a failure of this condition if Coopers &
Lybrand L.L.P. shall refuse to issue such an opinion because of actions
taken by Hybrid (unless with Pacific's consent) between the signing of this
Agreement and the Closing Date.

8.11 ESCROW. Hybrid shall have received the Escrow Agreement,
substantially in the form attached hereto as Exhibit B, executed by the
Representative of the Pacific Holders, which agreement provides for the
escrow of the Escrow Shares on the terms and conditions of the Escrow
Agreement.

8.12 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Richard B. Gold, Mike
Morganstern and Allen Podell will have executed and delivered to Hybrid the
Employment Agreements, which agreements will become effective upon the
Effective Time of the Merger. Richard B. Gold, Mike Morganstern and Allen
Podell will have executed and delivered to Hybrid the Noncompetition
Agreements, which agreements will become effective upon the Effective Time
of the Merger.

A-1-25
<PAGE>
8.13 PACIFIC AFFILIATES AGREEMENT. Each of the affiliates of Pacific will
have executed and delivered to Hybrid the Pacific Affiliates Agreement in the
form of Exhibit I.

9. TERMINATION OF AGREEMENT

9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
shareholders of Pacific:

(a) by the mutual written consent of Hybrid and Pacific;

(b) Unless otherwise specifically provided herein or agreed in
writing by Hybrid and Pacific, upon notice by either party, this
Agreement will be terminated if all the conditions to Closing have not
been satisfied or waived on or before July 31, 1998 (the "FINAL DATE")
other than as a result of a breach of this Agreement by the terminating
party, or a breach by any of the affiliates of the terminating party of
the Affiliate Agreements.

(c) by Pacific, if there has been a breach by Hybrid of any
representation, warranty, covenant or agreement set forth in this
Agreement on the part of Hybrid, or if any representation of Hybrid will
have become untrue, in either case which has or can reasonably be
expected to have a Material Adverse Effect on Hybrid and which Hybrid
fails to cure within a reasonable time, not to exceed thirty (30) days,
after written notice thereof (except that no cure period will be provided
for a breach by Hybrid which by its nature cannot be cured);

(d) by Hybrid, if there has been a breach by Pacific of any
representation, warranty, covenant or agreement set forth in this
Agreement on the part of Pacific, or if any representation of Pacific
will have become untrue, in either case which has or can reasonably be
expected to have a Material Adverse Effect on Pacific and which Pacific
fails to cure within a reasonable time not to exceed thirty (30) days
after written notice thereof (except that no cure period will be provided
for a breach by Pacific which by its nature cannot be cured);

(e) by either party if the required approvals of the shareholders of
Pacific or the stockholders of Hybrid will not have been obtained by
reason of the failure to obtain the required vote; or

(f) by either party, if a permanent injunction or other order by any
Federal or state court which would make illegal or otherwise restrain or
prohibit the consummation of the Merger will have been issued and will
have become final and nonappealable.

Any termination of this Agreement under this Section 9.1 will be effective
by the delivery of written notice of the terminating party to the other party
hereto.

9.2 EXTENSION OF FINAL DATE IN EVENT OF INJUNCTION. Notwithstanding
the foregoing, if a temporary, preliminary or permanent injunction or other
order by any federal or state court which would prohibit or otherwise
restrain consummation of the Merger will have been issued and will remain in
effect on the Final Date, and such injunction will not have become final and
nonappealable, either party, by giving the other written notice thereof on
or prior to such date, may extend the time for consummation of the Merger up
to and including the earlier of the date such injunction will become final
and non-appealable or 45 days after the Final Date, so long as such party
will, at its own expense, use reasonable efforts to have such injunction
dissolved.

9.3 TERMINATION PAYMENT.

9.3.1 In the event that this Agreement is terminated pursuant to
Section 9.1(d) above solely because (a) Pacific fails to satisfy Section
8.8 because more than 5% of Pacific's Capital Stock constitutes Eligible
Dissenting Shares; or (b) Pacific fails to satisfy Section 8.10 because
of actions taken by Pacific after the date of this Agreement, then
Pacific shall pay to Hybrid, within 15 days after the date of such
termination, a termination payment of $375,000 plus expenses incurred in
connection with the Merger, including attorneys fees. In the event that
this Agreement is

A-1-26
<PAGE>
terminated pursuant to 9.1(c) above solely because Hybrid fails to
receive a pooling opinion from Coopers & Lybrand L.L.P. because of
actions taken by Hybrid after the date of this Agreement, then Hybrid
shall pay to Pacific, within 15 days after the date of such termination,
a termination payment of $375,000 plus expenses incurred in connection
with the Merger, including attorneys fees. Any payment made pursuant to
this Section 9.3.1 shall hereinafter be designated a "TERMINATION
PAYMENT." Neither party shall be obligated to make a Termination Payment
if this Agreement is terminated for any other reason.

9.3.2 If this Agreement is terminated under circumstances that a
party believes entitles it ("THE RECEIVING PARTY") to receive the
Termination Payment and the other party (the "TERMINATING PARTY")
indicates that it does not intend to pay the Receiving Party the
Termination Payment, then such party, by written notice delivered to the
Terminating Party, will have the right to submit the issue of whether the
Receiving Party is entitled to receive the Termination Payment to
arbitration under Section 11.1 hereof. In such event, each of Pacific and
Hybrid will either agree on a mutually acceptable arbitrator within ten
business days of the Terminating Party's receipt of the Receiving Party's
notice, or if agreement has not been reached by that date, each party
will deliver to the other by that date the name of their designated
arbitrator. If any party fails to deliver the name of such designated
arbitrator to the other, then the arbitrator selected by the party that
complied with the terms of this Section 9.3.3 will be the sole arbitrator
of the dispute. If Hybrid and Pacific deliver the name of their
designated arbitrator to each other as required hereunder, such
designated arbitrators will, within ten business days after being so
designated, appoint a third, mutually acceptable arbitrator. The
arbitrator (if one arbitrator is selected hereunder) or a majority of the
arbitrators (if three arbitrators are selected hereunder) will, within
the next thirty days solicit such information from Hybrid and Pacific
such that it or they, as appropriate, can render their judgment within
ten days thereafter as to whether or not the Termination Payment is due
hereunder.

