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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR the year ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number
0-4041
HATHAWAY CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 84-0518115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 799-8200
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock
(no par value)
COMMON STOCK (NO PAR VALUE)
(Title of Class)
The check mark below indicates whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average bid and asked prices of such
stock, as of September 1, 1995, was: $8,065,041.
The number of shares outstanding of the registrant's only class of common stock,
as of September 1, 1995, was: 4,265,583.
Documents incorporated by reference:
Portions of the Registrant's definitive Proxy Statement dated September 29, 1995
are incorporated by reference in Part III of this Report. The Registrant's
Fiscal Year 1995 Annual Report is incorporated by reference in Parts 1 and II of
this Report.
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HATHAWAY CORPORATION
FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1995
TABLE OF CONTENTS
FORM 10-K PAGE
ITEM NO. DESCRIPTION NUMBER
- ---------- ----------- ------
PART I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 6
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 8. Financial Statements and Supplementary Data................. 7
Report of Independent Public Accountants.................... 8
Item 9. Disagreements on Accounting and Financial Disclosure........ 9
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 9
Item 11. Executive Compensation...................................... 9
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 9
Item 13. Certain Relationships and Related Transactions.............. 9
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 9
Signatures.................................................. 16
Financial Statement Schedule................................ 17
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Hathaway Corporation (the Company) was organized under the laws of Colorado
in 1962. At the end of fiscal year 1995 (ended June 30, 1995), the Company had
two wholly-owned subsidiaries, Hathaway Systems Corporation (HSC) and
subsidiaries and Computer Optical Products, Inc. As used herein, the "Company"
refers to both the Company and its wholly-owned subsidiaries. The Company's
executive offices are located at 8228 Park Meadows Drive, Littleton, Colorado
80124 (telephone number (303) 799-8200).
PRINCIPAL BUSINESSES
The Company is engaged in the business of designing, manufacturing and
selling advanced electronic instrumentation products to the worldwide power and
process industries, as well as motion control products to a broad spectrum of
customers throughout the world. Prior to the sale of the Company's Application
Software Segment effective January 31, 1994, the Company also developed and
marketed application software for the IBM marketplace.
ELECTRONIC INSTRUMENTATION
Power and Process Instrumentation. Power monitoring and control systems are
comprised of systems and instrumentation used to monitor and control the
operations of power generating, transmission and distribution facilities of
electric utility and process control companies, to provide the means to remotely
monitor and control power utility substations, and to test circuit breakers and
calibrate instruments used by electric utility and process control companies.
HSC operates three separate product divisions - Hathaway Systems, Hathaway
Automation Technology and Hathaway Process Instrumentation (previously named
Hathaway/Denver, Systems Northwest, and Beta Products, respectively) - and three
subsidiaries - Hathaway, Inc., Hathaway Systems Limited and Hathaway Instruments
Limited - engaged in the development, manufacturing and marketing of power
monitoring and control systems and process instrumentation.
The Hathaway Systems Division, located in Littleton, Colorado, manufactures
monitoring systems which provide a graphic waveform record of the performance of
electric power systems during periods of recovery from faults and disturbances.
These fault recording systems are sold primarily to electric utility companies
who use the data obtained to assure the proper operation and reliability of the
bulk power system. The Hathaway Systems Division also markets fault location and
circuit breaker monitoring instrumentation.
Hathaway Process Instrumentation manufactures and markets monitoring
systems which provide either visual annunciation and/or printed messages
whenever a monitored "point" changes from an existing state. These systems are
called visual annunciators and sequential event recorders (SER's). Visual
annunciators and SER's are sold to electric utility companies and the process
industry in general. Visual annunciators provide both visual and audible alert
signals whenever a process variable goes into an alarm state. SER's provide a
printed message whenever a monitored "point" changes state. The number of points
monitored may range from 32 to 5,000 points from an existing state in large
generating plants. Hathaway Process Instrumentation also manufactures and sells
combined annunciator/SER systems with distributed architecture (which
significantly reduces installation costs) for power plant application. In
addition, Hathaway Process Instrumentation produces calibrators and a pneumatic
calibrator model and has the exclusive rights to a line of pressure calibrators
trademarked Betagauge. These units, like the other products, are very accurate
and easy to use.
Hathaway Automation Technology is a leading manufacturer of Remote Terminal
Units (RTUs) for Supervisory Control and Data Acquisition (SCADA) systems and
Energy Management Systems (EMS). RTUs are located in power
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substations or on utility poles and electronically report power system
measurements and status to a central computer system. The primary mission of
these systems is to present the state of the power system to power dispatch
personnel, and to allow them to remotely effect changes in its configuration or
operation to maintain efficient and continuous delivery of power. Hathaway
Automation Technology has four distinct series of RTUs in current production,
covering applications from small poletop units to the largest and most complex
substations.
In fiscal year 1991, HSC acquired 100% of the common stock of Wodex
Technology, Inc. (Wodex) of Toronto, Canada, a company engaged in the design,
manufacture, and sale of a full line of power transducers to the process and
power utility industries. In fiscal year 1992, HSC acquired the net assets of
Promac, Inc. (Promac) of Toronto, Canada, a company engaged in the design,
manufacture and sale of a full line of calibrators and signal conditioning
products which are sold to the process industry. In March 1992, the Wodex
operation relocated to the Promac facility and in July 1992, HSC merged Promac
and Wodex into a new wholly-owned subsidiary named Hathaway, Inc. This
subsidiary continues to design, manufacture and sell a full line of calibrators,
signal conditioning products and power transducers.
During fiscal years 1991 and 1992, HSC acquired the common stock of
Circuits and Systems Design Limited, a Northern Ireland headquartered supplier
of products that are sold to the power utility industry. The operation was
subsequently named CSD Hathaway Limited (CSD), and in fiscal year 1995 was
renamed Hathaway Systems Limited. Hathaway Systems Limited designs,
manufacturers and sells fault and disturbance monitoring and circuit breaker
testing and monitoring equipment to major power utility companies located
throughout the world. The combined product offerings of Hathaway Systems Limited
and Hathaway Systems Division strengthens the Company's position as one of the
world's leading suppliers of fault and disturbance monitoring equipment in the
world.
In September 1992, HSC formed two new wholly-owned subsidiaries. Hathaway
Advanced Power Limited (HAP), located in Belfast, Northern Ireland, focuses on
the development of new product technology for the power industry. Hathaway
Instruments Limited (HIL), located in Hoddesdon, England, assumed responsibility
for the design, manufacture and sale of fault location instruments previously
performed by Hathaway Systems Limited. As of June 30, 1994, the net assets of
HAP were sold to the management of HAP for the net book value of the assets,
which approximated market value.
In fiscal year 1994, the Company made investments in two Chinese joint
ventures. In December 1993, the Company acquired 25% of Zibo Kehui Electric
Company Ltd. (Kehui), located in Zibo, China. Kehui designs, manufactures and
sells cable and overhead line fault location and other test instruments within
China. Under the joint venture agreement, the Company will sell these products
outside of China. During the third quarter of fiscal 1994, the Company acquired
25% of Hathaway Si Fang Protection and Control Company, Ltd. (Si Fang), located
in Beijing, China. Si Fang designs, manufactures and sells a new generation of
digital protective relays, control equipment and instrumentation products for
substations in power transmission and distribution systems within China. The
Company will sell these products outside of China.
In fiscal year 1995, the Company committed to acquire a 40% interest in
Hathaway Power Monitoring Systems Company, Ltd. (HPMS), located in Wuhan, China.
This acquisition is subject to the approval of the Chinese government. HPMS
will design, manufacture and sell, under a license from Hathaway,
instrumentation products designed by Hathaway, to electric power companies in
China and Chinese-owned contractors.
Motion Control Instrumentation. Hathaway's motion control products include
direct current (brush and brushless) motors, optical encoders, servo amplifiers
and fiber optic encoders which suit a wide range of applications in the
industrial, medical, military and aerospace sectors. The products are also used
by manufacturers of analytical instruments and computer peripherals.
Hathaway's motion control business is organized into two divisions and one
subsidiary: Hathaway Motion Control, Hathaway Motors and Instruments and
Computer Optical Products, Inc., respectively.
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The Hathaway Motors and Instruments Division in Tulsa, Oklahoma,
manufactures precision direct-current fractional horsepower motors with .8" to
4.0" diameters and certain motor components. Industrial equipment and military
products are the major application for the motors. This division also supplies
spare parts and replacement equipment for general purpose instrumentation
products.
Optical encoders are manufactured by Computer Optical Products, Inc., in
Chatsworth California. An optical encoder determines the speed of various
mechanical parts within computer printers and plotters and analytical
instruments. In plotters, the encoder is used to control the position of the
x and y axis pins. The primary markets for the optical encoders are industrial,
medical and computer peripheral manufacturers.
In order to optimize the profitability of the motor/encoder assemblies, the
Company also manufactures encoder-compatible precision direct-current fractional
horsepower motors from in its Computer Optical Products, Inc. facility. The 1"
to 4" diameter motors are sold separately or are combined with optical encoders
for sale as an assembly. The primary markets are computer peripheral
manufacturers, instrumentation and industrial equipment manufacturers and
military applications.
The Fiberoptics Division of Computer Optical Products designs, manufactures
and markets fiberoptic-based encoders with characteristics suited for
industrial, aerospace and military environments. Fiberoptical encoders are
immune to radio frequency interference and electromagnetic pulses and will
tolerate temperatures to 300(degrees)C. Applications include airborne
navigational systems, anti-lock braking transducers, missile flight surface
controls and high temperature process control equipment.
The Hathaway Motion Control Division was formed to pursue market
opportunities for brushless direct current motors, servo amplifiers and related
system components. The division serves both domestic and foreign industrial,
medical, automotive and military/aerospace markets in a diverse range of
applications.
APPLICATION SOFTWARE
Effective January 31, 1994, the Company sold its Application Software
Segment, Global Software, Inc. (Global), to the senior management of Global.
Global, formerly a wholly-owned subsidiary, was originally acquired in May, 1985
and is headquartered in Raleigh, North Carolina. The sale resulted in a net
after tax gain of $4,023,000. The Company received a cash payment of $6,803,000,
of which a portion was used to repay $3,000,000 of the Company's long-term debt
and to pay a special $.10 per share dividend to stockholders totaling $495,000.
The remaining proceeds were used to pay the expenses and income taxes which
resulted from the sale and for the other general operating activities. Global's
operating results are presented in Note 3 to Consolidated Financial Statements
in the 1995 Annual Report.
Global developed, marketed and supported integrated business application
software and provided consulting and programming services to the IBM and IBM-
compatible mainframe or IBM AS/400 mid-range computer markets. Global sold and
serviced its products primarily to large and mid-sized companies in the health
care, manufacturing, textile/apparel, insurance, service and other industries.
AVAILABILITY OF RAW MATERIALS
All parts and materials used by the company are in adequate supply. No
significant parts or materials are acquired from a single source.
SEASONALITY OF THE BUSINESS
The Company's business is not of a seasonal nature.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company considers all of its operations to be in one industry segment -
electronic instrumentation.
PRODUCT DISTRIBUTION AND OTHER INFORMATION
Product Distribution and Principal Markets. In addition to its own
marketing and sales force, the Company has developed a worldwide network of
independent sales representatives and agents to market its various product
lines.
Historically, the principal market for the Company's products has been the
power and process industries. Since fiscal year 1991, however, with the
acquisition of subsidiaries, development of new products and the expansion of
existing products to other industrial applications, the Company has penetrated a
variety of markets. The Company faces competition in all of its markets,
although the number of competitors varies depending upon the product. The
Company believes there are only a small number of competitors in the power and
process markets, but there are numerous competitors in the motion control
market. The Company believes it is the world's leading manufacturer of electric
power fault recording equipment, with approximately 30% of the world market in
the last fiscal year. No clear market share data is available for the Company's
other product areas. Competition involves primarily product performance and
price, although service and warranty are also important.
Two significant changes in the power industry have recently had an impact
on the domestic and European power instrumentation markets. In October of 1992,
the Energy Policy Act of 1992 became law in the United States and is causing
increased competition among the domestic electric utility companies. The Act
requires power companies to transmit competitors' power across their own power
networks and allows them to compete with each other for sales to major customers
across the United States. In March of 1990, the government owned utility company
in the United Kingdom was privatized in order to increase competition throughout
the United Kingdom power industry (a major foreign market of the Company). The
Energy Policy Act in the United States and privatization in the United Kingdom
has led to downsizing and cost reductions by most utility companies and,
accordingly, has currently reduced the demand for power instrumentation
products. It is uncertain how long this trend will continue, but utilities will
have to increase purchases of instrumentation that protect and monitor their
systems in order to maintain the high quality of power provided to the consumer.
The Company plans to continue introducing new products in fiscal year 1996 which
will help power companies achieve lower operating costs and improve the
reliability of their power.
Government Sales from Continuing Operations. Approximately $280,000 of the
Company's backlog from continuing operations as of June 30, 1995 consisted of
contracts with the United States Government. The Company's contracts with the
government contain a provision generally found in government contracts which
permits the government to terminate the contract at its option. When the
termination is attributable to no fault of the Company, the government would, in
general, have to pay the Company certain allowable costs up to the time of
termination, but there is no compensation for loss of profits.
Sales to Large Customers. During fiscal 1995, no single customer accounted
for more than 10% of the Company's consolidated revenue from continuing
operations.
Export Sales from Continuing Domestic Operations and Foreign Operations.
The information required by this item is set forth in pages 17 and 23 of the
Company's 1995 Annual Report and is incorporated herein by reference.
Sales Backlog. The backlog of the Company's continuing operations at June
30, 1995 consisted of sales orders totaling approximately $8,878,000. The
Company expects to ship goods filling $8,314,000 of those purchase orders within
fiscal 1996. This compares to a backlog from continuing operations of $8,868,000
at June 30, 1994, of which $8,340,000 was scheduled for shipment is fiscal 1995.
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The Company's expenditures on engineering and development for continuing
operations were $3,616,000 in fiscal 1995, $4,111,000 in fiscal 1994 and
$4,411,000 in fiscal 1993. Of these expenditures, no material amounts were
charged directly to customers.
The Company currently maintains inventory levels adequate for its short-
term needs based upon present levels of production. The Company considers the
component parts of its different product lines to be readily available and
current suppliers to be reliable and capable of satisfying anticipated needs.
No pollution or other types of emission result from the Company's
operations and it is not anticipated that the Company's proposed operations will
be affected by Federal, State or local provisions concerning environmental
controls.
As of the end of fiscal 1995, the Company had approximately 363 full-time
employees.
Patents, Trademarks, Licenses, Franchises, and Concessions. The Company
holds several patents and trademarks regarding components used by the various
subsidiaries; however, none of these patents and trademarks are considered to be
of major significance.
Executive Officers. The Executive Officers of the Company are:
Mr. Eugene E. Prince, 63, has been President of the Company since October
1975, was appointed Chief Executive Officer in September 1976, and was appointed
Chairman of the Board of Directors in January 1981.
Mr. Richard D. Smith, 48, has been the Company's Treasurer and Chief
Financial Officer since June 1983. From June 1983 until March 1986, Mr. Smith
was the Company's Secretary, and from March 1986 to January 1990 he was the
Company's Assistant Secretary. Since January 1990, Mr. Smith has resumed the
responsibilities of Secretary. Mr. Smith also served as the Company's Vice
President of Finance from June 1983 until August 1993. In August 1993, Mr. Smith
was made an Executive Vice President of the Company.
Each of the above officers is elected for a term of one year.
ITEM 2. PROPERTIES.
The Company's corporate administration offices, the corporate office of HSC
and the principal office and main plant facility of the Hathaway Systems
Division of HSC is located at 8228 Park Meadows Drive, Littleton, Colorado, and
contains 31,152 square feet. The division relocated to this facility in October
1989 under a seven-year lease with an option to renew for an additional five-
year term.
The Hathaway Automation Technology Division of HSC leases 16,155 square
feet of office and manufacturing facility at 7661 South 180th Street, Kent,
Washington. The four-year lease term commenced July 1, 1995 and expires June 30,
1999.
The Process Instrumentation Division leases 28,585 square feet of office
and manufacturing space at 1840 Hutton Drive, Carrollton, Texas. This lease
expires on February 28, 1999.
Hathaway, Inc. leases 16,189 square feet of office and
manufacturing/warehouse space located at 370 Tapscott Road, Scarborough,
Ontario, Canada. The lease expires on January 31, 1997.
Hathaway Systems Limited currently leases two major facilities located in
Northern Ireland. 17,300 square feet of administration, sales, engineering and
manufacturing space has been leased at Wildflower Way/Apollo Road in Belfast for
a 10-year term which expires in 2002. 9,000 square feet of manufacturing space
has been leased at 64 South Street, Newtonards, Northern Ireland; this three-
year lease expires on December 31, 1997.
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In February 1993, HAP entered into a five-year lease at 20 Wildflower Way,
Belfast, Northern Ireland. Prior to the sale of HAP on June 30, 1994, the 4,500
square feet were used for administration and engineering. The Company is
currently attempting to sublease the space.
