Hybrid Networks Inc – ‘S-4’ on 5/7/98

As of:  Thursday, 5/7/98   ·   Accession #:  1047469-98-18658   ·   File #:  333-52083

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Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Registration of Securities Issued in a               258   1.42M 
                          Business-Combination Transaction                       
 2: EX-3.02     Articles of Incorporation/Organization or By-Laws     20     82K 
 3: EX-5.01     Opinion re: Legality                                   2     12K 
 4: EX-8.01     Opinion re: Tax Matters                               13     48K 
 5: EX-10.24    Material Contract                                     46    182K 
 6: EX-10.25    Material Contract                                     17     76K 
 7: EX-10.26    Material Contract                                     33    167K 
 8: EX-10.27    Material Contract                                      4     21K 
 9: EX-10.28    Material Contract                                      5     20K 
10: EX-10.29    Material Contract                                     15     65K 
11: EX-10.30    Material Contract                                     15     63K 
12: EX-10.31    Material Contract                                     47    175K 
13: EX-21.01    Subsidiaries of the Registrant                         1      6K 
14: EX-23.02    Consent of Experts or Counsel                          1      7K 
15: EX-23.03    Consent of Experts or Counsel                          1      8K 
16: EX-23.04    Consent of Experts or Counsel                          1      7K 
17: EX-23.05    Consent of Experts or Counsel                          1      7K 
18: EX-27.1     Financial Data Schedule (Pre-XBRL)                     2     10K 

S-4   —   Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents

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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)

                                                                [Download Table]
                                                                                  
            DELAWARE                         3661                   77-0252931    
(State or other jurisdiction of  (Primary Standard Industrial    (I.R.S. employer 
 incorporation or organization)  Classification Code Number)   identification no.)

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

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 

                                                        [Enlarge/Download Table]

                                                                      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)    
                                                                                                                         
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

(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.                                                                  

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

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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.                    

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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

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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.                                                          

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 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.                                                             

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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"));                   

  - 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.                              

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

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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.                             

   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 and return it        
promptly in the enclosed postage-paid envelope, whether or not you plan to      
attend the Special 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 Special Meeting.                                                         

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

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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.

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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.                                                  

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                                                                                                            PAGE   
                                                                                                            -----  
                                                                                                                   
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

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  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

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  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                                                          

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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.                                                   

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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.                                                           

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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                                                                       

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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."                                                                    

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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."                                                                    

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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."       

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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                                                  

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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                                                      

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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                                                                  

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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."                                

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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."                                                                        

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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.                            

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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."                       

  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                        

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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                 

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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."                                             

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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:                                                                      

                                                        [Enlarge/Download Table]

                                                                                                   HIGH        LOW   
                                                                                                 ---------  ---------
                                                                                                                     
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

  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."                             

                                                        [Enlarge/Download Table]

                                                                    HYBRID COMMON     PACIFIC  
                                                                        STOCK       EQUIVALENT 
                                                                   ---------------  -----------
                                                                                               
March 19, 1998....................................................    $    7.81      $    0.70 
May 1, 1998.......................................................    $    6.13      $    0.55 

   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:                                                          

                                                        [Enlarge/Download Table]

                                        HYBRID COMMON   PACIFIC CAPITAL   PRO FORMA     PACIFIC  
                                            STOCK            STOCK        COMBINED    EQUIVALENT 
                                       ---------------  ---------------  -----------  -----------
                                                                                                 
March 31, 1998........................    $    7.13        $    0.24      $    2.68    $    0.24 

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.                                        

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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.                                                  

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HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                HYBRID AT     PACIFIC AT                                             
                                                MARCH 31,      MARCH 31,     PRO FORMA      FOOTNOTE       PRO FORMA 
                                                   1998          1998       ADJUSTMENTS    REFERENCE #     COMBINED  
                                               ------------  -------------  -----------  ---------------  -----------
                                                                       (AMOUNTS IN THOUSANDS)                        
                                                                                                                     
                    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 
                                                                                                   --                
                                                                                                   --                
                                               ------------  -------------  -----------                   -----------
                                               ------------  -------------  -----------                   -----------

See notes to unaudited pro forma condensed combined financial statements. 

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HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                            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)        
                                                                                                                
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 
                                                             -------         -------    -----------  -----------
                                                             -------         -------    -----------  -----------

See notes to unaudited pro forma condensed combined financial statements. 

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HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                              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)       
                                                                                                                
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 
                                                           ------------  -------------  -----------  -----------
                                                           ------------  -------------  -----------  -----------

See notes to unaudited pro forma condensed combined financial statements. 