9.4 CERTAIN CONTINUING OBLIGATIONS. Following any termination of this
Agreement pursuant to this Section 9, the parties hereto will continue to
perform their respective obligations under Sections 9 and 11 but will not be
required to continue to perform their other covenants under this Agreement.

10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS

10.1 SURVIVAL OF REPRESENTATIONS.

10.1.1 REPRESENTATIONS OF PACIFIC. All representations, warranties
and covenants of Pacific contained in this Agreement will remain
operative and in full force and effect after the Closing, regardless of
any investigation made by or on behalf of the parties to this Agreement;
PROVIDED, HOWEVER, that

(a) no claim for violations of representations and warranties
contained in Section 2.7 shall be made unless Hybrid gives written
notice to Pacific no later than the date of issuance of Hybrid's
press release regarding its audited financial results for the fiscal
year ending December 31, 1998.

(b) no claim for violations of representations and warranties
other than those contained in Section 2.7 shall be made unless Hybrid
gives written notice to Pacific on or prior to twelve months after
the Closing; and

The applicable date after which claims are barred under Section 10.1.1(a) or
(b) shall be referred to as the "APPLICABLE EXPIRATION DATE."

Except for the obligations of Pacific under Sections 9 and 11, the
representations, warranties and covenants of Pacific contained in this Agreement
will terminate as of the termination of this Agreement in

A-1-27
<PAGE>
accordance with its terms. Any judgment or settlement of a claim against Pacific
for a breach of its obligations hereunder brought after the Effective Time will
be settled in Hybrid Common Stock, valued at the Closing Price.

10.1.2 REPRESENTATIONS OF HYBRID. Except for Hybrid's obligations
pursuant to Sections 9 and 11, Hybrid's representations, warranties and
covenants contained in this Agreement will terminate as of the
termination of this Agreement in accordance with its terms or, if the
Closing occurs, such representations, warranties and covenants will
terminate upon the Closing.

10.2 PACIFIC AGREEMENT TO INDEMNIFY.

10.2.1 GENERAL INDEMNIFICATION BY PACIFIC HOLDERS. Subject to the
limitations set forth in this Section 10.2, the Pacific Holders will
indemnify and hold harmless Hybrid and its respective officers,
directors, agents and employees, and each person, if any, who controls or
may control Hybrid within the meaning of the Securities Act (hereinafter
in this Section 10.2 referred to individually as an "INDEMNIFIED PERSON"
and collectively as "INDEMNIFIED PERSONS") from and against any and all
claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal
fees (collectively, "DAMAGES"):

(a) Arising out of any misrepresentation or breach of or default
in connection with any of the representations, warranties or
covenants given or made by Pacific in this Agreement or any
certificate, document or instrument delivered by or on behalf of
Pacific or by one of the Pacific Holders pursuant hereto; or

(b) Resulting from any failure of any Pacific Holders to have
good, valid and marketable title to the issued and outstanding
Pacific capital stock held by such shareholders, free and clear of
all liens, claims, pledges, options, adverse claims, assessments or
charges of any nature whatsoever, or to have full right, capacity and
authority to vote such Pacific capital stock in favor of the Merger
and the other transactions contemplated by the Agreement of Merger.

10.2.2 LIMITATIONS. Except as provided under Section 10.2.3, this
Section 10.2 sets forth the sole and exclusive remedies of the
Indemnified Persons for misrepresentation or breach of or default in
connection with any of the representations, warranties or covenants given
by or on behalf of Pacific or by one of the Pacific Shareholders pursuant
hereto. The Pacific Holders shall not incur liability under Section
10.2.1 beyond the Escrow Shares and the Indemnified Persons shall
exercise their remedies only with respect to the Escrow Shares and any
other assets deposited in escrow pursuant to the Escrow Agreement. The
Pacific Holders shall settle any claims for indemnification by returning
to Hybrid shares of Hybrid Common Stock valued at the Closing Price. The
indemnification provided for in Section 10.2.1 will not apply unless and
until the aggregate Damages for which one or more Indemnified Persons
seeks indemnification under Section 10.2 exceeds $100,000, in which event
the indemnification provided for in Section 10.2 will include all
Damages.

10.2.3 EXCEPTIONS TO LIMITATIONS. None of the provisions of this
Section 10 or of the Escrow Agreement shall in any manner limit the
liability or indemnification obligations of the Pacific Holders with
respect to (i) claims of intentional misrepresentation or fraud and (ii)
any criminal matters.

10.2.4 SURVIVAL OF CLAIMS. Notwithstanding anything to the
contrary, if, prior to the expiration of a particular representation or
warranty, an Indemnified Person makes a claim for indemnification under
either this Agreement or the Escrow Agreement with respect to a
misrepresentation or breach of such representation or warranty, then the
Indemnified Person's rights to indemnification under this Section 10.2
for such claim shall survive any expiration of such representation or
warranty.

A-1-28
<PAGE>
10.2.5 INDEMNIFICATION PROCEDURES. Alan Dishlip, who shall act as
representative (the "REPRESENTATIVE") of the Pacific Holders for purposes
of the Escrow Agreement and the indemnifications provisions of this
Section 10.2, is duly authorized to be such Representative and may bind
the Pacific Holders. Promptly after the receipt by Hybrid of notice or
discovery of any claim, damage, legal action or proceeding (a "CLAIM")
giving rise to indemnification rights under this Agreement, Hybrid will
give the Representative and the Escrow Agent written notice of such Claim
in accordance with Section 3 of the Escrow Agreement. Hybrid may assert a
Claim at any time prior to the Applicable Expiration Date.

11. MISCELLANEOUS

11.1 GOVERNING LAW; DISPUTE RESOLUTION. The internal laws of the State
of California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties
hereto. Any dispute hereunder ("DISPUTE") shall be settled by arbitration in
Santa Clara County, California, and, except as herein specifically stated,
in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA RULES") then in effect. However, in all
events, these arbitration provisions shall govern over any conflicting rules
which may now or hereafter be contained in the AAA Rules. Any judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction over the subject matter thereof. The arbitrator shall have the
authority to grant any equitable and legal remedies that would be available
in any judicial proceeding instituted to resolve a Dispute.