During fiscal 1993, HIL took over Hathaway Systems Limited's office lease
on Brewery Road in Hoddesdon, Hertfordshire, England. This lease for 2,800
square feet expires in 2007.
The Motors and Instruments Division has a lease for approximately 7,650
square feet of office and manufacturing space located at 10816 East Newton
Street, Tulsa, Oklahoma. The current lease term expires December 31, 1995.
Management believes this lease can be renewed on terms and conditions similar to
the current lease.
The Motion Control Division leases 12,555 square feet of office and
manufacturing space located at 10002-B East 43rd Street South, Tulsa, Oklahoma.
The two-year lease term commenced August 1, 1995 and expires July 31, 1997, with
an option to renew on similar terms for three more years.
Computer Optical Products, Inc. leases one facility in Chatsworth,
California. In May 1994, the subsidiary entered into a three-year lease
commencing June 1, 1994 with two one-year renewal options. The 10,560 square
feet at 9305/09 Eton Avenue houses Computer Optical Products, including the
Fiberoptics Division.
The Company's management believes the above described facilities are
adequate to meet the Company's current and foreseeable needs. All facilities
described above are operating at or near full capacity, except as noted.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in certain actions that have
arisen out of the ordinary course of business. Management, based upon the advice
of the Company's legal counsel, believes the actions are without merit and will
not have a significant adverse effect on the Company's consolidated financial
position. For additional information, see the discussion under the section
entitled "Certain Litigation" (page 11) in the Company's definitive Proxy
Statement dated September 29, 1995 (the Proxy Statement), which is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Hathaway Corporation's common stock is traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ) National Market System
under the symbol HATH. The number of holders of record of the Company's common
stock as of the close of business on September 1, 1995 was 788.
The following table sets forth, for the periods indicated, the high and low
prices of the Company's common stock on the NASDAQ National Market System, as
reported by NASDAQ.
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Price Range
Dividends ------------------
Per Share High Low
--------- -------- -------
FISCAL 1994
First Quarter....... $0.105 $3.63 $2.38
Second Quarter...... -- 3.50 2.63
Third Quarter....... 0.100 3.50 2.88
Fourth Quarter...... -- 4.00 2.38
- ----------------------------------------------------
FISCAL 1995
First Quarter....... $0.120 $4.13 $3.13
Second Quarter...... -- 3.88 2.75
Third Quarter....... -- 3.13 2.25
Fourth Quarter...... -- 3.13 2.38
The Bid and Asked quotations as published by NASDAQ reflect interdealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
On August 10, 1995, the Company's Board of Directors declared a cash
dividend of $.10 per common share payable on September 15, 1995 to stockholders
of record on August 25, 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes data from the Company's annual financial
statements for the years 1991 through 1995 and notes thereto; the Company's
complete annual financial statements and notes thereto for the current fiscal
year appear in the 1995 Annual Report. See Item 1 in the Business section of
this report and Notes 2 and 3 to Consolidated Financial Statements in the 1995
Annual Report for discussion of acquisitions and dispositions of business
operations.
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<CAPTION>
FOR THE FISCAL YEARS ENDED 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(in thousands of dollars except per share data)
Net income (loss) from continuing
operations................................. $ 842 $ 955 $ 23 $ 2,064 $ (838)
Net income (loss) from operations of
divested segment and divested operation.... -- 885 958 (323) 3,325
Gain on sale of segment..................... -- 4,023 -- -- --
Net income (loss)........................... 842 5,863 981 1,741 2,487
Net revenues from continuing operations..... 39,838 43,028 45,741 42,806 27,809
Fully diluted earnings (loss) per share:
Continuing operations................... 0.19 0.19 -- 0.45 (0.19)
Operations of divested segment and
divested operation..................... -- 0.18 0.21 (0.07) 0.72
Sale of segment......................... -- 0.81 -- -- --
Net income (loss)....................... 0.19 1.18 0.21 0.38 0.53
Cash dividends:
Per share............................... 0.12 0.205 -- -- --
Total amount paid....................... 536 992 -- -- --
Total assets at June 30..................... 23,312 24,432 28,326 27,763 28,629
Total long-term debt at June 30............. 2,144 2,298 5,819 6,953 7,912
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is set forth in pages 27 through 31
of the Company's 1995 Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in pages 9 through 26 of
the Company's 1995 Annual Report and is incorporated herein by reference.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hathaway Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Hathaway Corporation's 1995
Annual Report incorporated by reference in this Form 10-K, and have issued our
report thereon dated July 31, 1995. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 31, 1995.
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not changed its accounting or auditing firm during the past
24 months, nor has it had any material disagreements with its accountants or
auditors regarding any accounting or financial statement disclosure matters.
PART III
The information required by Part III is included in the Company's Proxy
Statement, and is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item is set forth in the sections entitled
"Election of Directors" (page 2),"Executive Officers" (page 3) and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" (page 10)
in the Company's Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the section entitled
"Executive Compensation" (pages 5 through 9) in the Company's Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" (pages 4 and 5)
in the Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since July 1, 1994, the Company has not entered into any material related
party transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
I. FINANCIAL STATEMENTS. The information required by this item and
detailed below is included in the 1995 Annual Report (pages 9 through 26) and is
incorporated herein by reference.
Consolidated Balance Sheets as of June 30, 1995 and June 30, 1994.
Consolidated Statements of Operations for each of the years in the three-
year period ended June 30, 1995.
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended June 30, 1995.
Consolidated Statements of Stockholders' Investment for each of the years
in the three-year period ended June 30, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
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II. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in this report:
Schedule Subject
-------------- -----------------------------------
II Valuation and Qualifying Accounts
Financial statement schedules, other than those listed above, are omitted
because they are either not applicable or not required, or because the
information sought is included in the Consolidated Financial Statements or the
Notes thereto within the 1995 Annual Report.
III. EXHIBITS
Exhibit Index, regarding exhibits filed in accordance with Item 601, is at
Page 11, hereof.
IV. REPORTS ON FORM 8-K.
The registrant did not file any reports on Form 8-K during the fourth
quarter of fiscal year 1995.
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EXHIBIT INDEX
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<CAPTION>
Exhibit No. Subject Page
- ----------- ------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation. *
3.2 Amendment to Articles of Incorporation, dated September 24, 1993. *
3.3 By-laws of the Company adopted August 11, 1994. *
4 Rights Agreement between Hathaway Corporation and Bank of America National *
Trust and Savings Association, dated June 15, 1989. Incorporated by reference
to the Company's 1989 Annual Report and Form 10-K for the fiscal year ended
June 30, 1989.
10.1 Amendment No. 1 to Warrant to Purchase Common Stock of Hathaway *
Corporation granted to Household Commercial Financial Services, Inc., dated
as of June 15, 1987. Incorporated by reference to Exhibit 10c(iii) to the
Company's 1989 Annual Report and Form 10-K for the fiscal year ended June
30, 1989.
10.2 Amendment No. 1 to Warrant to Purchase Common Stock of Hathaway *
Corporation granted to Ford Motor Credit Company, dated as of June 15, 1987.
Incorporated by reference to Exhibit 10c(iv) to the Company's 1989 Annual
Report and Form 10-K for the fiscal year ended June 30, 1989.
10.3 Severance Agreement dated June 15, 1989 between Hathaway Corporation and *
Eugene E. Prince. Incorporated by reference to Exhibit 10n(i) to the
Company's 1989 Annual Report and Form 10-K for the fiscal year ended June
30, 1989.
10.4 Severance Agreement dated June 15, 1989 between Hathaway Corporation and *
Richard D. Smith. Incorporated by reference to Exhibit 10n(ii) to the
Company's 1989 Annual Report and Form 10-K for the fiscal year ended June
30, 1989.
10.5 Lease Agreement between Vantex Management Company, Inc. and Hathaway *
Corporation dated June 2, 1989. Incorporated by reference to Exhibit 10s to the
Company's 1989 Annual Report and Form 10-K for the fiscal year ended June
30, 1989.
10.6 Lease Agreement between Circuits and Systems Design Limited and Department of *
Economic Development (Northern Ireland) dated April 7, 1992. Incorporated by
reference to Exhibit 10(iii)D to the Company's 1992 Annual Report and Form 10-K
for the fiscal year ended June 30, 1992.
10.7 The Hathaway Corporation Amended 1980 Non-Incentive Stock Option Plan. *
Incorporated by reference to the Company's Form S-8 filed August 3, 1981.
10.8 The 1983 Incentive and Non-Qualified Stock Option Plan dated September 22, 1983. *
Incorporated by reference to the Company's Form S-8 filed May 10, 1984.
10.9 Amendment to the 1983 Incentive and Non-Qualified Stock Option Plan dated *
January 4, 1989. Incorporated by reference to the Company's Form S-8 filed
October 25, 1990.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Subject Page
- ----------- ------- ----
<S> <C> <C>
10.10 The 1989 Incentive and Non-Qualified Stock Option Plan dated August 10, 1989. *
Incorporated by reference to the Company's Form S-8 filed October 25, 1990.
10.11 The 1991 Incentive and Non-Statutory Stock Option Plan dated September 19, *
1991. Incorporated by reference to the Company's Form S-8 filed January 8, 1992.
10.12 Management Incentive Bonus Plan for the fiscal years ending June 30, 1993 and *
1994. Incorporated by reference to Exhibit 10.16 to the Company's Form 10-K
for the fiscal year ended June 30, 1993.
10.13 Joint Venture Agreement between Zibo Kehui Electric Company and Hathaway *
Instruments Limited, for the establishment of Zibo Kehui Electric Company Ltd.,
dated July 25, 1993.
10.14 Letter of Intent dated July 27, 1993 by the Global Management Group to acquire *
100% of the issued and outstanding shares of Global Software, Inc. from
Hathaway Corporation. Incorporated by reference to Exhibit 10.17 to the Company's
Form 10-K for the fiscal year ended June 30, 1993.
10.15 Employment Agreement between Hathaway Corporation and Eugene E. Prince, dated *
July 1, 1993.
10.16 Employment Agreement between Hathaway Corporation and Richard D. Smith, dated *
July 1, 1993.
10.17 Loan and Security Agreement dated August 2, 1993 between Hathaway Corporation, *
certain subsidiaries of Hathaway Corporation and Marine Midland Business Loans,
Inc. Incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for
the fiscal year ended June 30, 1993.
10.18 Loan Facility Agreement dated August 2, 1993 between CSD Hathaway Limited and *
Forward Trust Limited. Incorporated by reference to Exhibit 10.19 to the
Company's Form 10-K for the fiscal year ended June 30, 1993.
10.19 Reimbursement Agreement dated August 2, 1993 between CSD Hathaway Limited and *
Marine Midland Business Loans, Inc. Incorporated by reference to Exhibit 10.20
to the Company's Form 10-K for the fiscal year ended June 30, 1993.
10.20 Promissory Note from Eugene E. Prince to Hathaway Corporation, dated *
October 27, 1993.
10.21 Promissory Note from Richard D. Smith to Hathaway Corporation, dated *
October 26, 1993.
10.22 Promissory Note from Bruce B. Brundage to Hathaway Corporation, dated *
October 27, 1993.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Subject Page
- ----------- ------- ----
<S> <C> <C>
10.23 Plan and Agreement of Merger by and between Ronald J. Kupferman, William H. *
Burnette, Michael R. Merwarth, Global Management Group, Inc., Global Software,
Inc. and Hathaway Corporation, dated December 15, 1993. Incorporated by
reference to the Company's Form 8-K filed December 20, 1993.
10.24 Joint Venture Contract between Si Fang Protection and Control Company Limited *
and Hathaway Corporation for the establishment of Beijing Hathaway Si Fang
Protection and Control Company, Ltd., dated March 2, 1994.
10.25 Assignment and Assumption of Lease Agreement, Letter Agreement, Collateral *
Assignment and Amendment to Lease Agreement between Trammel Crow Company
No. 91, Petula Associates, Ltd., Symantec Corporation and Hathaway Systems
Corporation-Beta Products Division, dated June 1, 1994.
10.26 Agreement for Sale of Business by and between Hathaway Advanced Power Limited, *
Kelman Limited, Hathaway Systems Corporation and John E. Cunningham, dated
July 27, 1994.
10.27 Management Incentive Bonus Plan for the fiscal year ended June 30, 1995.
10.28 Management Incentive Bonus Plan for the fiscal year ending June 30, 1996.
10.29 Joint Venture Contract between Wuhan Electric Power Instrument Factory, Beijing
Huadian Electric Power Automation Corporation and Hathaway Corporation for the
establishment of Hathaway Power Monitoring Systems Company, Ltd., dated
June 12, 1995.
10.30 Technology License Contract between Wuhan Electric Power Instrument Factory and
Beijing Huadian Electric Power Automation Corporation on behalf of Hathaway
Power Monitoring Systems Company, Ltd. and Hathaway Corporation, dated
June 12, 1995.
10.31 Supplementary Agreement between Wuhan Electric Power Instrument Factory, Beijing
Huadian Electric Power Automation Corporation and Hathaway Corporation, dated
August 30, 1995.
13 1995 Annual Report.
21 List of Subsidiaries.
22 Definitive Proxy Statement, dated September 29, 1995 for the Registrant's 1995 *
Annual Meeting of Shareholders.
23 Consent of ARTHUR ANDERSEN LLP.
-----------
</TABLE>
* These documents have been filed with the Securities and Exchange Commission,
and are incorporated herein by reference.
14
<PAGE>
SUBSIDIARIES OF HATHAWAY CORPORATION
1) Hathaway Systems Corporation, a Colorado corporation.
2) Computer Optical Products, Inc., a Colorado corporation.
3) Hathaway, Inc., a Canadian corporation.
4) Hathaway Systems Limited, a Northern Ireland corporation.
5) Hathaway Instruments Limited, a United Kingdom corporation.
15
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated July 31, 1995 incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statement on Form S-8
(No. 2-73235) of the Hathaway Corporation Amended 1980 Non-Incentive Stock
Option Plan dated August 3, 1981, into the Registration Statement on Form S-8
(No. 2-90687) of the 1983 Incentive and Non-Qualified Stock Option Plan of
Hathaway Corporation dated May 10, 1984, into the Registration Statement on Form
S-8 (No. 3344998) of the 1992 Employee Stock Purchase Plan of Hathaway
Corporation dated January 8, 1992, into the Registration Statement on Form S-8
(No. 33-37473) of the 1989 Incentive and Non-Qualified Stock Option Plan of
Hathaway Corporation dated October 25, 1990, and into the Registration Statement
on Form S-8 (No. 3344997) of the 1991 Incentive and Non-Statutory Stock Option
Plan of Hathaway Corporation dated January 8, 1992.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 26, 1995.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HATHAWAY CORPORATION
By /s/ Eugene E. Prince
--------------------------------
Eugene E. Prince
President, Chief Executive
Officer and Chairman of the
Board of Directors
Date: September 26, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Eugene E. Prince President, Chief Executive September 26, 1995
- ---------------------------- Officer, and Chairman of
Eugene E. Prince the Board of Directors
/s/ Richard D. Smith Executive Vice President, September 26, 1995
- ---------------------------- Treasurer, Secretary and
Richard D. Smith Chief Financial Officer
(Chief Accounting Officer)
/s/ George J. Pilmanis Director September 26, 1995
- ----------------------------
George J. Pilmanis
/s/ Marvin J. Fein Director September 26, 1995
- ----------------------------
Marvin J. Fein
/s/ Chester H. Clarridge Director September 26, 1995
- ----------------------------
Chester H. Clarridge
/s/ Graydon D. Hubbard Director September 26, 1995
- ----------------------------
Graydon D. Hubbard
17
<PAGE>
HATHAWAY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance at
Beginning of Costs and from End of
Period Expenses Reserves Period
====================================================================================
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Reserve for bad debts....... $394,000 $ 46,000 $135,000 $305,000
- ------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994:
Reserve for bad debts....... $463,000 $158,000 $227,000 $394,000
- ------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1993:
Reserve for bad debts....... $212,000 $350,000 $ 99,000 $463,000
- ------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
EXHIBIT 10.27
HATHAWAY CORPORATION
Management Incentive Bonus Plan
for the Fiscal Year Ending
June 30, 1995
===============================================================================
OBJECTIVE:
- ----------
The objective of this Incentive Compensation Plan (the "Plan") is to provide an
incentive to certain Executives of Hathaway Corporation (the "Company") to
increase profits to the Company by offering these individuals an opportunity to
participate in a fund which is to be established by the Company from a portion
of its operating profits and/or its cash flow. A fund will be established for
each group, division and/or subsidiary based on its forecasted profitability for
1995 and its past fiscal year's financial results, with certain executives of
each division participating in their respective funds.
ELIGIBILITY:
- ------------
Executives eligible for participation are officers or executive level employees
as the President may select and the Board of Directors of the Company (the
"Board") shall approve. Eligibility shall not confer any vested rights,
however, it being understood that being an eligible executive shall mean only
that such executive may potentially receive an award pursuant to the Board's
final determination referred to below. It is the intention of the Board that
such individuals be designated and approved as early in the fiscal year as
possible.