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HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                              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)       
                                                                                                                
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 
                                                           ------------  -------------  -----------  -----------
                                                           ------------  -------------  -----------  -----------

See notes to unaudited pro forma condensed combined financial statements. 

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HYBRID AND PACIFIC
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                              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)       
                                                                                                                
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 
                                                           ------------  -------------  -----------  -----------
                                                           ------------  -------------  -----------  -----------

See notes to unaudited pro forma condensed combined financial statements. 

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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:                                                                     

                                                        [Enlarge/Download Table]

                                                                                                    NUMBER OF   
                                                         PREFERRED       COMMON                     SHARES OF   
                                                           SHARES        SHARES       EXCHANGE    HYBRID COMMON 
                                                        OUTSTANDING   OUTSTANDING      RATIO          STOCK     
                                                        ------------  ------------  ------------  --------------
                                                                                                                
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 
                                                                                                  --------------
                                                                                                  --------------

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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.                                                          

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HYBRID AND PACIFIC
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED 

FINANCIAL STATEMENTS (CONTINUED)

                                                        [Enlarge/Download Table]

                                                             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)
                                                                                                                     
Historical--Hybrid                                                                                                   
Basic and diluted loss per share........................... $   (3.84) $   (3.36) $   (2.37)  $   (0.36)   $   (1.67)
Book value per share(1)....................................      3.21                              2.83              

                                                        [Enlarge/Download Table]

                                                              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)
                                                                                                                      
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              

                                                        [Enlarge/Download Table]

                                                              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)
                                                                                                                      
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              

(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.                                                                  

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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.                                                                       

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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,               

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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                                                                   

   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 set forth in    
Proposal No. 1.                                                                 

    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                                            

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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.                                                                  

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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      

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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.                                                                         

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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                                                                

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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                  

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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                 

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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                                                                            

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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". 

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    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                     

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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                                                              

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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                             

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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
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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.               

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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."   

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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        

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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."                                                        

    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         

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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                                                        

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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              

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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                                                             

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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                                    

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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.                            

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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.                                                        

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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.                                     

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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);                                                             

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(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.                                 

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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                                              

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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.                                      

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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.                                                   

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  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.                                                   

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   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,                                                                       

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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     

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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.                                           

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  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                               

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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.                                                        

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  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 

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 (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.                                                              

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 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                                      

    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      

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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.                             

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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      

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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;                                    

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(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                                     

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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.                                                                      

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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;                                           

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(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.                                         

    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 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.                                              

  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.                 

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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                                                                       

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.                                  

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                                                     

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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             

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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.                             

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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."      

                                                        [Enlarge/Download Table]

                                                                                                     THREE MONTHS ENDED  
                                                           YEARS ENDED DECEMBER 31,                      MARCH 31,       
                                             -----------------------------------------------------  -------------------- 
                                               1997       1996       1995       1994       1993       1998       1997    
                                             ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)              (UNAUDITED)      
                                                                                                                         
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 
                                             ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                             ---------  ---------  ---------  ---------  ---------  ---------  --------- 

                                                        [Enlarge/Download Table]

                                                                        AS OF DECEMBER 31,                       AS OF   
                                                       -----------------------------------------------------   MARCH 31, 
                                                         1997       1996       1995       1994       1993        1998    
                                                       ---------  ---------  ---------  ---------  ---------  -----------
                                                                                                                         
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 

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

(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.         

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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                                                                        

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's Series 2000 product line consists of secure headend routers, wireless  
and cable modems and management software for use with either wireless           
transmission or cable TV facilities.                                            

   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                             

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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                                    

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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:       

                                                        [Enlarge/Download Table]

                                                                               FOR THE THREE MONTHS   
                                              YEAR ENDED DECEMBER 31,             ENDED MARCH 31,     
                                         ----------------------------------    ---------------------  
                                           1997         1996         1995        1998         1997    
                                         --------     --------     --------    --------     --------  
                                                                                                      
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)%
                                         --------     --------     --------    --------     --------  
                                         --------     --------     --------    --------     --------  

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                                                                       

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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.         

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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.      

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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.                                                                

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 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                  

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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.                                             

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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."      