11.1.1 COMPENSATION OF ARBITRATOR. Any such arbitration will be
conducted before a single arbitrator who will be compensated for his or
her services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily
consulting rates for the arbitrator in the event the parties are not able
to agree upon his or her rate of compensation.

11.1.2 SELECTION OF ARBITRATOR. The American Arbitration
Association will have the authority to select an arbitrator from a list
of arbitrators who are lawyers familiar with California contract law;
provided, however, that such lawyers cannot work for a firm then
performing services for either party, that each party will have the
opportunity to make such reasonable objection to any of the arbitrators
listed as such party may wish and that the American Arbitration
Association will select the arbitrator from the list of arbitrators as to
whom neither party makes any such objection. In the event that the
foregoing procedure is not followed, each party will choose one person
from the list of arbitrators provided by the American Arbitration
Association (provided that such person does not have a conflict of
interest), and the two persons so selected will select from the list
provided by the American Arbitration Association the person who will act
as the arbitrator.

11.1.3 PAYMENT OF COSTS. Hybrid and Pacific after the Closing will
bear the expense of deposits and advances required by the arbitrator in
equal proportions, but either party may advance such amounts, subject to
recovery as an addition or offset to any award. The arbitrator will award
to the prevailing party, as determined by the arbitrator, all costs, fees
and expenses related to the arbitration, including reasonable fees and
expenses of attorneys, accountants and other professionals incurred by
the prevailing party.

11.1.4 BURDEN OF PROOF. For any Dispute submitted to arbitration,
the burden of proof will be as it would be if the claim were litigated in
a judicial proceeding.

11.1.5 AWARD. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of
law and a written opinion setting forth the basis

A-1-29
<PAGE>
and reasons for any decision reached and will deliver such documents to
each party to this Agreement along with a signed copy of the award.

11.1.6 TERMS OF ARBITRATION. The arbitrator chosen in accordance
with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the
provisions of this Agreement.

11.1.7 EXCLUSIVE REMEDY. Except as specifically otherwise provided
in this Agreement, arbitration will be the sole and exclusive remedy of
the parties for any Dispute arising out of this Agreement.

11.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. Neither party
hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

11.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provision.

11.4 COUNTERPARTS. This 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
instrument. This Agreement will become binding when one or more counterparts
hereof, individually or taken together, bear the signatures of both parties
reflected hereon as signatories.

11.5 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on
such party, and the exercise of any one remedy will not preclude the
exercise of any other.

11.6 AMENDMENT AND WAIVERS. This Agreement may be amended by the
parties hereto at any time before approval of the Pacific Holders. Any term
or provision of this Agreement may be amended, and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by a writing
signed by the party 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.

11.7 NO WAIVER. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such
provision on any other occasion.

11.8 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. If the Merger is consummated, Hybrid will pay at the
Closing the reasonable accounting and attorneys' fees and expenses and other
fees and expenses incurred by Pacific in connection with the Merger. Pacific
estimates that Merger expenses will be approximately $175,000 for fees and
expenses of lawyers, accountants and other professionals, other than UBS
Securities. Unless any fees or expenses incurred by Pacific in excess of the
applicable amount set forth above are paid by the Pacific Holders on or
before the Closing, Hybrid will pay such excess fees or expenses, but in
which event Hybrid will be entitled to be reimbursed by the Pacific Holders
for such

A-1-30
<PAGE>
payment and, if not so reimbursed, Hybrid will be entitled to treat the
amount of payment as Damages recoverable under Section 10.2 and as an
Uncontested Claim under the Escrow Agreement.

11.9 NOTICES. Any notice or other communication required or permitted
to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be
deemed given upon actual delivery or, if mailed by registered or certified
mail, on the third business day following deposit in the mails, addressed as
follows:

(i) If to Hybrid:

Hybrid Networks, Inc.
10161 Bubb Road
Cupertino, CA 95104
Attention: Carl S. Ledbetter, Chief Executive Officer

with a copy to:

Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Edwin N. Lowe, Esq.
Phone: (650) 494-0600
Fax: (650) 494-1417

(ii) If to Pacific:

Pacific Monolithics, Inc.
1308 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Richard B. Gold, Chief Executive Officer

with a copy to:

Wilson Sonsini Goodrich & Rosati Professional Corporation
650 Page Mill Rd
Palo Alto, CA 94304
Attention: James N. Strawbridge, Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811

or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 11.9.

11.10 CONSTRUCTION OF AGREEMENT. The language hereof will not be
construed for or against either party. A reference to an article, section or
exhibit will mean an article or section in, or an exhibit to, this
Agreement, unless otherwise explicitly set forth. The titles and headings in
this Agreement are for reference purposes only and will not in any manner
limit the construction of this Agreement. For the purposes of such
construction, this Agreement will be considered as a whole.

11.11 NO JOINT VENTURE. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will
have the power to control the activities and operations of any other, and
the parties' status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself
out as having any authority or relationship in contravention of this
Section.

A-1-31
<PAGE>
11.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions
provided for herein and to carry into effect the intent of this Agreement.

11.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, partner or employee of any party hereto or any
other person or entity, unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between
the parties to this Agreement.

11.14 PUBLIC ANNOUNCEMENT. Hybrid and Pacific will issue a press
release approved by both parties announcing the Merger as soon as
practicable following the execution of this Agreement. Hybrid may issue such
press releases, and make such other disclosures regarding the Merger, as it
determines to be required or appropriate under applicable securities laws or
Nasdaq Stock Market rules after reasonable consultation, where possible,
with Pacific. Pacific will not make any other public announcement or
disclosure of the transactions contemplated by this Agreement. Pacific will
take all reasonable precautions to prevent any trading in the securities of
Hybrid by officers, directors, employees and agents of Pacific, (a) having
knowledge of any material information regarding Hybrid provided hereunder
until the information in question has been publicly disclosed or (b) to the
extent that such trading would adversely affect the treatment of the Merger
as a "pooling of interests" for accounting purposes.