TERM:
- -----
This Plan shall be effective for the fiscal year ending June 30, 1995, unless
modified by the Board.
ADMINISTRATION OF THE PLAN:
- ---------------------------
The Plan will be administered by the President, under the direction of the
Board, which will retain the option to modify the Plan from time-to-time,
retroactively, as well as prospectively, and whose decision shall be final and
binding on all parties.
ESTABLISHMENT OF THE FUNDS
- --------------------------
For the purpose of making incentive payments, separate funds ("the Funds") will
be established for each group, division, and/or subsidiary, in accordance with
the attached schedules. The Funds will be established out of a portion of each
group, division, and/or subsidiary's Adjusted Plan Income, as hereinafter
defined.
Adjusted Plan Income is income for each group, division, and/or subsidiary
for the fiscal year ending June 30, 1995, before; (1) provision for federal
and state income taxes, (2) minority interest in net income of
subsidiaries, (3) extraordinary credits or losses, (4) provisions for the
Employees' Stock Ownership Plan and Trust and Cash Bonus Plan, (5)
provision for amounts set aside for the Funds and (6) such other amounts as
the Board determines to provide management incentives to accomplish the
goals and objectives of the Company. The Adjusted
<PAGE>
MANAGEMENT INCENTIVE BONUS PLAN FOR
THE FISCAL YEAR ENDING JUNE 30, 1995 (CONTINUED)
===============================================================================
Plan Income for each group, division, and/or subsidiary shall include all
intercompany charges and credits, including interest charged for
intercompany loans and/or the corporate asset charge, as defined by the
President.
ADDING OR DELETING PARTICIPANTS DURING THE PLAN YEAR:
- -----------------------------------------------------
An individual designated to participate in the Plan who leaves the employ of the
Company prior to the date of distribution shall not be entitled to participate
in the Fund. However, the portion of the Fund that would otherwise have been
allocated to such employee shall revert back to the Company and shall not be
reallocated to the remaining participants. The intent is that the remaining
employees will not benefit from or be detrimentally affected by the termination
of other employees, and the amount of the Fund that would otherwise be
distributed to the remaining employees shall remain the same.
An individual hired during the Plan Year that replaces an executive designated
to participate in the Plan, or who is a new addition (not replacing a designated
participant), and who is employed for a minimum of 90 days prior to June 30,
1995, will be entitled to participate in the respective Fund for the pro-rata
portion of the year that such new employee is employed by the Company.
If an individual is a replacement of a participating employee who terminates,
then the portion of the Fund, or a part thereof, that would have otherwise been
allocated to the terminated employee and which reverted back to the Company
shall be reallocated to the replacement employee. The amount that will be
distributed to the replacement employee on the date of distribution will be the
lesser of; (A) the amount which reverted back to the Company that would have
been allocated to the terminated employee had such employee stay the full plan
year or, (B) the amount computed by multiplying the amount of the Fund times the
ratio of the replacement employee's actual salary earned during the 12 months
ending June 30, 1995 multiplied times that individual's salary multiple, to the
total annual salaries of all participants on August 16, 1994 (excluding the
replacement employee's salary), including the employee whose employment
terminated, multiplied by each employee's salary multiple.
If the individual is a new addition, then a portion of the Fund that would have
otherwise been allocated to all other participants will be allocated to the new
employee. The amount that will be distributed to each eligible participant on
the date of distribution will be computed by multiplying the amount of the Fund
times the ratio of the participant's salary multiplied times his/her salary
multiple to the total of the salaries of all participants, including the new
employee, multiplied times each employee's salary multiple. The salaries of
the participants used to determine the numerator and denominator of such ratio
shall be determined by multiplying the monthly salary being paid on August 16,
1994 times the number of months the individual was employed during the fiscal
year ending June 30, 1994, multiplied times their salary multiple.
DISTRIBUTION OF THE FUND:
- -------------------------
Following the close of the fiscal year ending June 30, 1995, the President will
present to the Board his determination of the amount to be set aside for the
Fund and his recommendations regarding awards to be made to eligible executives.
The amount will have been audited and confirmed to be in agreement with the Plan
by the Company's independent auditors. For distributions of the group,
division, and/or
<PAGE>
MANAGEMENT INCENTIVE BONUS PLAN FOR
THE FISCAL YEAR ENDING JUNE 30, 1995 (CONTINUED)
===============================================================================
subsidiary Funds that are based on the salaries of the participants, the
salaries that are to be used in calculating such distributions shall be the
current rate of salary being paid on August 16, 1994, multiplied times their
salary multiples.
At the first meeting of the Board of Directors, following completion of the
audit for the fiscal year ending June 30, 1995, by the Company's independent
auditors, the Board of Directors will consider the recommendations of the
President and make a final determination as to the awards to be made to eligible
executives. The Board's determination may vary from the President's
recommendation and may make total awards of more or less than the amount to be
set aside as set forth above. The Board may also choose to make no awards.
The payment will be made to the participants immediately following the Board
Meeting.
<PAGE>
EXHIBIT 10.28
HATHAWAY CORPORATION
Management Incentive Bonus Plan
for the Fiscal Year Ending
June 30, 1996
===============================================================================
OBJECTIVE:
- ----------
The objective of this Incentive Compensation Plan (the "Plan") is to provide an
incentive to certain Executives of Hathaway Corporation (the "Company") to
increase profits to the Company by offering these individuals an opportunity to
participate in a fund which is to be established by the Company from a portion
of its operating profits and/or its cash flow. A fund will be established for
each group, division and/or subsidiary based on its forecasted profitability for
1996 and its past fiscal year's financial results, with certain executives of
each division participating in their respective funds.
ELIGIBILITY:
- ------------
Executives eligible for participation are officers or executive level employees
as the President may select and the Board of Directors of the Company (the
"Board") shall approve. Eligibility shall not confer any vested rights,
however, it being understood that being an eligible executive shall mean only
that such executive may potentially receive an award pursuant to the Board's
final determination referred to below. It is the intention of the Board that
such individuals be designated and approved as early in the fiscal year as
possible.
TERM:
- -----
This Plan shall be effective for the fiscal year ending June 30, 1996, unless
modified by the Board.
ADMINISTRATION OF THE PLAN:
- ---------------------------
The Plan will be administered by the President, under the direction of the
Board, which will retain the option to modify the Plan from time-to-time,
retroactively, as well as prospectively, and whose decision shall be final and
binding on all parties.
ESTABLISHMENT OF THE FUNDS
- --------------------------
For the purpose of making incentive payments, separate funds ("the Funds") will
be established for each group, division, and/or subsidiary, in accordance with
the attached schedules. The Funds will be established out of a portion of each
group, division, and/or subsidiary's Adjusted Plan Income, as hereinafter
defined.
Adjusted Plan Income is income for each group, division, and/or subsidiary
for the fiscal year ending June 30, 1996, before; (1) provision for federal
and state income taxes, (2) minority interest in net income of
subsidiaries, (3) extraordinary credits or losses, (4) provisions for the
Employees' Stock Ownership Plan and Trust and Cash Bonus Plan, (5)
provision for amounts set aside for the Funds and (6) such other amounts as
the Board determines to provide management incentives to accomplish the
goals and objectives of the Company. The Adjusted
<PAGE>
MANAGEMENT INCENTIVE BONUS PLAN FOR
THE FISCAL YEAR ENDING JUNE 30, 1996 (CONTINUED)
===============================================================================
Plan Income for each group, division, and/or subsidiary shall include all
intercompany charges and credits, including interest charged for
intercompany loans and/or the corporate asset charge, as defined by the
President.
ADDING OR DELETING PARTICIPANTS DURING THE PLAN YEAR:
- -----------------------------------------------------
An individual designated to participate in the Plan who leaves the employ of the
Company prior to the date of distribution shall not be entitled to participate
in the Fund. However, the portion of the Fund that would otherwise have been
allocated to such employee shall revert back to the Company and shall not be
reallocated to the remaining participants. The intent is that the remaining
employees will not benefit from or be detrimentally affected by the termination
of other employees, and the amount of the Fund that would otherwise be
distributed to the remaining employees shall remain the same.
An individual hired during the Plan Year that replaces an executive designated
to participate in the Plan, or who is a new addition (not replacing a designated
participant), and who is employed for a minimum of 90 days prior to June 30,
1996, will be entitled to participate in the respective Fund for the pro-rata
portion of the year that such new employee is employed by the Company.
If an individual is a replacement of a participating employee who terminates,
then the portion of the Fund, or a part thereof, that would have otherwise been
allocated to the terminated employee and which reverted back to the Company
shall be reallocated to the replacement employee. The amount that will be
distributed to the replacement employee on the date of distribution will be the
lesser of; (A) the amount which reverted back to the Company that would have
been allocated to the terminated employee had such employee stay the full plan
year or, (B) the amount computed by multiplying the amount of the Fund times the
ratio of the replacement employee's actual salary earned during the 12 months
ending June 30, 1996 multiplied times that individual's salary multiple, to the
total annual salaries of all participants on August 16, 1995 (excluding the
replacement employee's salary), including the employee whose employment
terminated, multiplied by each employee's salary multiple.
If the individual is a new addition, then a portion of the Fund that would have
otherwise been allocated to all other participants will be allocated to the new
employee. The amount that will be distributed to each eligible participant on
the date of distribution will be computed by multiplying the amount of the Fund
times the ratio of the participant's salary multiplied times his/her salary
multiple to the total of the salaries of all participants, including the new
employee, multiplied times each employee's salary multiple. The salaries of
the participants used to determine the numerator and denominator of such ratio
shall be determined by multiplying the monthly salary being paid on August 16,
1995 times the number of months the individual was employed during the fiscal
year ending June 30, 1996, multiplied times their salary multiple.
DISTRIBUTION OF THE FUND:
- -------------------------
Following the close of the fiscal year ending June 30, 1996, the President will
present to the Board his determination of the amount to be set aside for the
Fund and his recommendations regarding awards to be made to eligible executives.
The amount will have been audited and confirmed to be in agreement with the Plan
by the Company's independent auditors. For distributions of the group,
division, and/or subsidiary Funds that are based on the salaries of the
participants, the salaries that are to be used in
<PAGE>
MANAGEMENT INCENTIVE BONUS PLAN FOR
THE FISCAL YEAR ENDING JUNE 30, 1996 (CONTINUED)
===============================================================================
calculating such distributions shall be the current rate of salary being paid on
August 16, 1995, multiplied times their salary multiples.
At the first meeting of the Board of Directors, following completion of the
audit for the fiscal year ending June 30, 1996, by the Company's independent
auditors, the Board of Directors will consider the recommendations of the
President and make a final determination as to the awards to be made to eligible
executives. The Board's determination may vary from the President's
recommendation and may make total awards of more or less than the amount to be
set aside as set forth above. The Board may also choose to make no awards.
The payment will be made to the participants immediately following the Board
Meeting.
<PAGE>
EXHIBIT 10.29
JOINT VENTURE CONTRACT
----------------------
between
WUHAN ELECTRIC POWER INSTRUMENT FACTORY,
----------------------------------------
BEIJING HUADIAN ELECTRIC POWER AUTOMATION CORPORATION
-----------------------------------------------------
and
HATHAWAY CORPORATION
--------------------
for the establishment of
HATHAWAY POWER MONITORING SYSTEMS COMPANY, LTD.
-----------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
Preliminary Statement......................................... 1
1 Definitions............................................... 1
2 Parties to the Contract................................... 2
3 Establishment of the Joint Venture Company................ 3
4 The Purpose and Scope of Business of the Company.......... 4
5 Total Amount of Investment and Registered Capital......... 5
6 Responsibilities of the Parties........................... 8
7 Sales of Joint Venture Products and Technology............ 11
8 Board of Directors........................................ 11
9 Operation and Management.................................. 15
10 Supply and Purchase of Materials, Equipment and Services.. 16
11 Labor Management.......................................... 16
12 Financial Affairs and Accounting.......................... 18
13 Taxation and Insurance.................................... 21
14 Confidentiality........................................... 21
15 The Joint Venture Term.................................... 22
16 Termination, Buyout and Liquidation....................... 23
17 Breach of Contract........................................ 25
18 Force Majeure............................................. 25
19 Settlement of Disputes.................................... 26
20 Applicable Law............................................ 27
21 Miscellaneous Provisions.................................. 27
Signatures................................................ 29
</TABLE>
Schedule
Appendix A Technology License Contract
<PAGE>
JOINT VENTURE CONTRACT
----------------------
In accordance with the "Law of the People's Republic of China on Joint Ventures
Using Chinese and Foreign Investment" and other relevant Chinese rules and
regulations, WUHAN ELECTRIC POWER INSTRUMENT FACTORY ("Party A"), BEIJING
HUADIAN ELECTRIC POWER AUTOMATION CORPORATION ("Party B") and HATHAWAY
CORPORATION ("Party C"), adhering to the principle of equality and mutual
benefit and through friendly consultation, agree to set up a joint venture
enterprise in Wuhan, People's Republic of China. Party A, Party B and Party C
are hereinafter collectively referred to as "Parties" and individually as
"Party".
ARTICLE 1 - DEFINITIONS
-----------------------
Unless the terms or context of this Joint Venture Contract ("Contract")
otherwise provides, the following terms shall have the meanings set out below:
1.01 "Articles of Association" shall mean the Articles of Association of
the Company executed by the Parties on June 12, 1995.
1.02 "Affiliate" shall mean any company which, through ownership of voting
stock or otherwise directly or indirectly, is controlled by, under common
control with, or in control of, a Party; the term "control" being used in
the sense of power to elect the majority of directors or to direct
management.
1.03 "Board" shall mean the board of directors of the Company.
1.04 "Company" shall mean Hathaway Power Monitoring Systems Company, Ltd.,
the joint venture limited liability company formed by the Parties
pursuant to the Joint Venture Law, the Joint Venture Regulations, and
other relevant Chinese laws and this Contract.
1.05 "Effective Date" means the effective date of this Contract, which
shall be the date on which this Contract and the Articles of Association
have been approved by the Examination and Approval Authority.
1.06 "Examination and Approval Authority" shall mean the Ministry of
Foreign Trade and Economic Cooperation or its local delegate.
1.07 "Joint Venture Law" shall mean the Law of the People's Republic of
China on Joint Ventures Using Chinese and Foreign Investment.
1.08 "Joint Venture Regulations" shall mean the Regulations for the
Implementation of the Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment.
<PAGE>
1.9 "Management Personnel" shall mean the Company's General Manager,
Deputy General Manager and other management personnel as decided by the
Board.
1.10 "Renminbi" or "RMB" shall mean the lawful currency of China.
1.11 "SAIC" shall mean the State Administration for Industry and Commerce
of China or a branch thereof.
1.12 "Technology License Contract" shall mean the technology license
contract to be entered into between Party A and Party B on behalf of the
Company and Party C in the form of Appendix A.
1.13 "United States Dollars" or "US$" shall mean the lawful currency of the
United States of America.
1.14 "Working Personnel" shall mean the employees of the Company, other
than the Management Personnel.
ARTICLE 2 - PARTIES TO THE CONTRACT
-----------------------------------
2.01 The Parties
-----------
The Parties to this Contract are:
(a) Party A, Wuhan Electric Power Instrument Factory, a Chinese state-
owned enterprise registered in Wuhan, People's Republic of China,
with its legal address at 2 Qiujiawan, Guangbutun, Wuhan, 430072,
People's Republic of China.
Legal Representative of Party A:
Name: Yuan Jiaqing
Position: Director - Senior Engineer
Nationality: Chinese
(b) Party B, Beijing Huadian Electric Power Automation Corporation, a
Chinese state-owned enterprise registered in Beijing, People's
Republic of China, with its legal address at Jia 17, Xi San Huan
Nan Lu, Beijing, 100073, People's Republic of China.
Legal Representative of Party B:
Name: Xu Quankun
Position: General Manager
Nationality: Chinese
-2-
<PAGE>
(c) Party C, Hathaway Corporation, a corporation registered in the
State of Colorado, U.S.A. with its legal address at 8228 Park
Meadows Drive, Littleton, Colorado, 80124, U.S.A.
Legal Representative of Party C:
Name: Eugene Prince
Position: President and Chief Executive Officer
Nationality: American
2.02 Authority and Representations
-----------------------------
Each of the Parties represents that it possesses full power and authority
to enter into this Contract and to perform its obligations hereunder and
that the signatory of each of the Parties is fully authorized to sign
this Contract. If an individual other than a Party's legal
representative shall sign this Contract, he shall do so only pursuant to
a valid power of attorney, a copy of which shall be provided to the other
Party. At the time of the execution of this Contract, Party A and Party
B shall provide Party C with a copy of their business licenses, and Party
C shall provide Party A and Party B with certified copies of its Articles
of Incorporation.
2.03 Change of Legal Representative
------------------------------
Each Party shall have the right to change its legal representative and
shall promptly notify the other Party of such change and the name,
position and nationality of its new legal representative.
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY
------------------------------------------------------
3.01 Establishment of the Company
----------------------------
The Parties hereby agree to establish the Company promptly after the
Effective Date in accordance with the Joint Venture Law, the Joint
Venture Regulations and the provisions of this Contract.