                                                        [Enlarge/Download Table]

                                                                                        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)      
                                                                                                                                  
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 
                                ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 

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                                                        [Enlarge/Download Table]

                                                                             SEPTEMBER 30,                                 
                                                         -----------------------------------------------------   MARCH 31, 
                                                           1997       1996       1995       1994       1993        1998    
                                                         ---------  ---------  ---------  ---------  ---------  -----------
                                                                                                                           
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 

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

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

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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               

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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.                                                                        

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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:      

                                                        [Enlarge/Download Table]

                                                                             THREE MONTHS           SIX MONTHS      
                                                  FISCAL YEARS                   ENDED                 ENDED        
                                              ENDED SEPTEMBER 30,              MARCH 31,             MARCH 31,      
                                         ------------------------------   -------------------   ------------------- 
                                           1997       1996       1995       1998       1997       1998       1997   
                                         --------   --------   --------   --------   --------   --------   -------- 
                                                                                                                    
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%
                                         --------   --------   --------   --------   --------   --------   -------- 
                                         --------   --------   --------   --------   --------   --------   -------- 

  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                                                  

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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.                                                

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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.                                   

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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.               

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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                                                                      

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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.                                             

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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.                                                                   

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PRODUCTS                                                                        

    The following table outlines the primary components of Hybrid's Series 2000:

                                                        [Enlarge/Download Table]
                                                                                          
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.                             


SINGLE-USER EQUIPMENT (1)(3)                                                              
                                                                                          
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.                                    

(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                             

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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                                                                       

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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."                 

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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       

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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                                                        

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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                                               

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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                                           

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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.                                

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   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.                    

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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.  

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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                             

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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   

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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."  

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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                                         

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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.                                                                   

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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:                                                                           

                                                        [Enlarge/Download Table]

NAME                                                   AGE     POSITION                                             
-----------------------------------------------------  ---     -----------------------------------------------------
                                                                                                                    
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                                             

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

(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           

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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                               

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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

                                                        [Enlarge/Download Table]

                                                                                               LONG-TERM   
                                                                                               COMPENSATION
                                                        ANNUAL COMPENSATION                      AWARD     
                                          ------------------------------------------------     ----------  
                                                                                  OTHER        SECURITIES  
                                                                                 ANNUAL        UNDERLYING  
NAME AND PRINCIPAL POSITIONS              YEAR     SALARY        BONUS         COMPENSATION    OPTIONS(#)  
----------------------------------------  -----  ----------   -----------      -----------     ----------  
                                                                                                           
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                                                                                                  

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

(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.                               

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(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 

                                                        [Enlarge/Download Table]

                                                                                                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%     
------------------------------------  -----------  ---------------  -----------  -----------  ----------  ------------
                                                                                                                      
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

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

(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 

                                                        [Enlarge/Download Table]

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

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     

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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                                        

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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:                                                    

                                                        [Enlarge/Download Table]

                                                                           NUMBER OF ISSUES OF
                                                             SUBORDINATED     COMMON STOCK    
NAME                                                            NOTES      SUBJECT TO WARRANTS
-----------------------------------------------------------  ------------  -------------------
                                                                                              
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     

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.                         

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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                                        

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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

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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                     

                                                                [Download Table]

             HYBRID      NASDAQ         HAMBRECHT    
            NETWORKS    COMPOSITE        & QUIST     
                          INDEX     TECHNOLOGY INDEX 
                                                     
11/12/97      $100.00      $100.00            $100.00
12/31/97       $69.80      $101.90             $96.60

The above graph was plotted using the following data:                   

                                                        [Enlarge/Download Table]

                                                                  NASDAQ STOCK MARKET       HAMBRECHT & QUIST   
                                       HYBRID NETWORKS, INC.        COMPOSITE INDEX         TECHNOLOGY INDEX    
                                     -------------------------  -----------------------  -----------------------
                                                   INVESTMENT               INVESTMENT               INVESTMENT 
                                     MARKET PRICE     VALUE       INDEX        VALUE       INDEX        VALUE   
                                     ------------  -----------  ----------  -----------  ----------  -----------
                                                                                                                
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 

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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.     

                                                        [Enlarge/Download Table]

NAME                                                   AGE                           POSITION                       
-----------------------------------------------------  ---     -----------------------------------------------------
                                                                                                                    
Executive Officers                                                                                                  
  Richard B. Gold....................................      43  President, Chief Executive Officer and Director      
Other Director                                                                                                      
  Matthew D. Miller..................................      50  Chairman of the Board of Directors                   

 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.                                                                    

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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

                                                        [Enlarge/Download Table]

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

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

(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 

                                                        [Enlarge/Download Table]

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

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

(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.             

