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March 27, 1996

DENNIS HAYES GETS HIS WAY AND SPITES MELITA IN THE PROCESS

By CBR Staff Writer

After concluding that both plans were viable under Section 1129(a) of the US Bankruptcy Code – which determines the feasibility of reorganization plans – Judge Hugh Robinson of the Georgia Bankruptcy Court approved the Chapter 11 reorganization plan proposed by Dennis Hayes for Atlanta, Georgia-based Hayes Microcomputer Products Inc over the rival plan by Diamond Multimedia Systems Inc with the Hayes Unsecured Creditors’ Committee (CI No 2,870). Judge Robinson based his decision on Section 1129(c), relating to the preferences of creditors and equity security holders. It turns out that the Unsecured Creditors’ Committee did not have the complete support, since creditors representing $34m of the $43m in outstanding unsecured debt stated a preference for the plan proposed by Hayes’s founder Dennis Hayes. Similarly, Dennis Hayes’s ex-wife Melita, who currently owns just 9.4% of the company, was the only shareholder to oppose the Hayes plan, after having given her support for Diamond’s. Having made it clear in court that she no longer wants to remain involved in Hayes, Melita Hayes is now faced with four options: she can accept $11m in cash for her shareholding; or $9m in cash and $3.1m in an unsecured note; retain her dissenting shareholder’s rights; or according to the shareholders’ agreement, she can have a court decide a fair market value for her shares. There is no indication of which option she plans to pick. Other factors that influenced the judge’s decision included the public policy underlying Chapter 11 reorganization, which serves to further the local economy, maintain and create jobs and preserve the value of an ongoing business according to the Judge’s summary of why he confirmed the Hayes plan. In the next two weeks, Hayes will release details of its schedule for completing the agreements. The plan will see ACMA Ltd and Northern Telecom Ltd investing $35m to acquire 49% of Hayes, with Dennis Hayes keeping 48.6%, and the remainder owned by Hayes Employee Stock Plan (CI No 2,782). Hayes has also negotiated a $70m debt facility with CIT Group/Credit Finance. In accordance with its reorganization plan, the modem maker is planning to appoint a chief operating officer, while Dennis Hayes will remain as chairman and chief executive. According to the company, the decision to bring in a chief operating officer is unrelated to criticisms made by some unnamed Hayes employees in court that Dennis Hayes should be required to stay out of the day-to-day running of the company.

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