3.02 Name and Address of the Company
-------------------------------
(a) The name of the Company shall be " " in
Chinese, and "Hathaway Power Monitoring Systems Company, Ltd."
in English.
(b) The legal address of the Company shall be 2 Qiujiawan, Guangbutun,
Wuhan, 430072, People's Republic of China.
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<PAGE>
3.03 Laws and Decrees
----------------
The Company shall be a legal person under the laws of China. The
activities of the Company shall be governed and protected by the laws,
decrees and relevant rules and regulations of China.
3.04 Limited Liability Company
-------------------------
The form of organization of the Company shall be a limited liability
company. Subject to the following, the profits, risks and losses of the
Company shall be shared by the Parties in proportion to their respective
contributions to the Company's registered capital. Except as otherwise
provided herein, once a Party has paid in full its contribution to the
registered capital of the Company, it shall not be required to provide
any further funds to or on behalf of the Company by way of capital
contribution, loan, advance, guarantee or otherwise. Creditors of the
Company shall have recourse only to the assets of the Company and shall
not seek repayment from any of the Parties. The Company shall indemnify
the Parties against all losses, damages, liability suffered by the
Parties in respect of any third party claims arising out of the operation
of the Company.
3.05 Branch To Be Established in Beijing
-----------------------------------
The Parties agree that after the establishment of the Company and
pursuant to a unanimous board resolution, the Company will establish a
branch in Beijing in accordance with relevant local laws and regulations.
ARTICLE 4 - THE PURPOSE AND SCOPE OF
------------------------------------
BUSINESS OF THE COMPANY
-----------------------
4.01 Purpose of the Company
----------------------
The purpose of the Company is to manufacture and sell fault recorders and
automation instrumentation products, use the designs of Party C to
improve fault recording technology, set up an international standard
manufacturing, research and development facility in China and market the
Company's products in China and overseas, subject to Article 7.01. The
Joint Venture Products will be sold to, among other purchasers, Chinese-
owned contractors for installation into power generation, transmission
and distribution facilities under construction by such contractors
outside of China.
4.02 Scope of Business of the Company
--------------------------------
Business scope of the Company is to design, manufacture and sell digital
fault recorders and automation instrumentation products for use by
electric power
-4-
<PAGE>
companies for substations in power transmissions and distribution systems
(the "Joint Venture Products"). The scale of production is estimated to
be two hundred (200) units per year.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND
------------------------------------------
REGISTERED CAPITAL
------------------
5.01 Total Investment
----------------
The Company's total amount of investment shall be Five Hundred Thousand
United States Dollars (US$500,000).
5.02 Registered Capital
------------------
The Company's registered capital shall be Three Hundred Fifty Thousand
United States Dollars (US$350,000). If the Company requires additional
cash to operate the business of the Company as determined by the Board of
Directors, the Parties agree to contribute additional capital of One
Hundred Fifty Thousand United States Dollars (US$150,000) with Party A
contributing forty percent (40%) of such additional registered capital,
Party B contributing twenty percent (20%) of such additional registered
capital and Party C contributing forty percent (40%) of such additional
registered capital. Any further increases will be handled pursuant to
Article 5.07 of this Contract.
5.03 Contribution to Capital
-----------------------
(a) Party A's contribution to the registered capital of the Company
shall be the Renminbi equivalent of One Hundred Forty Thousand
United States Dollars (US$140,000), representing a forty percent
(40%) share of the registered capital of the Company.
(b) Party B's contribution to the registered capital of the Company
shall be Seventy Thousand United States Dollars (US$70,000),
representing a twenty percent (20%) share of the registered
capital of the Company.
(c) Party C's contribution to the registered capital of the Company
shall be One Hundred Forty Thousand United States Dollars
(US$140,000), representing a forty percent (40%) share of the
registered capital of the Company. Of Party C's total
contribution to the registered capital of the Company, Seventy
Thousand United States Dollars (US$70,000) will be paid in cash
and, as indicated in 5.04(a), Seventy Thousand United States
-5-
<PAGE>
Dollars (US$70,000) or 20% of the total amount of registered capital
of the Company will be in the form of the technology licensed to the
Company from Party C pursuant to the Technology License Contract.
5.04 Payment of Registered Capital and Conditions Precedent Thereto
--------------------------------------------------------------
(a) Subject to Article 5.04(c) below, each Party shall pay into the
Company via electronic or bank transfer its registered capital
contribution within ten (10) days of the fulfilment of all of the
conditions precedent set forth in Article 5.04(c).
Party C will pay its contribution to the registered capital of the
Company, as specified in Article 5.03(c), less the initial license
fee required to be paid by the Company to Party C pursuant to
Article 4.01 of the Technology License Contract.
(b) In the event that a Party fails to pay in the respective share of
registered capital to be subscribed by it in whole or in part as
described above, such Party shall be liable to pay simple interest
to the Company on the deficit from the time due until the time paid
at two (2) percentage points above the six-months London Interbank
Offered Rate (LIBOR) for United States Dollars.
(c) The Parties' obligations to complete their respective contribution
to the Company's registered capital shall not arise until each of
the following conditions has been fulfilled:
(i) approval of the Contract and Articles of Association without
varying the terms hereof or thereof;
(ii) approval of the Technology License Contract without varying
the terms thereof; and
(iii) issuance of the business license of the Company by the SAIC
without varying the terms of this Contract or the Articles of
Association.
Each of the above documents shall be satisfactory in form and
substance to the Parties. If any of the above conditions precedent
are not fulfilled within sixty (60) days after the date of execution
of this Contract, and the Parties do not agree in writing to waive
such conditions precedent or to extend the time for their
fulfilment, any Party shall have the right to terminate this
Contract, in which case no Party shall have any right whatsoever to
require the other Parties to make any contribution to the registered
capital or to claim any damages from the other Parties.
-6-
<PAGE>
5.05 Investment Certificate
----------------------
After each Party makes a contribution to the registered capital, a
Chinese registered accountant shall verify the contribution and issue a
contribution verification report. Once each Party's registered capital
contribution has been paid in full, the Company shall issue an investment
certificate to each Party signed by the Chairman and the Vice Chairman of
the Board.
5.06 Assignment of Registered Capital
--------------------------------
(a) Each Party to this Contract may assign all or part of its amount of
capital contribution (the "Disposing Party") to a third party
provided the Disposing Party obtains the written consent of all the
other Parties and the approval of the Examination and Approval
Authority.
(b) When a Party is to assign all or part of its amount of capital
contribution pursuant to (a) above, each of the remaining Parties
has a pre-emptive right of purchase at a price equal to that offered
by the third party. The Disposing Parties shall notify the remaining
Parties in writing of the terms and conditions of the assignment,
and such remaining Parties shall have the right to exercise their
pre-emptive right of purchase within thirty (30) days after receipt
of the notice. If all of the remaining Parties exercise their pre-
emptive right of purchase, the Disposing Party shall assign its
amount of capital contribution to such Parties in the proportion of
their respective capital contributions. If only one of the remaining
Parties exercises its pre-emptive rights of purchase, the Disposing
Party shall assign the full amount of its capital contribution to
such Party. If all remaining Parties fail to exercise their pre-
emptive rights of purchase, the Disposing Party may assign its
amount of capital contribution only upon the consent of all such
Parties. In the event that all such Parties consent to the sale of
the capital contribution of the Disposing Party, the assignee shall
execute a document by which it becomes a party to this Contract.
(c) Any sale or assignment pursuant to the above shall be unanimously
agreed to at a meeting of the Board and must be submitted to the
Examination and Approval Authority for examination and approval.
Upon receipt of the approval of the Examination and Approval
Authority the Company shall register the change in ownership with
the appropriate office for the SAIC.
-7-
<PAGE>
5.07 Increase of Registered Capital
------------------------------
(a) Any increase in the registered capital of the Company which is
deemed necessary by the management of the Company must be approved
by a unanimous vote of the Board present in person or by proxy at a
duly constituted meeting thereof and submitted to the Examination
and Approval Authority for examination and approval. Upon receipt of
the approval of the Examination and Approval Authority, the Company
shall register the increase in registered capital with the
appropriate office for the administration of industry and commerce.
(b) Any increase in the registered capital of the Company shall be
contributed by the Parties in the same manner and in accordance with
the ratio of each Party's share of the registered capital at the
time of such increase, and within the time limit specified by the
Board for such increase.
(c) In the event any Party fails to pay in registered capital as
provided in Article 5.04 or fails to provide its portion of any
increase in its registered capital as described in (b) above then in
addition to any other rights it may have against the defaulting
Party, the Company will offer such portion to the non-defaulting
Parties on a pro-rata basis. Such offer to provide a portion of any
increase in the registered capital as described in this paragraph
shall be approved by the Examination and Approval Authority.
5.08 Additional Financing
--------------------
Besides the registered capital, the Company's future additional financing
will be obtained through loans from sources in China or outside China.
If the Company needs the assistance of the Parties when arranging for
loans, the Parties, subject to their mutual approval, shall provide
guarantees in proportion to the ratio of their respective contributions
to the Company's registered capital.
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES
-------------------------------------------
6.01 Responsibilities of Party A and Party B
---------------------------------------
In additional to their obligations under this Contract Party A and Party
B shall have the following responsibilities which shall be provided at
their own expense:
(a) assist the Company in obtaining necessary approvals, permits and
licenses for the establishment and operation of the Company;
(b) provide their contributions to the registered capital of the Company
as provided in Article 5.04;
-8-
<PAGE>
(c) assist the Company in applying for and obtaining the most
preferential tax reductions and exemptions and other investment
incentives available under the laws and regulations of Wuhan
Municipality;
(d) assist the Company in liaising with and making business arrangements
for operations pursuant to its authorized scope of business;
(e) assist the Company in liaising with the relevant authorities to
effectively procure the external water supply, fuel supply, power
supply, transportation, communications and other services required
for the Company's operations;
(f) assist the Company in obtaining from local banks necessary working
capital Renminbi loans;
(g) assist the Company in arranging for the transportation of equipment,
materials and products within China and for the purchase or lease of
equipment, materials, raw materials, office equipment, means of
transportation and communication equipment;
(h) assist the Company in carrying out required import and export
customs declaration formalities with respect to goods imported and
exported by the Company;
(i) assist the Company in developing sales channels for the Joint
Venture Products;
(j) assist the Company in opening Renminbi and foreign currency bank
accounts;
(k) assist the expatriate employees of the Company to obtain necessary
entry visas and work permits;
(l) assist the Company in recruiting various types of qualified Chinese
personnel;
(m) assist the Company in handling the necessary approvals to enable the
Company to utilize the various methods permitted under Chinese law
to balance its foreign exchange;
(n) assist the Company in arranging for the design and construction of
the premises and engineering facilities; and
(o) handle other matters entrusted by the Board from time to time.
6.02 Responsibilities of Party A
---- ---------------------------
-9-
<PAGE>
In addition to its obligations under this Contract, Party A shall have
the following obligations:
(a) build mechanical parts, including the cabinets for the Company at a
price to be unanimously agreed upon by the Board of Directors, which
price shall not be greater than the market price charged by a third
party supplier in Wuhan municipality;
(b) lease space to the Company consisting of fifty (50) square meters at
its factory in Wuhan at a monthly rental rate of twenty Renminbi
(RMB(Yen)20) per square meter and upon terms to be unanimously
agreed upon by the Board of Directors, which terms shall be
comparable to the prevailing market practices in Wuhan; and
(c) commencing from December 1996, lease additional space to the Company
which is required to carry on its business and which is initially
estimated to consist of five hundred (500) square meters at its
factory in Wuhan at a monthly rental rate of twenty Renminbi
(RMB(Yen)20) per square meter and upon terms to be unanimously
agreed upon by the Board of Directors. The terms shall be comparable
to the prevailing market practices in Wuhan. The rental rate shall
stay fixed for five (5) years after which it will be adjusted to the
then prevailing market rate for the area.
(d) The monthly rental fee described in subclauses (b) and (c) shall be
inclusive of all services and utilities, except for electricity
fees.
6.03 Responsibilities of Party B
---- ---------------------------
In addition to its obligations under this Contract, Party B shall be
obliged to lease space to the Beijing branch of the Company after its
establishment, which such space is required to carry on its business.
The space is initially estimated to consist of twenty (20) square meters
at its factory in Beijing at a monthly rental rate of twenty Renminbi
(RMB(Yen)20) per square meter and upon terms to be unanimously agreed
upon by the Board of Directors. The terms shall be comparable to the
prevailing market practices in Beijing. The monthly rental fee shall be
inclusive of all services and utilities, except for electricity fees.
6.04 Responsibilities of Party C
---- ---------------------------
In additional to its obligations under this Contract, Party C shall have
the following responsibilities:
(a) provide its contribution to the registered capital of the Company
pursuant to Article 5.04;
-10-
<PAGE>
(b) assist the Company in the purchase outside China of equipment,
materials and other goods necessary for the operation of the
Company;
(c) assist the Company to recruit personnel in charge of management,
sales and operations;
(d) provide advice and assistance to the Company in the implementation
of advanced management, accounting and risk management systems;
(e) provide fifty (50) days of free training and assistance to the
Company for its personnel to be properly trained and qualified to
manufacture, sell, support and service the Joint Venture Products,
(any training and assistance in excess of fifty (50) days shall be
provided at a rate equal to sixty percent (60%) of Party C's
standard daily charges plus travel and living costs); the Company
shall pay all travel and living costs of its employees for training
provided at Party C's facility;
(f) assist the Company to obtain necessary working capital financing
from domestic and foreign sources;
(g) handle other matters entrusted by the Board from time to time;
(h) pursuant to the Technology License Contract, license the Know-how to
the Company for the manufacture of the Joint Venture Products, as
those terms are defined in the Technology License Contract.
ARTICLE 7 - SALES OF JOINT VENTURE PRODUCTS AND TECHNOLOGY
----------------------------------------------------------
7.01 Sale of Joint Venture Products
------------------------------
The Company will directly sell the Joint Venture Products in the Chinese
market. The Joint Venture Products will be sold to overseas markets once
Party C has determined that the Joint Venture Products meet international
quality and price standards, and upon making such determination, Party C
will be the exclusive overseas sales agent for all of the Joint Venture
Products. Notwithstanding the foregoing, Party C retains the right to
sell its own products in the Chinese market.
7.02 Sales Networks
--------------
The Joint Venture Products sold in the domestic market may be sold either
by the Company directly or through other relevant Chinese sales
organizations pursuant to agency or distribution contracts entered into
between the Company and such organizations.
7.03 Technology
----------
-11-
<PAGE>
Simultaneously, with the execution of this Contract, Party A and Party B
on behalf of the Company and Party C shall execute the Technology License
Contract.
ARTICLE 8 - BOARD OF DIRECTORS
------------------------------
8.01 The Formation of the Board
--------------------------
(a) The date on which the Company obtains its business license shall
be considered the date of establishment of the Board of Directors.
(b) The Board shall consist of five (5) directors. Party A shall
appoint two (2) directors, Party B shall appoint two (2) directors
and Party C shall appoint one (1) director. At the time this
Contract is executed and each time a director is appointed or
removed, each Party shall notify in writing the others of the
names of its appointees.
(c) Each director shall be appointed for a term of three (3) years and
may serve consecutive terms if reappointed by the Party originally
appointing him. If a seat on the Board is vacated by the
retirement, resignation, illness, disability or death of a director
or by the removal of such director by the Party which originally
appointed him, the Party which originally appointed such director
shall appoint a successor to serve out such director's term.
(d) A director selected by Party C shall serve as the Chairman of the
Board and a director selected by Party A shall serve as Vice
Chairman of the Board. The Chairman of the Board shall be the
legal representative of the Company. Whenever the Chairman of the
Board is unable to perform his responsibilities for any reason,
the Vice Chairman or, if the Vice Chairman is not available,
another director may be authorized by the Chairman temporarily to
represent him. The Chairman of the Board shall exercise his
authority within the limits prescribed by the Board and may not
under any circumstances contractually bind the Company or
otherwise take any action on behalf of the Company without prior
approval of the Board.
(e) No director shall have any liability for any acts performed within
the scope of his duties stipulated by the Board except for such acts
in violation of criminal laws. The Company shall indemnify each
director against any such claims which may be brought against such
director.
8.02 Powers of the Board
-------------------
(a) The Board shall be the highest authority of the Company.
-12-
<PAGE>
(b) Resolutions involving the following matters may only be adopted at a
duly constituted and convened meeting of the Board upon the
unanimous affirmative vote of each and every director of the Board
voting in person or by proxy at such meeting:
(i) the amendment of this Contract, the Articles of Association
and the Technology License Contract;
(ii) the merger of the Company with another organization;
(iii) dissolution of the Company;
(iv) the increase of the registered capital or assignment of
equity share and the conditions thereof;
(v) borrowing of funds;
(vi) hiring or termination of the general manager or the
deputy general managers;
(vii) the modification and implementation of the distribution
of profits policy of the Company;
(viii) purchase or lease of any factory or major property or
equipment;
(ix) hiring of independent auditing firm;
(x) approval of the budget and financial forecast for each
year;
(xi) adoption of major rules and regulations of the Company;
(xii) approval of any transaction that commits the Company to
a liability that exceeds one year in duration;
(xiii) approval of any fees to be paid to the directors for
services provided to the Company;
(xiv) approval of the annual business and financial reports;
(xv) approval of the salaries of the general manager and
deputy general managers;
(xvi) approval of all bonus plans and bonuses paid to the
general manager and deputy general manager; and
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<PAGE>
(xvii) any transaction between the Company and one or more of the
Parties.