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AGGREGATE UNEXERCISED OPTIONS IN 1997 

                                                        [Enlarge/Download Table]

                                                                  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
-------------------------------  ---------------  -----------  -----------  -------------  -----------  -------------
                                                                                                                     
Richard B. Gold................       140,000(2)      --          495,312        39,688     $  96,875     $   7,125  

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

(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.                   

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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                            

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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.                                                                        

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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.    

                                                        [Enlarge/Download Table]

                                                  NUMBER OF SHARES                              
                                                    BENEFICIALLY         PERCENTAGE OF SHARES   
NAME OF BENEFICIAL OWNER                            OWNED(1)(2)        BENEFICIALLY OWNED(1)(2) 
---------------------------------------------  ----------------------  -------------------------
                                                                                                
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%       
                                                      ----------                   -----        

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

*   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                                             

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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.                                       

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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

                                                        [Enlarge/Download Table]

                                                                           NUMBER OF SHARES                         
                                                                             BENEFICIALLY      PERCENTAGE OF SHARES 
NAME OF BENEFICIAL OWNER                                                       OWNED(1)         BENEFICIALLY OWNED  
-----------------------------------------------------------------------  --------------------  ---------------------
                                                                                                                    
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      

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

*   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                      

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   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.                                       

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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.                      

                                                        [Enlarge/Download Table]

                                                                        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)   
--------------------------------------------------------  ------------  -------------  -------------  -------------
                                                                                                                   
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% 

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

*   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        

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 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.                                     

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION 

    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:                                                                      

                                                        [Enlarge/Download Table]

                                                                                                   HIGH        LOW   
                                                                                                 ---------  ---------
                                                                                                                     
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

  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."                             

                                                        [Enlarge/Download Table]

                                                                    HYBRID COMMON     PACIFIC  
                                                                        STOCK       EQUIVALENT 
                                                                   ---------------  -----------
                                                                                               
March 19, 1998....................................................    $    7.81      $    0.70 
May 1, 1998.......................................................    $    6.13      $    0.55 

   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:                                                          

                                                        [Enlarge/Download Table]

                                        HYBRID COMMON   PACIFIC CAPITAL   PRO FORMA     PACIFIC  
                                            STOCK            STOCK        COMBINED    EQUIVALENT 
                                       ---------------  ---------------  -----------  -----------
                                                                                                 
March 31, 1998........................    $    7.13        $    0.24      $    2.68    $    0.24 

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 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.                                     

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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    

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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.                                                                           

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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           

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(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                                

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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           

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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                  

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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.                                            

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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:                                                                          

                                                        [Enlarge/Download Table]

                                                                                                           DIRECTOR
NAME OF NOMINEE                    AGE                        PRINCIPAL OCCUPATION                         SINCE   
---------------------------------  ---  -----------------------------------------------------------------  ------- 
                                                                                                                   
Stephen E. Halprin...............  60   Venture Capitalist                                                  1992   

Douglas M. Leone.................  40   Venture Capitalist                                                  1995   

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).                                                               

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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,                                     

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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.                             

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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                

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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                                                              

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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.     

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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;                                                                   

       (c) employees who are customarily employed for five months or less in a
calendar year; and                                                      

        (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                                            

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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                                              

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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                                             

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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 

                                                                [Download Table]

                                                               STOCK PURCHASE   
                                          INCENTIVE PLAN(1)        PLAN(1)      
                                          -----------------  -------------------
                                          DOLLAR  NUMBER OF  DOLLAR    NUMBER OF
NAME AND POSITIONS                        VALUE    SHARES    VALUE      SHARES  
----------------------------------------  ------  ---------  ------    ---------
                                                                                
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..................    --      --         --        --     

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

(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.                   

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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.                             

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INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

Hybrid Networks, Inc.                                                                      

                                                                                           
  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

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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                                            

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HYBRID NETWORKS, INC. 

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                                DECEMBER 31,      
                                                                                           ---------------------- 
                                                                                              1997        1996    
                                                                                           ----------  ---------- 
                                                                                                                  
                                                      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 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

The accompanying notes are an integral part of these financial statements.

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HYBRID NETWORKS, INC. 

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                      YEAR ENDED DECEMBER 31,      
                                                                                  -------------------------------- 
                                                                                     1997       1996       1995    
                                                                                  ----------  ---------  --------- 
                                                                                                                   
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 
                                                                                  ----------  ---------  --------- 
                                                                                  ----------  ---------  --------- 

The accompanying notes are an integral part of these financial statements.