11.15 CONFIDENTIALITY. Except as expressly authorized by Hybrid in
writing, Pacific will not directly or indirectly divulge to any person or
entity or use any Hybrid Confidential Information, except as required for
the performance of its duties under this Agreement. Except as expressly
authorized by Pacific in writing, Hybrid will not directly or indirectly
divulge to any person or entity or use any Pacific Confidential Information,
except as required for the performance of its duties under this Agreement.
As used herein, "HYBRID CONFIDENTIAL INFORMATION" consists of (a) any
information designated by Hybrid as confidential whether developed by Hybrid
or disclosed to Hybrid by a third party, (b) the source code to any Hybrid
software and any trade secrets relating to any of the foregoing, and (c) any
information relating to Hybrid's product plans, product designs, product
costs, product prices, product names, finances, marketing plans, business
opportunities, personnel, research development or know-how. As used herein,
"PACIFIC CONFIDENTIAL INFORMATION" consists of (x) any information
designated by Pacific as confidential whether developed by Pacific or
disclosed to Pacific by a third party, (y) the source code to any Pacific
software and any trade secrets related to any of the foregoing, and (z) any
information relating to Pacific product plans, product designs, product
costs, product prices, product names, finances, marketing plans, business
opportunities, personnel, research, development or know-how. "Hybrid
Confidential Information" and "Pacific Confidential Information" also
include the terms and conditions of this Agreement, except as disclosed in
accordance with Section 11.14 above. The foregoing restriction will apply to
information about a party whether or not it was obtained from such party's
employees, acquired or developed by the other party during such other
party's performance under this Agreement, or otherwise learned. The
foregoing restrictions will not apply to information that (i) has become
publicly known through no wrongful act of the receiving party, (ii) has been
rightfully received from a third party authorized by the party which is the
owner, creator or compiler to make such disclosure without restriction,
(iii) has been approved or released by written authorization of the party
which is the owner, creator or compiler, or (iv) is being or has therefore
been disclosed pursuant to a valid court order after a reasonable attempt
has been made to notify the party which is the owner, creator or compiler.

11.16 TIME IS OF THE ESSENCE. The parties hereto acknowledge and agree
that time is of the essence in connection with the execution, delivery and
performance of this Agreement, and that they will each utilize reasonable
efforts to satisfy all the conditions to Closing on or before May 31, 1998.

A-1-32
<PAGE>
11.17 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect to the
subject matter hereof. The express terms hereof control and supersede any
course of performance or usage of trade inconsistent with any of the terms
hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

<TABLE>
<S> <C> <C> <C>
HYBRID NETWORKS, INC. PACIFIC MONOLITHICS, INC.

/s/ CARL S. LEDBETTER /s/ RICHARD B. GOLD
----------------------------------- -----------------------------------
Carl S. Ledbetter, PRESIDENT AND Richard B. Gold, PRESIDENT AND
CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER
By: By:

HN ACQUISITION CORP.

/s/ DANIEL E. STEIMLE
-----------------------------------
Daniel E. Steimle
PRESIDENT AND SECRETARY
By:
</TABLE>

SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION

A-1-33
<PAGE>
APPENDIX A-2

AGREEMENT OF MERGER
OF
HN ACQUISITION CORP.
WITH AND INTO
PACIFIC MONOLITHICS, INC.

This Agreement of Merger ("AGREEMENT") is entered into as of ,
1998 by and between HN Acquisition Corp., a Delaware corporation ("NEWCO")
(nonsurvivor) that is a wholly-owned subsidiary of Hybrid Networks, Inc., a
Delaware corporation ("Hybrid"), and Pacific Monolithics, Inc., a California
corporation ("PACIFIC") (survivor).

1. EFFECTIVE TIME OF MERGER. Pursuant to the California Corporations Code
and the Law of the State of Delaware, Newco will be merged with and into Pacific
in a reverse triangular merger (the "MERGER"), with Pacific to be the surviving
corporation of the Merger. The Merger will be effective (the "EFFECTIVE TIME")
on , 1998, the date on which a copy of this Agreement and all required
officers' certificates and other appropriate documents are filed with the
Secretary of State of California.

2. CONVERSION OF SECURITIES.

(a) CONVERSION OF PACIFIC SHARES. At the Effective Time, each share of
Pacific Common Stock, no par value ("PACIFIC COMMON STOCK") and each share
of Pacific Preferred Stock, no par value ("PACIFIC PREFERRED STOCK", and
together with the Pacific Common Stock, the "PACIFIC CAPITAL STOCK"), issued
and outstanding immediately prior to the Effective Time other than shares,
if any, for which dissenters rights have been or will be perfected in
compliance with applicable law, will, by virtue of the Merger and without
further action on the part of any holder thereof, be converted into
(the "APPLICABLE NUMBER") shares of fully paid and nonassessable shares of
Hybrid Common Stock, $0.001 par value ("HYBRID COMMON STOCK"). No fractional
shares of Hybrid Common Stock will be issued in connection with the Merger,
but in lieu thereof, Hybrid will pay an amount of cash equal to $
(the "CLOSING PRICE") multiplied by the fraction of a share of Hybrid Common
Stock to which such holder would otherwise be entitled.

(b) CONVERSION AND ASSUMPTION OF OPTIONS AND WARRANTS. Each option or
warrant to purchase shares of Pacific Capital Stock that is outstanding
immediately prior to the Effective Time (a "PACIFIC OPTION" or a "PACIFIC
WARRANT," as the case may be) will, by virtue of the Merger at the Effective
Time and without further action on the part of any holder thereof, be
converted and assumed by Hybrid into an option or warrant (a "HYBRID OPTION"
or "HYBRID WARRANT," as the case may be) to purchase that number of shares
of Hybrid Common Stock which equals the Applicable Number multiplied by the
number of shares of Pacific Capital Stock purchasable immediately prior to
the Effective Time under the Pacific Option or Pacific Warrant, rounded down
to the nearest whole share. The exercise price per share of Hybrid Common
Stock purchasable under each such Hybrid Option or Hybrid Warrant will be
equal to the exercise price of the Pacific Option or Pacific Warrant (per
share of Pacific Common Stock) divided by the Applicable Number, rounded up
to the nearest whole cent. All of the other terms of each Hybrid Option or
Hybrid Warrant will be the same in all material respects as the
corresponding Pacific Option or Pacific Warrant that is being replaced and
converted.