(c) Other issues that require resolutions by the Board may be raised
at a duly convened meeting of the Board and must be adopted by the
affirmative vote of three (3) directors present at such meeting in
person or by proxy.
8.03 Meetings
--------
(a) The first Board meeting shall be held within one (1) month from
the date of issuance of the Company's business license.
(b) Board meetings shall be held at least once each year. In principle,
one meeting shall be held annually within one month of the issuance
of the audited financial statements of the Company but in any event
no later than April 15 of each year. Meetings shall be held at the
registered address of the Company or such other address in China or
abroad as is designated by the Board. Meetings may be attended by
directors in person or by proxy.
(c) The Chairman of the Board shall set the agenda after consultation
with the Vice Chairman of the Board and be responsible for convening
and presiding over such meetings.
(d) Upon the written request of two (2) or more of the directors of the
Company specifying the matters to be discussed, the Chairman of the
Board shall within thirty (30) days convene an interim meeting of
the Board. The Chairman and in his absence the Vice Chairman shall
decide on the timing and location of such interim meetings. Four (4)
directors present in person or by proxy shall constitute a quorum
which shall be necessary for the conduct of business at any meeting
of the Board; provided, however, that one of the directors is a
director appointed by Party C. If at any properly convened meeting,
no quorum is constituted because less than four (4) directors are
present in person or by proxy, then the Chairman may call another
meeting with twenty-one (21) days notice to each director. Any
director absent from a meeting without giving reason shall be
considered abstaining from voting.
(e) In case a Board member is unable to participate in the Board
meeting, he shall issue a proxy and entrust a representative to
participate in the meeting on his behalf. The representative so
entrusted shall have the same rights and powers as the Board member.
(f) All Board meetings shall be conducted in English. The Board will
cause complete and accurate minutes (in both English and Chinese) to
be kept of all meetings (including a copy of the notice of the
meeting) and of
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<PAGE>
business transacted at such meetings. Minutes of all meetings of the
Board shall be distributed to all the directors as soon as
practicable after each meeting but not later than thirty (30) days
from the date of such meeting. Any director who wishes to propose
any amendment or addition thereto shall submit the same in writing
to the Chairman and the Vice-Chairman within two (2) weeks after
receipt of the proposed minutes. The minutes shall be finalized by
the Chairman and Vice-Chairman not later than sixty (60) days after
the relevant meeting and signed by all the directors within two (2)
weeks after receipt of the final minutes.
(g) Any action to be taken by the Board may be taken without a meeting
if all members of the Board consent in writing to such action. Such
written consent shall be filed with the minutes of the Board
proceedings and shall have the same force and effect as a unanimous
vote taken by members physically present.
(h) Members of the Board shall serve without any remuneration unless the
Board decides otherwise, but all reasonable costs, including but not
limited to transportation costs for Board meeting attendance,
incurred by the directors in the performance of their duties as
members of the Board shall be borne by the Company.
ARTICLE 9 - OPERATION AND MANAGEMENT
------------------------------------
9.01 Management Organization
-----------------------
The Company shall adopt a management system under which the management
organization shall be responsible to and under the leadership of the
Board. The Company shall have a General Manager and two Deputy General
Managers. The General Manager shall be an individual of high professional
qualifications and experience. The General Manager shall be nominated by
the Board of Directors and each of Party A and Party B shall nominate a
Deputy General Manager. Each of the General Manager and the Deputy
General Managers shall be appointed by the Board. If the General Manager
or a Deputy General Manager are removed, a successor shall be nominated
and appointed in the same manner as the original appointment. The term of
employment for the General Manager and the Deputy Managers is two (2)
years. Members of the Board may serve as management personnel.
9.02 Responsibilities and Powers of the General Manager and the Deputy
-----------------------------------------------------------------
General Manager
---------------
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<PAGE>
The General Manager shall be in charge of the day-to-day operation and
management of the Company, shall be responsible to the Board and shall
carry out all matters entrusted by the Board. The Deputy General Managers
shall assist the General Manager in his work. The General Manager and the
Deputy General Managers shall perform their duties on a full time basis
and shall perform all other obligations as described in the Articles of
Association of the Company. The General Manager and the Deputy General
Managers shall not hold posts concurrently with other enterprises. The
Board will identify major issues with respect to the day-to-day operation
of the Company. The General Manager and the Deputy General Managers will
handle such major issues pursuant to their mutual agreement. When the
General Manager is absent, a Deputy General Manager may represent him
within the scope of authority specified by the General Manager. The
General Manager and the Deputy General Managers shall have no liability
for any acts performed in their official capacity except for such acts in
violation of criminal laws. Upon reasonable notice, the General Manager,
the Deputy General Managers and other management personnel shall meet
with representatives from Party C and report on the operations of the
Company. The Management Personnel shall consider any recommendations from
Party C's representative
9.03 Dismissal of Management Personnel
---------------------------------
Without limiting the authority of the Board to remove the Management
Personnel, the Board shall have the authority to dismiss at any time any
Management Personnel in the event that the Board determines that such
Management Personnel has engaged in any fraudulent acts or have grossly
neglected his duties. In such event, the Management Personnel shall be
personally liable for any financial losses incurred by their fraudulent
act or gross neglect of duties.
9.04 Resignation of Management Personnel
-----------------------------------
Management Personnel shall provide the Company with no less than sixty
(60) days prior written notice for resignation from his duties.
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ARTICLE 10 - SUPPLY AND PURCHASE OF MATERIALS,
----------------------------------------------
EQUIPMENT AND SERVICES
----------------------
10.01 Imported Raw Materials, Equipment and Services
----------------------------------------------
The Company shall have the right to import materials, equipment and goods
necessary for its operations in the required qualities and quantities and
at competitive prices, except that materials, equipments and products
involving import licenses shall be handled in accordance with the
relevant import licensing regulations in China. The Company shall have
the right to appoint foreign architects, consultants, engineers and
contractors to undertake certain work required by the Company if it
chooses such service providers through a competitive selection process.
The Company shall also have the right to reimburse the Parties' expenses
for services provided on behalf of the Company.
10.02 Domestic Purchases for Renminbi
-------------------------------
Except as otherwise required by law, equipment and services purchased by
the Company within China shall be paid in Renminbi.
ARTICLE 11 - LABOR MANAGEMENT
-----------------------------
11.01 Governing Principle
-------------------
Matters relating to the recruitment, employment, dismissal, resignation,
wages, welfare and other matters concerning the staff and workers of the
Company shall be handled in accordance with the Labor Law of the People's
Republic of China and the Regulations of the People's Republic of China
on Labor Management in Joint Ventures Using Chinese and Foreign
Investment (the "Labor Regulations").
11.02 Working Personnel
-----------------
Working Personnel shall have the right to establish a labor union in
accordance with Chapter 12 of the Joint Venture Regulations. Working
Personnel shall be employed by the Company in accordance with the terms
of a labor contract entered into between the Company and the Working
Personnel, which shall be filed with the local labor authorities for the
record.
11.03 Management Personnel
--------------------
The General Manager and other Management Personnel shall be employed by
the Company in accordance with the terms of individually executed
employment
-17-
<PAGE>
contracts. The salary, benefits, bonuses, etc. of each Management
Personnel shall be recommended by the General Manager and approved by the
Board. The selection and specific terms of employment of temporary
expatriate employees or consultants, if any, shall be made and decided by
the General Manager and Deputy General Manager. The salaries, rewards and
other compensation paid to foreign personnel will be paid in foreign
exchange, unless otherwise agreed with such personnel.
11.04 Conformity with Labor Protection
--------------------------------
The Company shall conform to rules and regulations of the Chinese
government concerning labor protection and ensure safe and civilized
production. Labor insurance for the working personnel of the Company
shall be handled in accordance with the relevant regulations of the
Chinese government.
11.05 Labor Union Funds
-----------------
In accordance with Article 99 of the Joint Venture Regulations, the
Company shall allot each month two percent (2%) of the total amount of
the real wages received by the Company staff and workers for payment into
a labor union fund, such payment to be an expense of the Company. The
labor union may use these funds in accordance with the relevant control
measures for labor union funds formulated by the All China Federation of
Labor Unions.
11.06 Number of Employees
-------------------
The qualification and the number of employees shall be determined
autonomously in accordance with the operating needs of the Company.
11.07 Employee Examination and Recruitment
------------------------------------
(a) The Company shall observe the Labor Regulations and other relevant
regulations of the Wuhan Municipality and the Company shall have
autonomy in determining its employment policies and relevant
matters.
(b) Employees will be selected according to their professional
qualifications and working experiences. All employees hired by the
Company must complete satisfactorily a six-month probationary period
of employment before they will be officially considered employees of
the Company.
ARTICLE 12 - FINANCIAL AFFAIRS AND ACCOUNTING
---------------------------------------------
12.01 Accounting System
-----------------
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<PAGE>
(a) The financial controller shall be responsible for the financial
management of the Company under the leadership of the General
Manager.
(b) The General Manager and the financial controller shall prepare the
accounting system and procedures in accordance with the Accounting
Regulations of the People's Republic of China for Foreign Investment
Enterprises promulgated by the Ministry of Finance. The accounting
system and procedures to be adopted by the Company shall be
submitted to the Board for approval. Once approved by the Board, the
accounting system and procedures shall be filed with the department
in charge of the Company and with the relevant local department of
finance and the tax authorities for the record. The debit and credit
method, as well as the accrual basis of accounting, shall be adopted
as the methods and principles for keeping accounts.
(c) The Company shall adopt Renminbi as its bookkeeping base currency,
but shall also adopt the United States Dollar as a supplementary
bookkeeping currency.
(d) All accounting records, vouchers, books and statements of the
Company shall be made and kept in Chinese. All monthly and annual
accounting statements and forecasts of the Company shall also be
made and kept in both Chinese and English.
(e) When preparing the Company's accounts and statements, calculating
dividends to be distributed to the Parties, and for any other
currency conversions, except as otherwise permitted under applicable
regulations, such conversion shall be in accordance with the median
of the official rate for buying and selling announced by the Bank of
China on the date of actual receipt or payment. Actual gains or
losses will be booked as gains or losses.
12.02 Auditing
--------
(a) An independent accountant registered in China shall be engaged by
the Company as its auditor to examine and verify the annual
financial report. The Parties agree that such accountant shall be of
international standard and shall be nominated by Party C and
appointed by the Board. The Company shall submit to the Parties an
annual statement of final accounts (including the audited profit and
loss statement and the balance sheet for the fiscal year) within
three (3) months after the end of the fiscal year, together with the
audit report of the Chinese registered accountant. The Company shall
also prepare such accounting statements as requested by Party C to
meet its internal requirements in accordance with international
accounting principles as instructed by Party C.
-19-
<PAGE>
(b) Each Party may, at its own expense, appoint an accountant (which
may be either an accountant registered abroad or registered in
China), on behalf of such Party, to audit the accounts of the
Company. Reasonable access to the Company's financial records
shall be given to such auditor and such auditor shall keep
confidential all documents under his auditing.
12.03 Bank Accounts and Foreign Exchange Control
------------------------------------------
The Company shall separately open a foreign exchange account and a
Renminbi account at an authorized bank within or outside China approved
by the State Administration for Exchange Control. Funds in both accounts
shall be removed and transferred only upon instructions signed by the
[General Manager, Deputy General Manager and Financial Controller.] The
Company's foreign exchange transactions shall be handled in accordance
with the regulations of China relating to foreign exchange control,
including use of Foreign Exchange Adjustment Centers.
12.04 Foreign Exchange Balance
------------------------
(a) The Company shall be responsible to maintain a balance in its
foreign exchange receipts and expenditures through the sale of its
products and through other methods permitted under the laws of
China.
(b) Liquid funds in the Company's foreign exchange account shall be used
in the following order of priority:
(i) payment for royalties under the Technology License Contract;
(ii) payment for imported raw materials and equipment;
(iii) payment for imported services; and
(iv) remittance of profits to Party C.
(c) All remittances of profits and other remittances to Party C out of
China will be made to a designated foreign bank account in United
States Dollars or other freely convertible foreign currencies in
accordance with the foreign exchange regulations of China.
(d) If the profit distributed to Party C in any year is in Renminbi
because of insufficient foreign exchange reserves, then Party C can
require the Company to open a separate Renminbi bank account for
such Renminbi profits and hold the same together with interest
accrued until such time as the Company shall have sufficient foreign
exchange to convert the Renminbi into foreign exchange and remit the
profit together with any interest accrued to Party C pursuant to
Article 12.04(c) above. The
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<PAGE>
Company shall effect all conversions of Party C's Renminbi profits
into foreign exchange as expeditiously as possible.
12.05 Fiscal Year
-----------
The Company shall adopt the calendar year as its fiscal year, which shall
begin on January 1 and end on December 31 of the same year except that
the first fiscal year of the Company shall commence on the date that the
Company is established and granted a business license, and shall end on
the immediately succeeding December 31.
12.06 Profits Distribution
--------------------
(a) After the payment of income tax by the Company, the Board will
determine the annual allocation to the reserve fund and expansion
fund of the Company, and the bonus and welfare fund for the workers
and staff members from the after-tax net profits. The sum of the
annual allocations to the three funds shall be decided by the Board.
(b) The Board shall once every year by a formally adopted resolution
decide the amount of after-tax net profit of the Company (after the
deduction of the allocations to the three funds mentioned in
paragraph (a) above) to be retained in the Company for expanding the
production and operation of the Company and the amount to be
distributed among the Parties in proportion to their respective
shares in the registered capital. The profits of Party A and Party B
shall be distributed exclusively in Renminbi while Party C's profits
shall be distributed in foreign exchange to the extent of the
Company's available foreign exchange funds. Unless the Board
unanimously decides otherwise, all distributable profit shall be
distributed to the Parties as provided in subclause (c) hereof.
(c) If the Company carries losses from the previous years, the profit of
the current year shall first be used to cover the losses. No profit
shall be distributed unless the cumulative deficit from the previous
years is made up. After the end of each year, the Company shall
distribute fifty percent (50%) of the cumulative net profits of the
Company minus all profit distributions previously made. After the
end of each year and subject to unanimous decision by the Board, an
additional profit distribution (in addition to the fifty percent
that is required to be paid under this subclause) will be paid in an
amount equal to the cumulative net profits of the Company minus all
profit distributions previously made.
-21-
<PAGE>
ARTICLE 13 - TAXATION AND INSURANCE
-----------------------------------
13.01 Income Tax, Customs Duties and Other Taxes
------------------------------------------
(a) The Company shall pay tax under the relevant laws of China and the
special tax regulations applicable to the Wuhan Municipality.
Chinese and foreign management and working personnel shall pay their
individual income tax in accordance with the Individual Income Tax
Law of China.
(b) The tax liability of the Company and its employees shall be handled
in accordance with the provisions of the promulgated tax laws and
regulations of China.
13.02 Insurance
---------
(a) The Company shall, at its own cost and expense, at all times take
out and maintain full and adequate insurance for the Company against
loss or damage by fire and such other risks as are customarily
insured against.
(b) The property, transportation and other items of insurance of the
Company will be denominated in Chinese and foreign currencies, as
appropriate. The types and amounts of insurance coverage shall be
determined by the Board.
(c) The Company shall take out the required insurance from the People's
Insurance Company of China or any other insurance company authorized
by the relevant Chinese authorities. If the Company is unable to
fulfil its insurance requirements within China, it may procure such
policies outside China.
ARTICLE 14 - CONFIDENTIALITY
----------------------------
14.01 Confidentiality
---------------
(a) Each Party may, from time to time prior to and during the term of
this Contract, disclose confidential and proprietary information to
the other Parties. In addition, the Parties may, from time to time
during the term of this Contract, obtain confidential and
proprietary information of the Company in connection with the
operation of the Company. Alternatively, the Company may, from time
to time during the term of this Contract, obtain confidential and
proprietary information of the Parties. Each of the Parties and the
Company receiving such information shall, during the term of this
Contract and for ten (10) years thereafter:
(i) maintain the confidentiality of such information; and
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<PAGE>
(ii) not disclose it to any person or entity, except to their
employees who need to know such information to perform their
responsibilities.
(b) Each Party shall advise its directors, senior staff, and other
employees receiving such information of the existence of and the
importance of complying with the obligations set forth in paragraph
(a) above.
(c) If required by any Party, the Company shall execute a separate
secrecy agreement with provisions similar to those in paragraphs (a)
to (b) above with respect to confidential and proprietary
information obtained by the Company from Party A and its Affiliates,
Party B and its Affiliates, or Party C and its Affiliates.