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HYBRID NETWORKS, INC. 
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                PREFERRED STOCK    COMMON STOCK                                           
                                ---------------  ----------------    ADDITIONAL     ACCUMULATED           
                                SHARES   AMOUNT  SHARES   AMOUNT   PAID-IN CAPITAL    DEFICIT     TOTAL   
                                -------  ------  ------  --------  ---------------  -----------  -------- 
                                                                                                          
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 
                                -------  ------  ------     ---    ---------------  -----------  -------- 
                                -------  ------  ------     ---    ---------------  -----------  -------- 

The accompanying notes are an integral part of these financial statements.

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HYBRID NETWORKS, INC. 

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                     YEAR ENDED DECEMBER 31,      
                                                                                 -------------------------------- 
                                                                                    1997       1996       1995    
                                                                                 ----------  ---------  --------- 
                                                                                                                  
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 

The accompanying notes are an integral part of these financial statements.

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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                        

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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                                                                      

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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.                                                                     

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HYBRID NETWORKS, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

3.  INVENTORIES                                                                 

Inventories are comprised of the following (in thousands):              

                                                        [Enlarge/Download Table]

                                                                                DECEMBER 31,    
                                                                            --------------------
                                                                              1997       1996   
                                                                            ---------  ---------
                                                                                                
Raw materials.............................................................. $   1,952  $     526
Work in progress...........................................................       292        267
Finished goods.............................................................     1,124        150
                                                                            ---------  ---------
                                                                            $   3,368  $     943
                                                                            ---------  ---------
                                                                            ---------  ---------

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):                                                   

                                                        [Enlarge/Download Table]

                                                                               DECEMBER 31,     
                                                                           -------------------- 
                                                                             1997       1996    
                                                                           ---------  --------- 
                                                                                                
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 
                                                                           ---------  --------- 
                                                                           ---------  --------- 

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.         

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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):            

                                                        [Enlarge/Download Table]

                                                                                DECEMBER 31,    
                                                                            --------------------
                                                                              1997       1996   
                                                                            ---------  ---------
                                                                                                
Accrued payroll and related accruals....................................... $     795  $     425
Other liabilities..........................................................       599        287
                                                                            ---------  ---------
                                                                            $   1,394  $     712
                                                                            ---------  ---------
                                                                            ---------  ---------

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):                                                                     

                                                                [Download Table]
                                                                        
1998........................................................  $     474 
1999........................................................        407 
2000........................................................        244 
2001........................................................         10 
                                                              --------- 
                                                                  1,135 
Less amount representing interest...........................       (107)
                                                              --------- 
                                                                  1,028 
Less current portion........................................       (410)
                                                              --------- 
                                                              $     618 
                                                              --------- 
                                                              --------- 

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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):            

                                                                [Download Table]
                                                                        
1998.........................................................  $     362
1999.........................................................         56
2000.........................................................         57
2001.........................................................         57
2002.........................................................         11
                                                               ---------
                                                               $     543
                                                               ---------
                                                               ---------

   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.                                                              

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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.                          

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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.                                              

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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):                                                                          

                                                        [Enlarge/Download Table]

                                                                                              VALUE OF               
                                                              OPTIONS AND                    OPTIONS AND   WEIGHTED  
                                                               PURCHASE                       PURCHASE      AVERAGE  
                                                  SHARES        RIGHTS      EXERCISE PRICE     RIGHTS      EXERCISE  
                                                 AVAILABLE    OUTSTANDING      PER SHARE     OUTSTANDING     PRICE   
                                                -----------  -------------  ---------------  -----------  -----------
                                                                                                                     
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 
                                                -----------        -----                     -----------             
                                                -----------        -----                     -----------             

  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.                                                                   

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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):                                              

                                                        [Enlarge/Download Table]

                     OPTIONS OUTSTANDING                                                      
--------------------------------------------------------------                                
                            WEIGHTED AVERAGE                         OPTIONS EXERCISABLE      
                                REMAINING         WEIGHTED      ------------------------------
 EXERCISE       NUMBER      CONTRACTUAL LIFE       AVERAGE         NUMBER      WEIGHED AVERAGE
   PRICE      OUTSTANDING        (YEARS)       EXERCISE PRICE    EXERCISABLE   EXERCISE PRICE 
-----------  -------------  -----------------  ---------------  -------------  ---------------
                                                                                              
 $    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   
                   -----                                              -----                   
                   -----                                              -----                   

 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):                                                             

                                                        [Enlarge/Download Table]

                                                                     YEAR ENDED DECEMBER 31,     
                                                                 ------------------------------- 
                                                                   1997       1996       1995    
                                                                 ---------  ---------  --------- 
                                                                                                 
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)
                                                                 ---------  ---------  --------- 
                                                                 ---------  ---------  --------- 

 The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.                        