(c) ESCROW SHARES. Pursuant to the Escrow Agreement, at the closing of
the Merger, Hybrid or its exchange agent will (i) deduct, pro rata, from the
shares of Hybrid Common Stock that would otherwise be delivered to former
holders of Pacific Capital Stock (the "SHAREHOLDERS") that number of shares
representing ten percent (10%) of the total number of shares of Hybrid
Common Stock issued to them in the Merger, and (ii) deliver on behalf of the
Shareholders, certificates representing the shares thus withheld to State
Street Bank and Trust Company, as escrow agent (the "ESCROW AGENT"). The
shares of Hybrid Common Stock withheld pursuant to this Section 2(c) at the
closing of the

A-2-1
<PAGE>
Merger (the "ESCROW SHARES") will be held in escrow pursuant to a separate
Escrow Agreement to secure the indemnification obligations of the
Shareholders.

(d) SURRENDER AND EXCHANGE OF OUTSTANDING CERTIFICATES. Each
certificate which immediately before the Effective Time evidenced shares of
Pacific Capital Stock will, from and after the Effective Time until such
certificate is surrendered to Hybrid or its transfer agent, be deemed, for
all corporate purposes, to evidence the right to receive the consideration
described above (subject to the terms and conditions of the Escrow
Agreement); provided, however, that until such certificate is so surrendered
by a Shareholder, no dividend or other distribution payable to such
Shareholder after the Effective Time will be paid in respect of the shares
of Hybrid Common Stock represented by such certificate. Upon surrender, all
dividends and distributions, if any, therefore declared and accrued but
unpaid in respect of such shares, will be paid. The Shareholders will be
requested to surrender to Hybrid or its transfer agent, as soon as
practicable after the Effective Time, the certificate or certificates
representing all the shares of Pacific Capital Stock issued and outstanding
immediately prior to the Effective Time. Upon such surrender, the
Shareholders will be entitled to receive certificate(s) evidencing ownership
of the shares of Hybrid Common Stock which are deemed to be represented by
the certificate or certificates surrendered (which do not include the Escrow
Shares). As soon as practicable following such surrender Hybrid or its
transfer agent will issue to the Shareholders such certificate(s).

(e) ASSUMPTION OF OPTIONS AND WARRANTS. Promptly after the Effective
Time, Hybrid will notify in writing each holder of a Pacific Option or
Pacific Warrant of the assumption of such Pacific Option or Pacific Warrant
by Hybrid, and the number of shares of Hybrid Common Stock that are then
subject to such option or warrant and the exercise price of such option or
warrant.

3. CONVERSION OF NEWCO SHARES. Each share of Newco Common Stock, $0.001
par value ("NEWCO COMMON STOCK"), that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger and without further
action on the part of the sole stockholder of Newco, will be converted into and
become one (1) share of Pacific Common Stock that is issued and outstanding
immediately after the Effective Time, and the shares of Pacific Common Stock
into which the shares of Newco Common Stock are so converted shall be the only
shares of Pacific Capital Stock that are issued and outstanding immediately
after the effective time.

4. PLAN. Hybrid and Pacific are parties to the Agreement and Plan of
Reorganization dated as of March 19, 1998 (the "PLAN"). The Plan and this
Agreement are intended to be construed together in order to effectuate their
purposes.

5. EFFECTS OF MERGER. At the Effective Time: (a) the separate existence
of Newco will cease and Newco will be merged with and into Pacific and Pacific
will be the surviving corporation pursuant to the terms of this Agreement; (b)
the Articles of Incorporation of Pacific will be amended as attached hereto as
EXHIBIT A and the Bylaws of Pacific will continue unchanged as the Bylaws of the
surviving corporation; (c) each share of Pacific Capital Stock outstanding
immediately prior to the Effective Time will be converted as provided in Section
2 of this Agreement; (d) each share of Newco Common Stock outstanding
immediately prior to the Effective Time will be converted into one (1)
outstanding share of Pacific Common Stock; (e) Richard B. Gold and Matt Miller
will be appointed to the Board of Directors of Hybrid as Class I directors, with
the current Class I directors resigning as of the Effective Time and Richard B.
Gold will be appointed the President and Chief Operating Officer of Hybrid and
the remaining directors and executive officers of Hybrid otherwise remaining
unchanged, and the sole director of Newco immediately prior to the Effective
Time will become the sole director of the surviving corporation and the officers
of Newco immediately prior to the Effective Time will become the officers of the
surviving corporation; and (f) the Merger will, at and after the Effective Time,
have all of the effects provided by applicable law.

A-2-2
<PAGE>
6. FURTHER ASSIGNMENTS. After the Effective Time, Pacific and its
officers and directors may execute and deliver such deeds, assignments and
assurances and do all other things necessary or desirable to vest, perfect or
confirm title to Newco's property or rights in Pacific and otherwise to carry
out the purposes of the Plan in the name of Newco or otherwise.

7. TERMINATION. This Agreement may be terminated and the proposed Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of this Agreement by the Shareholders of Pacific or the stockholders of
Hybrid, by either party hereto upon termination of the Plan or by the mutual
consent of the Boards of Directors of Hybrid and Pacific.

8. DISSENTING SHARES. Holders of Pacific Capital Stock who have complied
with all requirements for perfecting the rights of dissenting shareholders as
set forth in Section 1300, et. seq., of the California Corporations Code (the
"CALIFORNIA CODE") shall be entitled to their rights under the California Code.

9. ASSIGNMENT. Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors, personal representatives and
permitted assigns.

10. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California applicable to contracts
entered into and to be performed wholly within the State of California without
regard to principles of conflict of laws.

11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date and year first above written.

HN ACQUISITION CORP. PACIFIC MONOLITHICS, INC.