(d) Each Party and the Company shall formulate rules and regulations to
cause its directors, senior staff, and other employees, and those of
their Affiliates also to comply with the confidentiality obligation
set forth in this Article 14.
(e) The know-how and any other technical information provided in any way
by any Party or its Affiliates to the Company or otherwise acquired
in any way or developed by the Company shall be used only for the
purposes of the Company.
(f) This Article 14 and the obligations and benefits hereunder shall
survive for ten (10) years after the expiration or termination of
this Contract, notwithstanding the termination, dissolution or
liquidation of the Company.
ARTICLE 15 - THE JOINT VENTURE TERM
-----------------------------------
15.01 Joint Venture Term
------------------
The joint venture term of the Company shall commence on the date of the
issuance of the business license and shall expire on the date thirty (30)
years after the issuance of the business license unless extended pursuant
to the provisions of Article 15.02.
15.02 Extension of Joint Venture Term
-------------------------------
If the Board unanimously approves the extension of the joint venture
term, the Company shall apply to the Examination and Approval Authority
no less than six (6) months prior to the expiration of the Joint Venture
Term. The joint venture term may be extended only upon approval of the
Examination and Approval Authority.
- 23 -
<PAGE>
ARTICLE 16 - TERMINATION, BUYOUT AND LIQUIDATION
------------------------------------------------
16.01 Termination
-----------
This Contract shall terminate upon the expiration of the Joint Venture
Term unless extended pursuant to Article 15.02. Unless otherwise
specified, each Party shall also have the right to terminate this
Contract prior to the expiration of the Joint Venture Term by written
notice to the other Parties:
(a) if any other Party materially breaches this Contract or violates the
Articles of Association, and such breach or violation is not cured
within three (3) months of written notice to the breaching Party;
(b) if the Company or any other Party becomes bankrupt, or is the
subject of proceedings for liquidation or dissolution, or ceases to
carry on business or becomes unable to pay its debts as they come
due;
(c) if any other Party does not exercise its pre-emptive right under
Article 5.06(b) and refuses to consent to the transfer of registered
capital of the notifying Party;
(d) if any other Party transfers its share of the registered capital in
the Company in violation of the provisions of this Contract;
(e) if any government authority having authority over any of the Parties
requires any provision of this Contract to be revised in such a way
as to cause significant adverse consequences to the Company or any
of the Parties;
(f) if the conditions or consequences of Force Majeure (as hereinafter
defined) prevail with the result of a major impairment to the
functioning of the Company for a period in excess of six (6) months
and the Parties have been unable to find an equitable solution
pursuant to Article 18 hereof;
(g) if the Company cannot achieve its business purpose and there is no
future for further development;
(h) if the Parties cannot implement the economic adjustment set forth in
Article 20.02; or
(i) if the Parties agree to terminate this Contract.
16.02 Notification Procedure
----------------------
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<PAGE>
In the event that any of the Parties gives notice pursuant to Article
16.01 hereof of a desire to terminate this Contract, the Parties shall
within a two (2) month period after such notice is given to conduct
negotiations and endeavour to resolve
the reason for notification of termination. In the event matters are not
resolved to the satisfaction of the Parties within two (2) months of such
notice or any of the non-notifying Party definitely refuses to commence
negotiations within the period stated above, the notifying Party may
terminate this Contract with immediate effect, whereupon each Party shall
cause its appointed Directors to pass a resolution dissolving the
Company, which shall be submitted to the Examination and Approval
Authority for approval.
16.03 Buy-out
-------
Upon termination of this Contract, the Parties may agree that one or more
Parties (the "Purchasing Parties") shall purchase the other Party's or
Parties' (the "Disposing Parties") rights and interests in the Company.
In such case, the Parties shall commence negotiations on the purchase
price of the Disposing Parties' interest in the Company. If the Parties
cannot agree on the purchase price of the Disposing Parties' interest in
the Company within sixty (60) days of commencing negotiations thereon,
the Company shall be liquidated pursuant to Article 16.04 hereof.
16.04 Liquidation
-----------
(1) If this Contract has been terminated for any reason and the Parties
have not agreed on an acquisition of the Company as a going concern
by a Party or by a third party, then the physical assets of the
Company shall be valued by and liquidated under the direction of a
liquidation committee formed in accordance with relevant Chinese
law.
(2) In valuing and selling physical assets, the liquidation committee
shall use every effort to obtain the highest possible price for such
assets, including the retention of an independent third party expert
knowledgeable in assessing the value of the types of assets owned or
held by the Company to assist in such valuation. Sales of the
Company's assets shall be in United States Dollars to the fullest
extent possible.
(3) After liquidation and the settlement of all outstanding debts of the
Company and subject to the payment of any applicable taxes, the
proceeds shall be paid over to the Parties in the proportion to
their contributions to the registered capital of the Company. Any
and all amounts payable to Party C pursuant to this Article 16 shall
be paid promptly in United States Dollars and shall be remittable to
Party C out of China in accordance with relevant foreign exchange
regulations.
16.05 Survival
--------
- 25 -
<PAGE>
To the extent permitted by law, the provisions of this Article and the
obligations and benefits hereunder shall survive the termination of this
Contract and the termination, dissolution or liquidation of the Company.
ARTICLE 17 - BREACH OF CONTRACT
-------------------------------
17.01 Liability for Breach of Contract
--------------------------------
In the event that a breach of contract committed by any of the Parties to
this Contract results in the non-performance of or inability to fully
perform this Contract, the liabilities arising from the breach of
contract shall be borne by the Party in breach as provided in this
Contract. In the event that a breach of contract is committed by more
than one Party, each Party shall bear its individual share of the
liabilities arising from the breach of contract. Notwithstanding the
foregoing, the aggregate liability of each Party under this Article 17
shall not exceed such Party's investment in the registered capital of the
Company.
ARTICLE 18 - FORCE MAJEURE
--------------------------
18.01 Force Majeure
-------------
(a) "Force Majeure" shall mean all events which are beyond the control
of the Parties to this Contract, and which are unforeseen,
unavoidable or insurmountable, and which arise after the Effective
Date and which prevent total or partial performance by any of the
Parties. Such events shall include earthquakes, typhoons, flood,
fire, war, or any other events which cannot be foreseen, prevented
or controlled, including instances which are accepted as force
majeure in general international commercial practice.
(b) If an event of Force Majeure occurs, a Party's contractual
obligations affected by such an event under this Contract shall be
suspended during the period of delay caused by the Force Majeure and
shall be automatically extended, without penalty, for a period equal
to such suspension.
(c) The Party claiming Force Majeure shall promptly inform each of the
other Parties in writing and shall furnish within fifteen (15) days
thereafter sufficient proof of the occurrence and duration of such
Force Majeure. The Party claiming Force Majeure shall also use all
reasonable endeavours to terminate the Force Majeure.
(d) In the event of Force Majeure, the Parties shall immediately consult
among themselves in order to find an equitable solution and shall
use all
- 26 -
<PAGE>
reasonable endeavours to minimize the consequences of such Force
Majeure.
ARTICLE 19 - SETTLEMENT OF DISPUTES
-----------------------------------
19.01 Consultations
-------------
In the event a dispute arises in connection with the interpretation or
implementation of this Contract, the Parties shall attempt in the first
instance to resolve such dispute through friendly consultations. If the
dispute is not resolved in this manner within sixty (60) days after the
commencement of discussions, then any of the Parties may submit the
dispute for arbitration in Singapore for final decision pursuant to the
Arbitration Rules of the United Nations Commission on International Trade
Law. The appointing authority shall be the Singapore International
Arbitration Centre, with instructions that the arbitration be conducted
as follows:
(a) the arbitrators shall refer to both of the Chinese and English texts
of this Contract;
(b) there shall be three (3) arbitrators.
19.02 Effect of Arbitration Award
---------------------------
The arbitration award shall be final and binding on the Parties, and the
Parties agree to be bound thereby and to act accordingly.
19.03 Costs
-----
The costs of arbitration shall be borne by the losing Party, unless
otherwise determined by the arbitration award.
19.04 Continuing Rights and Obligations
---------------------------------
When any dispute occurs and when any dispute is under arbitration, except
for the matters under dispute, the Parties shall continue to exercise
their remaining respective rights, and fulfil their remaining respective
obligations under this Contract.
19.05 Enforcement of Award
--------------------
In any arbitration proceeding, any legal proceeding to enforce any
arbitration award and in any legal action between the Parties pursuant to
or relating to this Contract,
- 27 -
<PAGE>
each of the Parties expressly waives the defense of sovereign immunity
and any other defense based on the fact or allegation that it is an
agency or instrumentality of a sovereign state. Any award of the
arbitrators shall be enforceable by any court having jurisdiction over
the Party or Parties against which the award has been rendered, or
wherever assets of the Party or Parties against which the award has been
rendered can be located and shall be enforceable in accordance with the
"United Nations Convention on the Reciprocal Enforcement of Arbitral
Awards (1958)".
ARTICLE 20 - APPLICABLE LAW
---------------------------
20.01 Applicable Law
--------------
The validity, interpretation and implementation of this Contract shall be
governed by the laws of the People's Republic of China which are
published and publicly available, but in the event that there is no
published and publicly available law in China governing a particular
matter relating to this Contract, reference shall be made to general
international commercial practices.
20.02 Economic Adjustment
-------------------
If after the date of this Contract any of the Parties' economic benefits
are adversely and materially affected by the promulgation of any new
laws, rules or regulations of China, or by the amendment or
interpretation of any existing laws, rules or regulations of China, or by
a fundamental change in economic or political circumstances, then the
Parties shall promptly consult among themselves and use their best
endeavours to implement any adjustments necessary to maintain each
Party's economic benefits derived from this Contract on a basis no less
favourable than the economic benefits it would have derived if such laws,
rules or regulations had not been promulgated or amended or so
interpreted. If it is not possible to implement such adjustments, a
Party may terminate this Contract under Article 16.
20.03 Preferential Treatment
----------------------
The Company and the Parties shall be entitled according to the law to any
tax, investment or other benefits or preferences that become available or
publicly known after the signing of this Contract and which are more
favourable than those set forth in this Contract.
ARTICLE 21 - MISCELLANEOUS PROVISIONS
-------------------------------------
21.01 Waiver
------
- 28 -
<PAGE>
To the extent permitted by Chinese law, failure or delay on the part of
any of the Parties hereto to exercise a right, power or privilege under
this Contract shall not operate as a waiver thereof; nor shall any single
or partial exercise of a right, power or privilege preclude any other
future exercise thereof.
21.02 Assignability
-------------
This Contract may not be assigned in whole or in part by any Party
without the prior written consent of the other Parties hereto and the
obtaining of the approval of the Examination and Approval Authority.
21.03 Binding Effect
--------------
This Contract is made for the benefit of the Parties and their respective
lawful successors and assignees and is legally binding on them. This
Contract may not be changed orally, but only by a written instrument
signed by the Parties and approved by the Examination and Approval
Authority.
21.04 Severability
------------
The invalidity of any provision of this Contract shall not affect the
validity of any other provision of this Contract.
21.05 Language
--------
This Contract is executed in the Chinese language in six (6) originals
and in the English language in six (6) originals. Both language versions
shall be equally authentic.
21.06 Entire Agreement
----------------
This Contract constitutes the entire agreement between the Parties with
respect to the subject matter of this Contract and supersede all prior
discussions, negotiations and agreements among them. In the event of any
conflict between the terms and provisions of this Contract and the
Articles of Association, the terms and provisions of this Contract shall
prevail.
21.07 Notices
-------
Any notice or written communication provided for in this Contract by any
of the Parties to the other, including but not limited to any and all
offers, writings, or notices to be given hereunder, shall be made in
English by facsimile and confirmed by courier service delivered letter,
promptly transmitted or addressed to the appropriate Parties. The date of
receipt of a notice or communication hereunder shall be deemed to be two
(2) working days after dispatch of a facsimile. All notices and
communications shall be sent to the appropriate address and fax
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<PAGE>
numbers set forth below, until the same is changed by notice given in
writing to each of the other Party.
PARTY A:
-------
Wuhan Electric Power Instrument Factory
2 Qiujiawan, Guangbutun,
Wuhan, 430072
Facsimile No: 86-27-788-2716
Attention: Yuan Jiaqing
PARTY B:
-------
Beijing Huadian Electric Power Automation Corporation
Jia 17
Xi San Huan Nan Lu
Beijing, 100073
People's Republic of China
Facsimile No: 86-10-326-4395
Attention: Xu Quankun
PARTY C:
-------
Hathaway Corporation
8228 Park Meadows Drive
Littleton, Colorado, 80124
U.S.A.
Facsimile No: 1-303-799-8880
Attention: Richard D. Smith
IN WITNESS WHEREOF, each of the Parties hereto have caused this Contract to be
executed by their duly authorized representatives on the 12th day of June, 1995.
WUHAN ELECTRIC POWER INSTRUMENT FACTORY
- 30 -
<PAGE>
By:_____________________________________
Name: Yuan Jiaqing
Position: Director - Senior Engineer
Nationality: Chinese
Title: Director-Senior Engineer
Nationality: Chinese
BEIJING HUADIAN ELECTRIC POWER AUTOMATION CORPORATION
By:_____________________________________
Name: Xu Quankun
Position: General Manager
Nationality: Chinese
HATHAWAY CORPORATION
By: ____________________________________
Name: Eugene Prince
Title: President and Chief Executive Officer
Nationality: American
- 31 -
<PAGE>
EXHIBIT 10.30
TECHNOLOGY LICENSE CONTRACT
---------------------------
BETWEEN
WUHAN ELECTRIC POWER INSTRUMENT FACTORY
AND
BEIJING HUADIAN ELECTRIC POWER AUTOMATION CORPORATION
ON BEHALF OF
HATHAWAY POWER MONITORING SYSTEMS COMPANY, LTD.
AND
HATHAWAY CORPORATION
June 12, 1995
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<C> <S> <C>
Preliminary Statement........................... 1
1 Definitions..................................... 2
2 Rights and Licenses............................. 3
3 Provision of Know-How and Technical Services.... 4
4 Royalties....................................... 6
5 Warranty........................................ 7
6 Proprietary Rights and Infringement............. 8
7 Accounts and Records/Quality Inspection......... 10
8 Confidentiality................................. 11
9 Taxes........................................... 12
10 Effective Date, Term and Termination............ 12
11 Settlement of Disputes.......................... 14
12 Force Majeure................................... 15
13 Governing Law................................... 15
14 Miscellaneous................................... 16
Signatures...................................... 17
</TABLE>
Annex 1 - Contract Products and Specifications
Annex 2 - Technical Documentation
Annex 3 - Confidentiality Agreement
<PAGE>
TECHNOLOGY LICENSE CONTRACT
---------------------------
THIS TECHNOLOGY LICENSE CONTRACT ("Contract") is entered into on this 12th day
of June, 1995 by and between WUHAN ELECTRIC POWER INSTRUMENT FACTORY, a Chinese
legal person with its legal address at 2 Qiujiawan, Guangbutun, Wuhan, 430072,
People's Republic of China and BEIJING HUADIAN ELECTRIC POWER AUTOMATION
CORPORATION, a Chinese legal person with its legal address at Jia 17, Xi San
Huan Nan Lu, Beijing, 100073, People's Republic of China on behalf of HATHAWAY
POWER MONITORING SYSTEMS COMPANY, LTD., a Sino-foreign equity joint venture
company (the "Licensee") to be established in Wuhan Municipality, Hubei
Province, the People's Republic of China, and HATHAWAY CORPORATION, a
corporation organized and existing under the laws of the State of Colorado,
U.S.A., with its principal address at 8228 Park Meadows Drive, Littleton,
Colorado, 80124, U.S.A. (the "Licensor").
PRELIMINARY STATEMENT
---------------------
WHEREAS, this Contract is entered into in accordance with Article 7.03 of the
Joint Venture Contract dated June 11, 1995 between Licensor, Wuhan Electric
Power Instrument Factory, and Beijing Huadian Electric Power Automation
Corporation for the establishment of the Licensee (the "Joint Venture
Contract");
WHEREAS, the Licensor wishes to license the Licensee to use the Know-How (as
defined in Article 1.07 below) for the manufacture of the Contract Products (as
defined in Article 1.03 below);
WHEREAS, upon its establishment, the Licensee shall use the Know-How strictly in
accordance with terms and conditions of this Contract.
NOW, THEREFORE, the Parties hereto agree as follows:-
<PAGE>
ARTICLE 1. DEFINITIONS
-----------------------
Unless otherwise specified, the terms used in this Contract shall have the
meanings set forth below:
1.01 "Approval Authority" means the Ministry of Foreign Trade and Economic
Cooperation or the authority designated by such Ministry to approve this
Contract.
1.02 "Calendar Quarter" means each three (3) calendar month period commencing
on January 1st, April 1st, July 1st or October 1st of each year during
the Contract Term.
1.03 "Contract Products" means the products identified in Annex 1.
1.04 "Contract Term" means the period commencing on the Effective Date and
expiring ten (10) years thereafter, unless terminated earlier in
accordance with Article 10 of this Contract.