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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:                                                                     

                                                        [Enlarge/Download Table]

                                                                           YEAR ENDED DECEMBER 31,     
                                                                       ------------------------------- 
                                                                         1997       1996       1995    
                                                                       ---------  ---------  --------- 
                                                                                                       
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.........................................................    --    %    --    %    --    %
                                                                       ---------  ---------  --------- 
                                                                       ---------  ---------  --------- 

 Temporary differences which gave rise to significant portions of deferred
tax assets are as follows (IN THOUSANDS):                                       

                                                        [Enlarge/Download Table]

                                                                            1997       1996    
                                                                         ----------  --------- 
                                                                                               
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................................................. $   --      $  --     
                                                                         ----------  --------- 
                                                                         ----------  --------- 

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                                                      

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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.                     

                                                        [Enlarge/Download Table]

                                                                        TAX      EXPIRATION 
                                                                     REPORTING      DATES   
                                                                     ----------  -----------
                                                                                            
Research and development credit..................................... $  768,000   2007-2012 
State research and development credit...............................    404,000             

    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.                                          

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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:                                                                 

                                                        [Enlarge/Download Table]

                                                                          1997      1996      1995    
                                                                          -----     -----     -----   
                                                                                                      
A........................................................................      14%   --        --     
B........................................................................  --            21%       52%
C........................................................................  --            41%       28%

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.                                                                           

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HYBRID NETWORKS, INC. 

BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                        MARCH 31,   DECEMBER 31,
                                                                                          1998          1997    
                                                                                       -----------  ------------
                                                                                                                
                                                     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 
                                                                                       -----------  ------------
                                                                                       -----------  ------------

The accompanying notes are an integral part of these financial statements.

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HYBRID NETWORKS, INC. 

STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                            THREE MONTHS ENDED  
                                                                                                MARCH 31,       
                                                                                           -------------------- 
                                                                                             1998       1997    
                                                                                           ---------  --------- 
                                                                                                                
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 
                                                                                           ---------  --------- 
                                                                                           ---------  --------- 

The accompanying notes are an integral part of these financial statements.

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HYBRID NETWORKS, INC. 

STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                             THREE MONTHS ENDED   
                                                                                                 MARCH 31,        
                                                                                           ---------------------- 
                                                                                              1998        1997    
                                                                                           ----------  ---------- 
                                                                                                                  
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 

The accompanying notes are an integral part of these financial statements.

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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.   

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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:                                     

                                                        [Enlarge/Download Table]

                                                                                          MARCH 31,   DECEMBER 31, 
                                                                                            1998          1997     
                                                                                         -----------  -------------
                                                                                                                   
Raw materials...........................................................................  $   2,467     $   1,952  
Work in progress........................................................................        469           292  
Finished goods..........................................................................      2,646         1,124  
                                                                                         -----------       ------  
                                                                                          $   5,582     $   3,368  
                                                                                         -----------       ------  
                                                                                         -----------       ------  

CONTINGENCIES                                                                   

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, 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.                                       

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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)                                                  

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PACIFIC MONOLITHICS, INC. 

BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                         MARCH 31,    SEPTEMBER 30,  SEPTEMBER 30,
                                                                           1998           1997           1996     
                                                                       -------------  -------------  -------------
                                                                       (UNAUDITED)                                

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

See notes to financial statements.

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PACIFIC MONOLITHICS, INC. 

STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                THREE MONTHS ENDED MARCH   SIX MONTHS ENDED MARCH                                         
                                          31,                       31,                   YEARS ENDED SEPTEMBER 30,       
                                ------------------------  ------------------------  ------------------------------------- 
                                   1998         1997         1998         1997         1997         1996         1995     
                                -----------  -----------  -----------  -----------  -----------  -----------  ----------- 
                                      (UNAUDITED)               (UNAUDITED)                                               
                                                                                                                          
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 
                                -----------  -----------  -----------  -----------  -----------  -----------  ----------- 
                                -----------  -----------  -----------  -----------  -----------  -----------  ----------- 

See notes to financial statements.

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PACIFIC MONOLITHICS, INC. 