By: By:
--------------------------- ---------------------------
Daniel E. Steimle, Richard B. Gold, President
President and Secretary and Secretary

A-2-3
<PAGE>
EXHIBIT A

AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PACIFIC MONOLITHICS, INC.

ARTICLE I

The name of the corporation is Pacific Monolithics, Inc.

ARTICLE II

The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the California Corporations Code
other than the banking business, the trust company business or the practice of a
profession permitted to be incorporated by the California Corporations Code.

ARTICLE III

The liability of the directors of the corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law. Unless
applicable law otherwise provides, any amendment, repeal or modification of this
Article III shall not adversely affect any right of any director under this
Article III that existed at or prior to the time of such amendment, repeal or
modification.

ARTICLE IV

The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, by agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code. Unless applicable law otherwise provides, any amendment,
repeal or modification of any provision of this Article IV shall not adversely
affect any contract or other right to indemnification of any agent of the
corporation that existed at or prior to the time of such amendment, repeal or
modification.

ARTICLE V

The corporation is authorized to issue only one class of shares of stock,
which shall be designated "Common Stock" and which shall have no par value. The
total number of shares of Common Stock the corporation is authorized to issue is
1,000 shares.

A-2-4
<PAGE>
APPENDIX B

March 19, 1998

Board of Directors
Hybrid Networks, Inc.
10161 Bubb Road
Cupertino, CA 95014

Gentlemen:

We understand that Pacific Monolithics, Inc., a California corporation
("Seller"), and Hybrid Networks, Inc., a Delaware corporation ("Buyer"), propose
to enter into an Agreement and Plan of Reorganization to be dated March 19, 1998
(the "Merger Agreement"), pursuant to which a wholly-owned subsidiary of Buyer
will be merged with and into Seller, which will be the surviving entity (the
"Merger"). Pursuant to the Merger, as more fully described in an undated draft
Merger Agreement provided to us by management of Buyer and as further described
to us by management of Buyer, we understand that all of the outstanding capital
stock and options and warrants to purchase capital stock of Seller will be
converted into and exchangeable for shares or options or warrants to purchase
shares of the common stock, $.001 par value per share ("Buyer Common Stock") of
Buyer, with an aggregate Closing Price (as defined in the Merger Agreement) of
$12,500,000, provided that the Closing Price of Buyer Common Stock will not be
less than $5.17 per share or more than $8.40 per share, subject to certain
adjustments (the "Consideration"). The terms and conditions of the Merger are
set forth in more detail in the draft Merger Agreement.

You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger is fair to Buyer from a
financial point of view, as of the date hereof.

In connection with our opinion, we have, among other things: (i) reviewed
certain financial and other data with respect to Seller and Buyer, including the
consolidated financial statements for recent years and interim periods to
February 28, 1998 for Seller and Buyer and certain other relevant financial and
operating data relating to Seller and Buyer made available to us from the
internal records of Seller and Buyer; (ii) reviewed the financial terms and
conditions of the draft Merger Agreement; (iii) compared Seller and Buyer from a
financial point of view with certain other companies in the wireless
telecommunications industry which we deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the telecommunications industry which we deemed to
be comparable, in whole or in part, to the Merger; (vi) reviewed and discussed
with representatives of the management of Seller and Buyer certain information
of a business and financial nature regarding Seller and Buyer, furnished to us
by them, including financial forecasts and related assumptions of Seller and
Buyer; (vii) made inquiries regarding and discussed the Merger and the draft
Merger Agreement and other matters related thereto with Buyer's counsel; and
(viii) performed such other analyses and examinations as we have deemed
appropriate.

In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller and Buyer provided to us by their respective managements,
upon their advice and with your consent we have assumed for purposes of our
opinion that the forecasts (including the assumption regarding cost savings in
operations and manufacturing, research and development, sales and marketing and
general and administrative expenses) have been reasonably prepared on bases
reflecting the best available estimates and judgments of their respective
managements at the time of

B-1
<PAGE>
Board of Directors
Hybrid Networks, Inc.
March 19, 1998

preparation as to the future financial performance of Seller and Buyer and that
they provide a reasonable basis upon which we can form our opinion. We have also
assumed that there have been no material changes in Seller's or Buyer's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to us. We
have relied on advice of counsel and independent accountants to Seller and Buyer
as to all legal and financial reporting matters with respect to Seller and
Buyer, the Merger and the Merger Agreement. We have assumed that the Merger will
be consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed responsibility
for making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of Seller or Buyer, nor have
we been furnished with any such appraisals. You have informed us, and we have
assumed, that the Merger will be recorded as a pooling of interests under
generally accepted accounting principles. Finally, our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, we have not assumed any
obligation to update, revise or reaffirm this opinion.

We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the draft Merger
Agreement, without any further amendments thereto, and without waiver by Buyer
of any of the conditions to its obligations thereunder.

We have acted as financial advisor to Buyer in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we actively trade the equity securities
of Buyer for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. We have also
acted as an underwriter in connection with an offering of securities of Buyer
and performed various investment banking services for Buyer.

Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger is fair to Buyer from a financial point of view, as of the date hereof.

This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to Buyer and
does not address the relative merits of the Merger and any alternatives to the
Merger, Buyer's underlying decision to proceed with or effect the Merger, or any
other aspect of the Merger. This opinion may not be used or referred to by
Buyer, or quoted or disclosed to any person in any manner, without our prior
written consent, which consent is hereby given to the inclusion of this opinion
in any proxy statement or prospectus filed with the Securities and Exchange
Commission in connection with the Merger. In furnishing this opinion, we do not
admit that we are experts within the meaning of the term "experts" as used in
the

B-2
<PAGE>
Board of Directors
Hybrid Networks, Inc.
March 19, 1998

Securities Act and the rules and regulations promulgated thereunder, nor do we
admit that this opinion constitutes a report or valuation within the meaning of
Section 11 of the Securities Act.

Very truly yours,
NATIONSBANC MONTGOMERY
SECURITIES LLC

B-3
<PAGE>
APPENDIX C

CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE
DISSENTERS' RIGHTS

SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.

(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.