1.05 "Contract Plant" means Licensee's factory at 2 Qiujiawan, Guangbutun,
Wuchang District, Wuhan Municipality, Hubei Province, People's Republic
of China.
1.06 "Effective Date" means the effective date of this Contract as defined in
Article 10.01.
1.07 "Know-How" means the technical knowledge which Licensor owns or controls
as of the Effective Date which Licensor has full legal right to transfer
or disclose to another party, and which is necessary to enable Licensee
to manufacture Contract Products meeting the specifications set forth in
Annex 1.
1.08 "Net Sales" means the total invoice price of the Licensee's sales of the
Contract Products, excluding the following: (i) value added tax or
similar tax items; (ii) cash discounts; (iii) transportation costs and
insurance fees; and (iv) returned Contract Products.
-2-
<PAGE>
1.09 "Party" means each of Licensee and Licensor, and "Parties" means both of
Licensee and Licensor.
1.10 "Renminbi" or "RMB(Yen)" shall mean the lawful currency of the People's
Republic of China.
1.11 "Technical Documentation" means the documentation embodying the Know-How,
including engineering drawings, specifications, test procedures,
operating and maintenance manuals, and material lists as set forth in
Annex 2 hereto.
1.12 "Technical Services" means the technical assistance and training to be
provided by Licensor pursuant to Article 3.02 hereof.
1.13 "Territory" means the People's Republic of China.
1.14 "United States Dollars" or "US$" shall mean the lawful currency of the
United States of America.
ARTICLE 2. RIGHTS AND LICENSES
-------------------------------
2.01 Licensor hereby grants to Licensee a non-exclusive and non-transferable
license to use the Know-How for the manufacture of the Contract Products
at the Contract Plant and for the sale of the Contract Products in the
Territory during the Contract Term.
The sale of the Contract Products by the Licensee in the Territory will
be only to Chinese users of the Contract Products and to Chinese owned
contractors that are purchasing the Contract Products for installation
into power generation, transmission and distribution facilities being
constructed by such contractors outside of China.
The Contract Products will be sold to overseas markets once the Licensor
has determined that the quality and price of the Contract Products meet
international
-3-
<PAGE>
standards, and upon making such determination, the Licensor will be the
exclusive overseas sales agent for all of the Contract Products.
Notwithstanding the foregoing, the Licensor retains the right to sell its
own products in the Chinese market.
2.02 Licensee expressly acknowledges and agrees that, other than the rights
and licenses granted under this Contract, it does not hereby acquire and
has no right or claim to any other rights in, or to the use of,
trademarks, trade names, utility model rights, design rights, patents,
copyright or other industrial property rights or technical knowledge
owned, used or adopted by Licensor or its affiliates.
ARTICLE 3. PROVISION OF KNOW-HOW AND TECHNICAL SERVICES
--------------------------------------------------------
3.01 (a) Licensor shall ship one (1) set of the Technical Documentation to
Licensee by air courier, C.I.F. Wuhan Airport, within one (1) month
from the Effective Date. Within two (2) working days of shipping the
Technical Documentation, Licensor shall notify Licensee by facsimile
of the flight number and expected arrival date at Wuhan Airport and
shall attach to such notice a copy of the airway bill and the
packing list for each package of Technical Documentation.
(b) All Technical Documentation shall be in the English language.
(c) If the Technical Documentation or any part thereof is lost or
damaged in transit, Licensor at its own expense shall ship
replacement Technical Documentation to Licensee in the manner
provided in sub-paragraphs (a) above within twenty (20) days of
receiving from Licensee written notice of such damage or loss.
(d) Licensor shall provide the source code for the software of the
Contract Products once the Licensor and Licensee both agree that the
Licensee is prepared to control changes made to the source code in
accordance with Licensor's requirements and that the source code is
required by the Licensee
-4-
<PAGE>
to prepare and modify the software to meet the requirements of the
Chinese market.
(e) Licensor shall provide, if available, a flow chart reflecting how
the software of the DFR1200 performs.
3.02 (a) As set out in Article 6.04(e) of the Joint Venture Contract,
Licensor shall provide qualified technical personnel to furnish at
the Contract Plant or at Licensor's factory a maximum of fifty (50)
man-days of Technical Services in connection with the manufacture
and sale of the Contract Products. For the purpose of this Article
3.02, a "man-day" shall refer to a period of eight (8) hours.
Licensor shall be deemed to have provided no less than one man-day
of Technical Service per person per calendar day (including Monday
through Sunday) for each day on which its technical personnel are
available and ready in the People's Republic of China to provide
Technical Services hereunder.
(b) The scope of the Technical Services to be furnished pursuant to this
Article 3.02 shall include assistance in the solution of technical
problems arising in the manufacturing process, the operation and
maintenance of the relevant equipment, manufacturing methods and
processes, quality control, inspection and trouble-shooting,
performance testing and the uses of the Contract Products.
(c) Licensor shall send technical personnel to the Contract Plant to
begin furnishing the Technical Services within thirty (30) days of
receiving notice from Licensee that all of the Technical
Documentation have arrived at the Contract Plant. The expenses
incurred in connection with the provision of the Technical Services
shall be borne by Licensor, except that Licensee at its own expense
shall provide Licensor's technical personnel with suitable office
facilities, living accommodations, all meals and local
transportation in China.
-5-
<PAGE>
(d) If, during the Contract Term, Licensee requests Licensor to provide
Technical Services in excess of the number of man-days stated in
sub-paragraph (a) above, Licensor shall provide such Technical
Services at a price to be agreed in writing by the Licensor and
Licensee.
ARTICLE 4. ROYALTIES
---------------------
During the term of this Contract, the Licensee shall pay to the Licensor:
4.01 One initial payment of Seventy Thousand United States Dollars (US$70,000)
which will be paid by a set off against the capital contribution which
the Licensor is obliged to provide to the Company under Article 5.03(c)
of the Joint Venture Contract.
4.02 Royalties at the rate of two and seventy-five one-hundredth percent
(2.75%) of Net Sales for Contract Products sold by the Licensee during
each Calendar Quarter starting from January 1, 1997 and ending December
31, 2006, except as provided in Article 4.03, below. The royalties shall
be paid for each Calendar Quarter within thirty (30) days after the end
of such Calendar Quarter.
4.03 No royalties shall be paid on the Contract Products made hereunder by the
Licensee and sold to the Licensor.
4.04 All payments to be made by the Licensee to the Licensor under this
Contract shall be made in United States Dollars by electronic transfer to
such bank account as shall be specified in writing by the Licensor. All
bank charges incurred inside China shall be borne by the Licensee.
4.05 All Net Sales shall be recorded in the currency in which such sales are
made. The royalties are to be calculated in the same currency as the Net
Sales. Total royalties shall be payable in United States Dollars
converted at the median rate of exchange for United States Dollars posted
by the People's Bank of China on the date payment is
-6-
<PAGE>
due. The Licensee shall be obliged to do all that is necessary to obtain
any required government approvals within the People's Republic of China
for conversion of Renminbi into United States Dollars sufficient to pay
the royalties and remittance thereof outside the People's Republic of
China. If the Licensee's foreign exchange is not sufficient to remit the
royalties to the Licensor, the Licensor can require the Licensee not to
remit the royalties when they become due and open a separate interest-
bearing Renminbi bank account for such royalties and hold the same on
behalf of the Licensor until such time as the Licensee shall have
sufficient foreign exchange, and thereupon remit the royalties in foreign
exchange together with any interest to the Licensor pursuant to Article
4.04 above.
4.06 The Licensee shall pay the Licensor simple interest at the rate of ten
percent (10%) per annum on all money which is due and payable to the
Licensor hereunder but is unpaid on the due date, except if non-payment
is at the request of the Licensor in accordance with the provisions of
Article 4.05.
ARTICLE 5. WARRANTY
--------------------
5.01 Licensor warrants that as of the Effective Date it will have full legal
right to transfer and disclose the Know-How to Licensee.
5.02 Licensor warrants that the Know-How and Technical Documentation is
complete, accurate, effective and can be used to manufacture Contract
Products meeting the specifications set forth in Annex 1 hereto, provided
that:
(a) Licensee properly performs the activities contemplated under this
Contract to be performed by it, including without limitation the use
and application of the Know-How and the proper operation and
maintenance of the equipment in accordance with the standards set
forth in the relevant Technical Documentation;
-7-
<PAGE>
(b) Licensee supplies raw materials meeting the specifications set
forth in the relevant Technical Documentation; and
(c) Licensee maintains in good working order the existing equipment and
facilities at the Contract Plant in accordance with the standards
set forth in the relevant Technical Documentation.
5.03 Licensor warrants that the Technical Services will be provided by well-
trained and qualified technical personnel.
ARTICLE 6. PROPRIETARY RIGHTS AND INFRINGEMENT
-----------------------------------------------
6.01 Licensee acknowledges that Licensor owns or controls and has a
proprietary interest in the Know-How. Licensee hereby agrees that,
without Licensor's prior written consent, it will not do any act or
permit the doing of any act which might prevent, directly or indirectly,
the registration in the People's Republic of China of any patent right
with respect to the Know-How and other Confidential Information, as
defined in Article 8.01.
6.02 Licensor is not aware of any right of a third party which might be
infringed through the exercise of the license granted to Licensee
hereunder, but Licensor does not warrant that any such right of a third
party in fact does not exist, nor shall Licensor be liable to Licensee on
the ground that any such right in fact exists.
6.03 In the event that any suit, action or other proceeding involving any
claim of industrial property infringement shall be threatened or
instituted against Licensee based upon Licensee's permitted use hereunder
of the Know-How, Licensee shall notify Licensor promptly thereof and
shall send to Licensor copies of any such papers which shall have been
served in such suit, action or proceeding. Licensor may, if it so elects,
control the defense of such suit at Licensor's own cost and expense.
Licensee shall have the right to be represented by advisory counsel of
its own selection at its own
-8-
<PAGE>
expense, and shall cooperate fully in the defense of any such suit. If
Licensor does not elect to control the defense of such suit, Licensee
shall undertake such control at Licensee's own cost and expense and
Licensor shall have the right to be represented by advisory counsel of
its own selection and at its own expense. At the request of Licensee,
Licensor shall assist Licensee in the defense of such suit at Licensee's
cost and expense.
6.04 Licensee shall, upon obtaining knowledge of any infringement or
threatened infringement of Licensor's rights to the Know-How, immediately
notify Licensor thereof together with all relevant details. Licensor
shall have the right, at its own cost, to prosecute or otherwise stop or
prevent such actual or threatened infringement in the name of both
Licensor and Licensee or either of them, and in each case Licensee shall
render all assistance required by Licensor. All amounts received by
Licensor in connection with any action taken against such infringement
pursuant to this Article shall either be the property of the Licensor, if
the Licensor prosecutes such claim, or the property of the party under
whose name the prosecution is made.
6.05 If Licensor decides not to take any action in respect of any
infringement or threatened infringement, it shall notify the Licensee of
this decision within thirty (30) days after receipt of a written notice
from the Licensee pursuant to Article 6.04 hereof. Upon receipt of
Licensor's written notice of its decision not to take any action, the
Licensee may, at its own discretion and cost, prosecute or otherwise stop
or prevent such actual or threatened infringement in the name of both the
Licensor and the Licensee or either of them. All amounts received by the
Licensee in connection with any action taken against such infringement
pursuant to this Article shall either be the property of both the
Licensor and the Licensee or the property of the party under whose name
the prosecution is made, at the reasonable discretion of Licensor.
6.06 The Licensee shall indemnify the Licensor from any liability for defects
in the Contract Products manufactured by the Licensee.
-9-
<PAGE>
6.07 In the event that the Licensee develops any Improvements or
Modifications, the Licensee shall license the Improvements or
Modifications to the Licensor free of charge and with the right of the
Licensor to sublicense such license. As used in this Article 6.07, the
term "Improvements" shall mean all improvements which change the
functions, characteristics or performance of the Contract Products and
the term "Modifications" shall mean all changes to the Contract Products
which do not modify their respective functions and characteristics.
ARTICLE 7. ACCOUNTS AND RECORDS/QUALITY INSPECTION
---------------------------------------------------
7.01 Concurrently with the payment by the Licensee of the royalties owed at
the end of each Calendar Quarter, the Licensee shall transmit to the
Licensor (a) copies of receipts for any taxes withheld from such payments
and (b) a written report of the Net Sales in a form approved by the
Licensor for such Calendar Quarter, giving the names and addresses of all
customers, both the unit and total prices of such Net Sales of the
Contract Products to each such customer, the type of Contract Product
sold and its related channel configurations.
7.02 The Licensee shall keep accurate and complete books and records of all
Contract Products manufactured and sold including the quantities and
invoice prices. The term of this Article 7.02 shall survive the
termination or expiration of this Contract for a period of ten (10)
years.
7.03 The Licensee shall permit the Licensor or its representatives at all
reasonable times to inspect and take copies of or extracts from any
documents in the possession or under the control of the Licensee so as to
enable the Licensor to ascertain the royalties payable by the Licensee
hereunder.
7.04 The Licensee shall be responsible for maintaining the quality standard of
the Contract Products. If at any time Licensor determines that the
Licensee is not fulfilling these obligations, Licensor shall notify the
Licensee of the deficiencies that it believes exist
-10-
<PAGE>
and proposed methods for correction. Licensee shall cause the correction
to be made within twenty (20) days after the notification.
7.05 Licensor shall be entitled at any time upon reasonable notice being
given to Licensee to enter the Contract Plant in order to inspect the
manufacture of the Contract Products.
ARTICLE 8. CONFIDENTIALITY
---------------------------
8.01 All Know-How, advice, and other information (together referred to as
"Confidential Information") provided by Licensor pursuant to this
Contract shall be kept strictly confidential by Licensee and shall be
used solely for its own benefit in connection with the manufacture and
sale of the Contract Products.
8.02 Licensee hereby covenants and agrees to keep all Confidential Information
furnished to it confidential and not, without the prior express written
consent of Licensor, to communicate the Confidential Information or allow
the Confidential Information to be communicated to anyone except its own
employees, and then only to such extent as may be necessary for the
proper performance by such employees of their assigned tasks.
8.03 In order to ensure the observance of Articles 8.01 and 8.02 above by the
Licensee's employees, the Licensee shall cause each of its employees with
access to Confidential Information referred to in Article 8.01 and 8.02
above to sign a confidentiality agreement in the form of Annex 3.
8.04 Licensee's obligations under this Article 8 shall survive the expiration
or termination of this Contract and shall continue in effect for a
further period of ten (10) years.
8.05 The obligations of confidentiality, secrecy, non-disclosure and the
restrictions of use contained herein shall not apply to Confidential
Information which the Licensee can
-11-
<PAGE>
demonstrate: (i) is available to the public at the time it is disclosed
or thereafter becomes available to the public; (ii) is known to the
Licensee at the time of disclosure; or (iii) properly comes into the
possession of the Licensee from an independent source.
ARTICLE 9. TAXES
-----------------
9.01 All taxes arising in connection with the performance of this Contract
that are imposed on Licensee in accordance with the tax laws of the
People's Republic of China shall be borne by Licensee.
9.02 Except as may otherwise be provided herein, all taxes imposed on
Licensor in accordance with the tax laws of the People's Republic of
China shall be borne by Licensor. In the event that Licensee is obligated
to act as a withholding agent for taxes to be paid by the Licensor to the
Chinese governmental authorities, the Licensee shall maintain complete
records of all amounts withheld along with receipts received from the
Chinese governmental authorities and shall provide copies of such
materials to the Licensor.
9.03 All taxes imposed outside China in connection with payments made to
Licensor under this Contract shall be borne by Licensor.
ARTICLE 10. EFFECTIVE DATE, TERM AND TERMINATION
-------------------------------------------------
10.01 Pursuant to Article 4 of the Regulations of the People's Republic of
China for the Control of Technology Import Contracts, the Effective Date
of this Contract shall be the date when the Approval Authority issues an
approval certificate in respect of this Contract.
10.02 The term of this Contract shall be ten (10) years commencing on the
Effective Date. In the event that one Party desires to renew this
Contract, it shall give written notice
-12-
<PAGE>
of such intention to the other Party not later than six (6) months prior
to the expiry of this Contract. In such case, the parties shall discuss
the renewal of this Contract.
10.03 Either Party shall have the right to terminate this Contract prior to the
expiration of the Contract Term under any of the following circumstances:
(a) if the other Party commits a material breach of this Contract and
such breach is not cured within thirty (30) days after written
notice from the other Party to the Party in breach;
(b) if the other Party fails to make any payment required hereunder when
the same becomes due and payable;
(c) if the conditions of Force Majeure prevail for a period in excess of
six (6) months and the Parties have been unable to find an
equitable solution pursuant to Article 12; or
(d) if the other Party becomes bankrupt or is the subject of proceedings
for liquidation or dissolution, or ceases to carry on business or
becomes unable to pay its debts as they become due.
10.04 Termination as set forth above may be effected by the terminating Party
giving the other Party thirty (30) days' prior written notice specifying
the reason for such termination and shall become effective upon the
expiration of such thirty-day period.