STATEMENTS OF SHAREHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                       PREFERRED STOCK         COMMON STOCK                                      TOTAL    
                                    ---------------------  ---------------------     NOTES     ACCUMULATED   SHAREHOLDERS'
                                     SHARES      AMOUNT     SHARES      AMOUNT    RECEIVABLE     DEFICIT        EQUITY    
                                    ---------  ----------  ---------  ----------  -----------  ------------  -------------
                                                                                                                          
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 
                                    ---------  ----------  ---------  ----------  -----------  ------------  -------------
                                    ---------  ----------  ---------  ----------  -----------  ------------  -------------

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

*   Unaudited                                                                   

See notes to financial statements.

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PACIFIC MONOLITHICS, INC. 

STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                              SIX MONTHS ENDED                                         
                                                                 MARCH 31,             YEARS ENDED SEPTEMBER 30,       
                                                           ----------------------  ----------------------------------  
                                                              1998        1997        1997        1996        1995     
                                                           ----------  ----------  ----------  ----------  ----------  
                                                                (UNAUDITED)                                            
                                                                                                                       
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  $   --      $   --      
                                                           ----------  ----------  ----------  ----------  ----------  
                                                           ----------  ----------  ----------  ----------  ----------  

See notes to financial statements.

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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.                                           

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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:                                                 

                                                        [Enlarge/Download Table]

                                                                         SEPTEMBER 30,        
                                                     MARCH 31,    --------------------------- 
                                                        1998          1997          1996      
                                                    ------------  ------------  ------------- 
                                                    (UNAUDITED)                               
                                                                                              
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 
                                                    ------------  ------------  ------------- 
                                                    ------------  ------------  ------------- 

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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:                                                 

                                                        [Enlarge/Download Table]

                                                                         SEPTEMBER 30,       
                                                      MARCH 31,    --------------------------
                                                         1998          1997          1996    
                                                     ------------  ------------  ------------
                                                     (UNAUDITED)                             
                                                                                             
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
                                                     ------------  ------------  ------------
                                                     ------------  ------------  ------------

4. PROPERTY AND EQUIPMENT, NET                                                  

Property and equipment, net, consist of:                                

                                                        [Enlarge/Download Table]

                                                                        SEPTEMBER 30,         
                                                    MARCH 31,    ---------------------------- 
                                                      1998           1997           1996      
                                                  -------------  -------------  ------------- 
                                                   (UNAUDITED)                                
                                                                                              
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 
                                                  -------------  -------------  ------------- 
                                                  -------------  -------------  ------------- 

5. ACCRUED LIABILITIES                                                          

Accrued liabilities consist of:                                         

                                                        [Enlarge/Download Table]

                                                                          SEPTEMBER 30,     
                                                         MARCH 31,    ----------------------
                                                            1998         1997        1996   
                                                        ------------  ----------  ----------
                                                        (UNAUDITED)                         
                                                                                            
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
                                                        ------------  ----------  ----------
                                                        ------------  ----------  ----------

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                                                               

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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:                         

                                                        [Enlarge/Download Table]

                                                                        SEPTEMBER 30,        
                                                      MARCH 31,   -------------------------- 
                                                        1998          1997          1996     
                                                     -----------  ------------  ------------ 
                                                     (UNAUDITED)                             
                                                                                             
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 
                                                     -----------  ------------  ------------ 
                                                     -----------  ------------  ------------ 

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.                                                     

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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:                    

                                                        [Enlarge/Download Table]

                                                                                    CAPITAL    
                           YEAR ENDING                               OPERATING     LEASES AND  
                          SEPTEMBER 30,                                LEASES        NOTES     
------------------------------------------------------------------  ------------  ------------ 
                                                                                               
  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 
                                                                                  ------------ 
                                                                                  ------------ 

    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:                                                            

                                                                [Download Table]
                                                       
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
                                          -------------
                                          -------------

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                         

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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.                       

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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:                      

                                                        [Enlarge/Download Table]

                                                                                  WEIGHTED    
                                                                   NUMBER OF       AVERAGE    
                                                                     SHARES    EXERCISE PRICE 
                                                                   ----------  ---------------
                                                                                              
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   
                                                                   ----------                 
                                                                   ----------                 

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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:                                                             

                                                                [Download Table]

                        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   
-----------  -----------  ---------------  -----------  ----------  -----------
                                                                               
$.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 
-----------  -----------           ---            ---   ----------         --- 
-----------  -----------           ---            ---   ----------         --- 

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                         

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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:                            

                                                        [Enlarge/Download Table]

                                                          SIX MONTHS              YEARS ENDED           
                                                             ENDED               SEPTEMBER 30,          
                                                           MARCH 31,    ------------------------------- 
                                                             1998         1997       1996       1995    
                                                         -------------  ---------  ---------  --------- 
                                                          (UNAUDITED)                                   
                                                                                                        