SECTION 1301. DEMAND FOR PURCHASE.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a

C-1
<PAGE>
brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in subparagraph (A) or (B) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.

SECTION 1302. ENDORSEMENT OF SHARES.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.

SECTION 1303. AGREED PRICE--TIME FOR PAYMENT.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.

SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date

C-2
<PAGE>
on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.

SECTION 1305. APPRAISERS' REPORT--PAYMENT--COSTS.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).

SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.

SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.

C-3
<PAGE>
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.

SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
share, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.

SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.

SECTION 1311. EXEMPT SHARES.

This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.

SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except for an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such

C-4
<PAGE>
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to shareholders of the controlled party,
and (2) a person who controls two or more parties to a reorganization shall have
the burden of proving that this transaction is just and reasonable as to the
shareholders of any party so controlled.

C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY

As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that: (i) the Registrant is required to indemnify its
directors to the fullest extent permitted by the Delaware General Corporation
Law; (ii) the Registrant may, in its discretion, indemnify other officers,
employees and agents as set forth in the Delaware General Corporation Law; (iii)
upon receipt of an undertaking to repay such advances if indemnification is
determined to be unavailable, the Registrant is required to advance expenses, as
incurred, to its directors in connection with defending a civil or criminal
action, suit or proceeding (except if the agent is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors which alleges willful misappropriation of corporate assets by such
agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any willful and
deliberate breach in bad faith of such agent's duty to the corporation or its
stockholders; and (iv) the rights conferred in the Bylaws are not exclusive and
the Registrant is authorized to enter into indemnity agreements with its
directors, officers and employees and agents.

The Registrant's policy is to enter into indemnity agreements with each of
its directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts actually
and reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors or officers of the Registrant or as directors or officers
of any other company or enterprise when they are serving in such capacities at
the request of the Registrant. The Registrant will not be obligated pursuant to
the agreements to indemnify or advance expenses to an indemnified party with
respect to proceedings or claims (i) initiated by the indemnified party and not
by way of defense, except with respect to a proceeding authorized by the Board
of Directors and successful proceedings brought to enforce a right to
indemnification under the indemnity agreement, the charter documents or any
other statute or law or otherwise although indemnification may be provided by
the Company in specific cases if the Board of Directors finds it appropriate,
(ii) for any amounts paid in settlement of a proceeding unless the Registrant
consents in advance in writing to such settlement, (iii) on account of any suit
in which judgment is rendered against the indemnified party for an accounting of
profits made from the purchase or sale by the indemnified party of securities of
the Registrant pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and related laws, (iv) on account of conduct by a director
which is finally adjudged to have been in bad faith or conduct that the director
did not reasonably believe to be in, or not opposed to, the best interests of
the Registrant, (v) on account of any criminal action or proceeding arising out
of conduct that the director had reasonable cause to believe was unlawful or
(vi) if a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not lawful.

The indemnity agreement requires a director or executive officer to
reimburse the Registrant for all expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Certificate of Incorporation, the Bylaws, the indemnity
agreement or otherwise, to be indemnified for such expenses. The indemnity
agreement provides that it is not exclusive of any rights a director or
executive officer may have under the Certificate of Incorporation, Bylaws, other

II-1
<PAGE>
agreements, any majority-in-interest vote of the stockholders or vote of
disinterested directors, the Delaware law or otherwise.

The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
executive officers and directors for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act").

As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, has purchased director and officer liability insurance to the fullest
extent permitted by the Delaware General Corporation Law.

See also the undertakings in response to Item 22.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------------------- -----------
<S> <C>
Registrant's Amended and Restated Certificate of Incorporation................................ 3.01
Registrant's Amended and Restated Bylaws...................................................... 3.02
Amended and Restated Investors Rights Agreement, dated as of September 18, 1997, between
Registrant and certain investors, as amended October 13, 1997 and as amended November 6,
1997........................................................................................ 10.01
Form of Indemnity Agreement................................................................... 10.08
</TABLE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.01 Agreement and Plan of Reorganization by and among the Registrant, Pacific Monolithics, Inc. and HN
Acquisition Corp., dated March 19, 1998 (included as Appendix A-1 to the Joint Proxy
Statement/Prospectus).

2.02 Agreement of Merger of HN Acquisition Corp. with and into Pacific Monolithics, Inc. (included as
Appendix A-2 to the Joint Proxy Statement/Prospectus).

(1)3.01 Registrant's Amended and Restated Certificate of Incorporation.

3.02 Registrant's Amended and Restated Bylaws.

(2)4.01 Form of Specimen Certificate for the Registrant's Common Stock.

5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.

8.01 Opinion of Fenwick & West LLP regarding taxation.

(2)10.01 Amended and Restated Investors Rights Agreement, dated as of September 18, 1997, between the Registrant
and certain investors, as amended October 31, 1997 and as amended November 6, 1997.

(2)10.02 The Registrant's 1993 Equity Incentive Plan.

(2)10.03 The Registrant's 1996 Equity Incentive Plan.

(2)10.04 The Registrant's Executive Officer Incentive Plan.

(2)10.05 The Registrant's 1997 Equity Incentive Plan.

(2)10.06 The Registrant's 1997 Directors Stock Option Plan.
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
(2)10.07 The Registrant's 1997 Employee Stock Purchase Plan.

(2)10.08 Form of Indemnity Agreement entered into by the Registration with each of its directors and executive
officers.

(2)10.09 Net Lease Agreement between Devcon/Bubb Road Investors and the Registrant dated May 25, 1995.

(2)10.10 Sublease between Norian Corporation and the Registrant dated October 24, 1996.

(2)10.11 Employment Agreement between the Registrant and Carl S. Ledbetter dated January 15, 1996.

(2)10.12 Senior Secured Convertible $5.5 Million Debenture Purchase Agreement between the Registrant and London
Pacific Life & Annuity Company dated April 30, 1997 and related Senior Convertible $5.5 Million
Debenture Due 2002 and Security Agreement and Senior Secured Convertible $5.5 Million Debenture Due
2002 transferred to BG Services Limited.