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.........................................          --%          --%        --%        --%
                                                               -----    ---------  ---------  --------- 
                                                               -----    ---------  ---------  --------- 

 The tax effects of temporary differences that give rise to deferred taxes
were as follows:                                                                

                                                        [Enlarge/Download Table]

                                                                        SEPTEMBER 30,         
                                                    MARCH 31,    ---------------------------- 
                                                      1998           1997           1996      
                                                  -------------  -------------  ------------- 
                                                   (UNAUDITED)                                
                                                                                              
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........................ $    --        $    --        $    --       
                                                  -------------  -------------  ------------- 
                                                  -------------  -------------  ------------- 

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.                                                     

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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:              

                                                        [Enlarge/Download Table]

                                                          YEARS ENDED SEPTEMBER 30,         
                                                 -------------------------------------------
                                                     1997           1996           1995     
                                                 -------------  -------------  -------------
                                                                                            
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
                                                 -------------  -------------  -------------
                                                 -------------  -------------  -------------

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.                                                                  

* * * * * 

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                                                                    APPENDIX A-1

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

HYBRID NETWORKS, INC.,

PACIFIC MONOLITHICS, INC. 

AND 

HN ACQUISITION CORP.

MARCH 19, 1998

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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

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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

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         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

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EXHIBITS:                                                                                 
------------                                                                              
                                                                                          

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                                            

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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                                                                

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       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        

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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                                     

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   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            

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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                    

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       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                                                         

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  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                             

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  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;                 

           (c) any mortgage, encumbrance or lien placed on any of the properties
of Pacific;                                                       

        (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                 

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      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.                                     

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        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                                          

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   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                

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    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                          

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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.                                    

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        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                               

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  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,                                                   

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  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                               

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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;       

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           (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                               

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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.     

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      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                

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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.                                              

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   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                 

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     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       

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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.

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 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.                                                          

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   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                                                 

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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                       

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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.                                                         

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         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                 

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     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                                                                

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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.                                                                

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     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.

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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.                                                   

                                                                [Download Table]
                                                                                  
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:                                                                               

SIGNATURE PAGE TO 
AGREEMENT AND PLAN OF REORGANIZATION

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                                                                    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                                                          

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  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.                             

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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                   

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                                                                       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.                                                                   

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                                                                      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                                                      

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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                                                                             

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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

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                                                                      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                                                        

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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          

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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.                                                                       

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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                                                                            

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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.                                        

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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

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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:                                                     

                                                        [Enlarge/Download Table]

                                                                                                  EXHIBIT  
DOCUMENT                                                                                          NUMBER   
----------------------------------------------------------------------------------------------  -----------
                                                                                                           
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 

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                             

(a) The following exhibits are filed herewith:                          

                                                        [Enlarge/Download Table]

 EXHIBIT                                                                                                          
 NUMBER    EXHIBIT TITLE                                                                                          
---------  -------------------------------------------------------------------------------------------------------
                                                                                                                  
     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.                                                     

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 EXHIBIT                                                                                                          
 NUMBER    EXHIBIT TITLE                                                                                          
---------  -------------------------------------------------------------------------------------------------------
                                                                                                                  
 (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.                                                  

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 EXHIBIT                                                                                                          
 NUMBER    EXHIBIT TITLE                                                                                          
---------  -------------------------------------------------------------------------------------------------------
                                                                                                                  
    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                                                                                

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

(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.                                              

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   (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.                                           

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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.                                       

                                                                [Download Table]
                                               
HYBRID NETWORKS, INC.                          

By:  /s/ CARL S. LEDBETTER                     
     ------------------------------------------
     Carl S. Ledbetter,                        
     PRESIDENT, AND CHIEF EXECUTIVE OFFICER AND
     CHAIRMAN OF THE BOARD OF DIRECTORS        

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                                                                

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EXHIBIT INDEX 

                                                        [Enlarge/Download Table]

 EXHIBIT                                                                                                          
 NUMBER    EXHIBIT TITLE                                                                                          
---------  -------------------------------------------------------------------------------------------------------
                                                                                                                  
     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.                                                     

 (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.                                                 

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 EXHIBIT                                                                                                          
 NUMBER    EXHIBIT TITLE                                                                                          
---------  -------------------------------------------------------------------------------------------------------
                                                                                                                  
 (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.                                                  

    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.                                                                               

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

(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.