(2)10.14 Commitment Letter between the Registrant and Venture Banking Group, a division of Cupertino National
Bank ("Venture Banking Group"), dated September 16, 1997.

(2)10.15 Collaboration Agreement among the Registrant, Sharp Corporation and Itochu Corporation dated November
29, 1996 and Addendum No. 1 thereto dated November 25, 1996.

(2)10.16 Sales and Purchase Agreement between the Registrant and Itochu Corporation dated January 10, 1997.*

(2)10.17 Value Added Reseller Agreement between the Registrant and Internet Ventures, Inc. dated July 1, 1996.*

(2)10.18 Value Added Reseller Agreement between the Registrant and Network System Technologies dated November
25, 1996.*

(2)10.19 The Registrant's Incentive Based Compensation Program.

(2)10.20 Loan and Security Agreement between Venture Banking Group and Registrant dated October 16, 1997, Form
of Common Stock Purchase Warrant and Subordination Agreements among the Registrant and certain security
holders of the Registrant dated October 16, 1997.

(2)10.21 Warrant Purchase Agreement by and between the Registrant and Alcatel dated as of November 3, 1997.

(3)10.22 Employment Letter between the Registrant and Dan E. Steimle dated July 27, 1997.

(3)10.23 Employment Letter between the Registrant and William H. Fry dated May 8, 1996 and Terms of Severance
Arrangement with William H. Fry dated January 21, 1998.

10.24 Sublease by and between Viking Freight, Inc. and the Registrant dated February 9, 1998.

10.25 Volume Purchase Agreement between the Registrant and 3D Communications dated as of May 1997.

10.26 Loan and Security Agreement by and between Pacific Monolithics, Inc. and Coast Business Credit, a
division of Southern Pacific Bank dated November 14, 1997.

10.27 Employment Agreement between the Registrant and Richard B. Gold dated March 31, 1998.

10.28 Noncompetition Agreement between the Registrant and Richard B. Gold dated March 31, 1998.

10.29 Pacific Monolithics, Inc. 1986 Incentive Stock Option Plan.

10.30 Pacific Monolithics, Inc. 1996 Equity Incentive Plan.
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.31 Lease Agreement by and between Aetna Life Insurance Company and Pacific Monolithics, Inc. dated June
12, 1995.

21.01 List of the Registrant's subsidiaries.

23.01 Consent of Fenwick & West LLP (included in Exhibits 5.01 and 8.01).

23.02 Consent of Coopers & Lybrand L.L.P., independent accountants.

23.03 Consent of Deloitte & Touche LLP.

23.04 Consent of Richard B. Gold to serve as a director.

23.05 Consent of Matthew D. Miller to serve as a director.

24.01 Power of Attorney (see Page II-6 of this Registration Statement).

27.01 Financial Data Schedule
</TABLE>

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

(1) Incorporated by reference to exhibit 3.03 of the Registrant's Registration
Statement on Form S-1 (File No. 333-36001) declared effective by the
Commission on November 10, 1997 (the "Form S-1").

(2) Incorporated by reference to the same exhibit number of the Form S-1.

(3) Incorporated by reference to the same exhibit number of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997.

* Confidential treatment has been granted with respect to certain portions of
this agreement.

(b) The following financial statement schedule is filed herewith:

Financial statement schedules are omitted because the information called for
is not required or is shown either in the financial statements or the notes
thereto.

ITEM 22. UNDERTAKINGS

(1) The 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 Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration 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.

(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately proceeding, 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, as amended (the "Securities Act"), 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.

(3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Prospectus/Proxy Statement pursuant
to Items 4, 10(b), 11 or 13 of Form S-4, 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.

II-4
<PAGE>
(4) The 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 Statement when it became effective.

(5) 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 provisions discussed in Item 6 hereof, or otherwise,
the Registrant has 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 Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereby, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cupertino, State of
California, on this 6th day of May, 1998.

<TABLE>
<S> <C> <C>
HYBRID NETWORKS, INC.

By: /s/ CARL S. LEDBETTER
------------------------------------------
Carl S. Ledbetter,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Carl S. Ledbetter and Dan E. Steimle, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

PRINCIPAL EXECUTIVE OFFICER:

/s/ CARL S. LEDBETTER President, Chief Executive May 6, 1998
- ------------------------------ Officer and Chairman of
Carl S. Ledbetter the Board of Directors

PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:

/s/ DAN E. STEIMLE Vice President, Finance May 6, 1998
- ------------------------------ and Administration,
Dan E. Steimle Chief Financial Officer
and Secretary

ADDITIONAL DIRECTORS:

/s/ JAMES R. FLACH Director May 6, 1998
- ------------------------------
James R. Flach

/s/ STEPHEN E. HALPRIN Director May 6, 1998
- ------------------------------
Stephen E. Halprin

/s/ GARY M. LAUDER Director May 6, 1998
- ------------------------------
Gary M. Lauder

/s/ DOUGLAS M. LEONE Director May 6, 1998
- ------------------------------
Douglas M. Leone

II-6
<PAGE>
EXHIBIT INDEX

2.02 Agreement of Merger of HN Acquisition Corp. with and into Pacific Monolithics, Inc. (included as
Appendix A-2 to the Joint Proxy Statement/Prospectus).

(1)3.01 Registrant's Amended and Restated Certificate of Incorporation.

3.02 Registrant's Amended and Restated Bylaws.

(2)4.01 Form of Specimen Certificate for the Registrant's Common Stock.

5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.

8.01 Opinion of Fenwick & West LLP regarding taxation.

(2)10.01 Amended and Restated Investors Rights Agreement, dated as of September 18, 1997, between the Registrant
and certain investors, as amended October 31, 1997 and as amended November 6, 1997.

(2)10.02 The Registrant's 1993 Equity Incentive Plan.

(2)10.03 The Registrant's 1996 Equity Incentive Plan.

(2)10.04 The Registrant's Executive Officer Incentive Plan.

(2)10.05 The Registrant's 1997 Equity Incentive Plan.

(2)10.06 The Registrant's 1997 Directors Stock Option Plan.

(2)10.07 The Registrant's 1997 Employee Stock Purchase Plan.