10.05 Upon the termination of this Contract under any circumstances, any
royalties accrued, due and payable by one Party to the other Party
hereunder shall be fully paid within one (1) month, all Technical
Documentation shall be returned immediately to Licensor and the Licensee
shall immediately cease manufacturing and selling the Contract Products.
On no account shall such royalties or Technical Documentation be withheld
on the ground of a dispute arising out of or in relation to this Contract
-13-
<PAGE>
or as a set-off against any claim for damages sought to be put forward by
the Party liable to pay such moneys or to return the Technical
Documentation.
The terms of this Article 10.05 shall survive the termination of this
Contract.
ARTICLE 11. SETTLEMENT OF DISPUTES
-----------------------------------
11.01 In the event a dispute arises in connection with the interpretation or
implementation of this Contract, the Parties shall attempt in the first
instance to resolve such dispute through friendly consultations. If the
dispute is not resolved in this manner within sixty (60) days after the
commencement of discussions, then any of the Parties may submit the
dispute for arbitration in Singapore for final decision pursuant to the
Arbitration Rules of the United Nations Commission on International Trade
Law. The appointing authority shall be the Singapore International
Arbitration Centre, with instructions that the arbitration be conducted
as follows:
(a) the arbitrators shall refer to both of the Chinese and English
texts of this Contract;
(b) there shall be three (3) arbitrators.
11.02 The arbitration award shall be final and binding on the Parties, and the
Parties agree to be bound thereby and to act accordingly.
11.03 The costs of arbitration shall be borne by the losing Party, unless
otherwise determined by the arbitration award.
11.04 When any dispute occurs and when any dispute is under arbitration, except
for the matters under dispute, the Parties shall continue to exercise
their remaining respective rights, and fulfil their remaining respective
obligations under this Contract.
-14-
<PAGE>
ARTICLE 12. FORCE MAJEURE
--------------------------
12.01 "Force Majeure" shall mean any event which is beyond the control of the
Parties to this Contract, and which is unforeseen, or if foreseen,
unavoidable, and which prevents total or partial performance by Party.
Such events shall include but are not limited to any strikes, lockouts,
explosions, shipwrecks, acts of nature or the public enemy, fires, flood,
sabotage, accidents, strikes, wars, riots, interference by military
authorities, insurrections, and any other similar or different
contingency.
12.02 If an event of Force Majeure occurs, to the extent that the contractual
obligations of the Parties to this Contract (except the obligations under
Article 8) cannot be performed as a result of such event, such
contractual obligations shall be suspended during the period of delay
caused by the Force Majeure and shall be automatically extended, without
penalty, for a period equal to such suspension.
12.03 The Party claiming Force Majeure shall promptly inform the other Party in
writing of the occurrence and duration of such Force Majeure. The Party
claiming Force Majeure shall also use all reasonable endeavours to
terminate the Force Majeure.
12.04 In the event of Force Majeure, the Parties shall immediately consult with
each other in order to find an equitable solution and shall use all
reasonable endeavours to minimize the consequences of such Force Majeure.
ARTICLE 13. GOVERNING LAW
--------------------------
13.01 The validity, interpretation and implementation of this Contract shall be
governed by the laws of the State of Colorado.
-15-
<PAGE>
ARTICLE 14. MISCELLANEOUS
--------------------------
14.01 Notwithstanding anything to the contrary herein, Licensee agrees to
comply with all governmental restrictions imposed by United States of
America on the re-export, directly or indirectly, of the Know-How, the
Contract Products or other direct products of the Know-How. To the best
of Licensor's knowledge, the licensing or disclosure by Licensor to
Licensee of the Know-How does not violate the laws or regulations of the
United States of America or any agency thereof in effect as of the date
of this Contract. If, however, subsequent to the Effective Date, such
laws or regulations do prohibit or restrict such license or disclosure,
such prohibition or restriction shall constitute an event of Force
Majeure under Chapter 12 hereof.
14.02 This Contract is executed in the English and Chinese languages. Both
language version are equally authentic.
14.03 During the Contract Term, all correspondence between the Parties shall be
in the English language.
14.04 This Contract constitutes the entire agreement between the Parties with
respect to the subject matter hereof and supersedes any prior expression
of intent or understanding relating hereto. This Contract shall not be
modified or amended except by a written agreement signed by all of the
Parties.
14.05 The waiver by a Party of any breach of any obligation owed to it under
this Contract shall not extinguish the obligation or prevent the Party
from later enforcing such obligation.
14.06 All notices given by any of the Parties to the others shall be in writing
and sent by registered airmail, or by cable or telex (copies of which are
to be subsequently forwarded as confirmation by registered airmail), or
by facsimile to the other Party's address as indicated below or any other
address notified in lieu thereof. Notice shall
-16-
<PAGE>
be deemed delivered on the fourteenth (14) day after posting or two (2)
days after a cable is sent or on the day after a telex is sent or upon
being sent by facsimile and evidenced by a confirmation report.
To: Hathaway Power Monitoring Systems Company, Ltd.
2 Qiujiawan, Guangbutun,
Wuhan, 430072
People's Republic of China
Attention: General Manager
Facsimile: To Be Provided.
To: Hathaway Corporation
8228 Park Meadows Drive
Littleton, Colorado, 80124
United States of America
Attention: Eugene Prince
Facsimile: 1-303-799-8880
14.07 This Contract may be executed in six (6) or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same contract.
IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed
by their duly authorised representatives as of the date first above written.
HATHAWAY CORPORATION
_______________________________
Name: Eugene Prince
-17-
<PAGE>
Title: President and Chief Executive Officer
WUHAN ELECTRIC POWER INSTRUMENT FACTORY FOR AND ON THE BEHALF OF HATHAWAY POWER
MONITORING SYSTEMS COMPANY, LTD.
__________________________
Name: Yuan Jiaqing
Position: Director - Senior Engineer
BEIJING HUADIAN ELECTRIC POWER AUTOMATION CORPORATION FOR AND ON THE BEHALF OF
HATHAWAY POWER MONITORING SYSTEMS COMPANY, LTD.
__________________________
Name: Xu Quankun
Position: General Manager
Ratified by HATHAWAY POWER MONITORING SYSTEMS COMPANY, LTD. after the issuance
of its Business License and at the first meeting of the board of directors.
________________________________
Name:
Title: Chairman of the Board
-18-
<PAGE>
EXHIBIT 10.31
SUPPLEMENTARY AGREEMENT
This SUPPLEMENTARY AGREEMENT is executed on this 30th day of August, 1995 by and
between Wuhan Electric Power Instrument Factory ("Party A"), Beijing Huadian
Electric Power Automation Corporation ("Party B") and Hathaway Corporation
("Party C"). Party A, Party B and Party C are hereinafter collectively referred
to as "Parties" and individually as a "Party."
PRELIMINARY STATEMENT
WHEREAS, on the 12th of June 1995, the Parties executed a joint venture contract
(the "Joint Venture Contract") and an articles of association (the "Articles of
Association") for the establishment of Hathaway Power Monitoring Systems
Company, Ltd. (the "Company");
WHEREAS, on the 12th of June 1995, Party A and Party B on behalf of the Company
and Party C executed a technology license contract (the "Technology License
Contract");
WHEREAS, the Parties have held friendly consultations and have agreed to execute
this Supplementary Agreement to amend certain provisions of the Joint Venture
Contract, the Articles of Association and the Technology License Contract;
NOW, THEREFORE, the Parties agree to the following provisions:
1. Amendments to the Joint Venture Contract
----------------------------------------
A. Each phrase "Hathaway Power Monitoring Systems Company, Ltd." is
hereby amended to read as "Wuhan Hathaway Power Monitoring Systems
Company, Ltd."
B. Article 1.11 is hereby amended to reads as follows:
"'SAIC' shall mean the State Administration for Industry and
Commerce or the local Administration for Industry and Commerce."
C. The first sentence of Article 8.03(f) is deleted.
D. In Article 21.07, the term "in English" is deleted.
2. Amendments to the Articles of Association
-----------------------------------------
A. Each phrase "Hathaway Power Monitoring Systems Company, Ltd." is
hereby amended to read as "Wuhan Hathaway Power Monitoring Systems
Company, Ltd."
<PAGE>
B. The first sentence of Article 6.03(f) is deleted.
C. In Article 12.05, the term "in English" is deleted.
3. Amendments to the Technology License Contract
---------------------------------------------
A. Article 13.01 of the Technology License Contract is hereby deleted and
replaced with the following:
"This Contract shall be governed by the laws of the People's
Republic of China."
B. Article 14.03 is hereby deleted and intentionally left blank.
4. No Other Amendments
-------------------
Asides from the amendments set forth herein, no other amendment or revision
is made to the Joint Venture Contract, the Articles of Association or the
Technology License Contract.
5. Examination and Approval Authority
----------------------------------
The Parties hereby agree to submit this Agreement and all other required
documents to the Examination and Approval Authority and to take all
measures necessary to obtain the requisite approval of the Examination and
Approval Authority for the effectiveness of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives on the date first set forth above.
WUHAN ELECTRIC POWER INSTRUMENT FACTORY
By:________________________________________
Name: Yuan Jiaqing
Position: Director - Senior Engineer
Nationality: Chinese
2
<PAGE>
BEIJING HUADIAN ELECTRIC POWER AUTOMATION CORPORATION
By:______________________________
Name: Xu Quankun
Position: General Manager
Nationality: Chinese
HATHAWAY CORPORATION
By:______________________________
Name: Eugene Prince
Title: President and Chief Executive Officer
Nationality: American
3
<PAGE>
FINANCIAL TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------
<S> <C>
CONSOLIDATED BALANCE SHEETS 10
CONSOLIDATED STATEMENTS OF OPERATIONS 11
CONSOLIDATED STATEMENTS OF CASH FLOWS 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION 27
OFFICERS AND DIRECTORS 32
INVESTOR INFORMATION 32
- -------------------------------------------------------------
</TABLE>
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
JUNE 30, 1995 JUNE 30, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,903,000 $ 7,547,000
Marketable securities, current 1,029,000 -
Trade receivables, net of allowance for doubtful accounts of
$305,000 and $394,000 at June 30, 1995 and 1994, respectively 7,486,000 6,888,000
Inventories, net 4,469,000 4,673,000
Current deferred income taxes 738,000 732,000
Prepaid expenses and other 575,000 357,000
- ---------------------------------------------------------------------------------------------------
Total current assets 20,200,000 20,197,000
Marketable securities, non-current 200,000 1,271,000
Property and equipment, net 1,798,000 1,577,000
Cost in excess of net assets acquired, net 777,000 959,000
Other 337,000 428,000
- ---------------------------------------------------------------------------------------------------
Total assets $23,312,000 $24,432,000
===================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 1,308,000 $ 1,448,000
Accrued liabilities 2,721,000 3,226,000
Income taxes payable 765,000 417,000
Product service reserve 501,000 433,000
- ---------------------------------------------------------------------------------------------------
Total current liabilities 5,295,000 5,524,000
Long-term debt (Note 4) 2,144,000 2,298,000
- ---------------------------------------------------------------------------------------------------
Total liabilities 7,439,000 7,822,000
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' INVESTMENT:
Preferred stock, par value $1.00 per share, authorized
5,000,000 shares; no shares outstanding - -
Common stock, at aggregate stated value, authorized
50,000,000 shares; 5,307,143 and 5,289,643 issued at
June 30, 1995 and 1994, respectively 100,000 100,000
Additional paid-in capital 9,767,000 9,717,000
Loan receivable for stock (Note 11) (133,000) (133,000)
Loan receivable from Leveraged Employee Stock
Ownership Plan and Trust (Note 5) (102,000) (157,000)
Retained earnings 9,686,000 9,380,000
Cumulative translation adjustments (Note 1) 218,000 156,000
Treasury stock, at cost; 1,041,560 and 674,585 shares at June 30,
1995 and 1994, respectively (Note 10) (3,663,000) (2,453,000)
- ---------------------------------------------------------------------------------------------------
Total stockholders' investment 15,873,000 16,610,000
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $23,312,000 $24,432,000
===================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $39,838,000 $43,028,000 $45,741,000
OPERATING COSTS AND EXPENSES:
Cost of products sold 22,834,000 23,584,000 25,376,000
Selling 7,037,000 7,762,000 7,792,000
General and administrative 4,836,000 5,653,000 5,975,000
Engineering and development 3,616,000 4,111,000 4,411,000
Amortization of intangibles 246,000 243,000 302,000
- -------------------------------------------------------------------------------------------------------
Total operating costs and expenses 38,569,000 41,353,000 43,856,000
- -------------------------------------------------------------------------------------------------------
Operating income from continuing operations 1,269,000 1,675,000 1,885,000
OTHER INCOME (EXPENSES), NET:
Interest and dividend income 332,000 315,000 234,000
Interest expense (204,000) (277,000) (472,000)
Foreign exchange losses (13,000) (41,000) (946,000)
Other expenses, net (63,000) (397,000) (386,000)
- -------------------------------------------------------------------------------------------------------
Total other income (expenses), net 52,000 (400,000) (1,570,000)
- -------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 1,321,000 1,275,000 315,000
Provision for income taxes (Note 8) (479,000) (320,000) (292,000)
- -------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS 842,000 955,000 23,000
NET INCOME FROM OPERATIONS OF
DIVESTED SEGMENT, NET OF INCOME
TAXES OF $453,000 AND $244,000 IN 1994
AND 1993, RESPECTIVELY (Notes 3 and 8) - 885,000 958,000
GAIN ON SALE OF SEGMENT, NET OF INCOME
TAXES OF $900,000 (Notes 3 and 8) - 4,023,000 -
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 842,000 $ 5,863,000 $ 981,000
=======================================================================================================
PER SHARE AMOUNTS (Note 1)
- -------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
PRIMARY:
Net income per share from continuing operations $ 0.19 $ 0.20 $ 0.00
Net income per share from operations of divested segment - 0.18 0.21
Gain per share from sale of segment - 0.82 -
- -------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.19 $ 1.20 $ 0.21
=======================================================================================================
FULLY DILUTED:
Net income per share from continuing operations $ 0.19 $ 0.19 $ 0.00
Net income per share from operations of divested segment - 0.18 0.21
Gain per share on sale of segment - 0.81 -
- -------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.19 $ 1.18 $ 0.21
=======================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 39,281,000 $ 57,117,000 $ 69,726,000
Cash paid to suppliers and employees (38,091,000) (53,939,000) (64,233,000)
Interest and dividends received 374,000 285,000 258,000
Interest paid (Note 4) (9,000) (290,000) (1,067,000)
Income taxes paid (108,000) (986,000) (403,000)
- ----------------------------------------------------------------------------------------------------
Net cash from operating activities 1,447,000 2,187,000 4,281,000
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (934,000) (969,000) (1,150,000)
Investments in joint ventures (Note 2) (115,000) (177,000) -
Purchase of marketable securities - (1,288,000) -
Proceeds from sale of segment - 6,803,000 -
Capitalized software development costs - (380,000) (495,000)
Purchased software and other intangibles - (99,000) (180,000)
Cash paid for expenses related to sale of
segment, including income taxes paid of $1,197,000 - (1,681,000) -
Cash retained by segment sold - (1,050,000) -
Purchase of minority interest in Northern Ireland
subsidiary (Note 2) - - (40,000)
- ----------------------------------------------------------------------------------------------------
Net cash from investing activities (1,049,000) 1,159,000 (1,865,000)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (654,000) (11,877,000) (1,128,000)
Borrowings on line of credit and long-term debt 276,000 7,227,000 -
Cash paid for loan costs - (448,000) -
Dividends paid to stockholders (536,000) (992,000) -
Proceeds from exercise of stock options, net of loans 43,000 617,000 183,000
Purchase of treasury stock (1,210,000) (1,301,000) (3,000)
Proceeds from Employee Stock Purchase Plan - - 225,000
- ----------------------------------------------------------------------------------------------------
Net cash from financing activities (2,081,000) (6,774,000) (723,000)
- ----------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 39,000 84,000 367,000
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,644,000) (3,344,000) 2,060,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 7,547,000 10,891,000 8,831,000
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR 5,903,000 7,547,000 10,891,000
LESS: CASH AND CASH EQUIVALENTS
AT END OF YEAR FROM OPERATIONS OF
DIVESTED SEGMENT - - 624,000
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR FROM CONTINUING
OPERATIONS $ 5,903,000 $ 7,547,000 $ 10,267,000
====================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 842,000 $ 5,863,000 $ 981,000
Adjustments to reconcile net income to net cash
from operating activities:
Gain on sale of segment, net of income taxes - (4,023,000) -
Depreciation and amortization 970,000 1,564,000 2,064,000
Allowances on joint venture investments 140,000 208,000 -
Provision for doubtful accounts (96,000) (73,000) 315,000
Long-term incentive plan bonus payable in stock (16,000) 71,000 -
Unrealized foreign currency exchange (gains) losses (43,000) (38,000) 411,000
Other (37,000) - 22,000
Change in assets and liabilities:
(Increase) decrease in -
Receivables (580,000) (240,000) (2,000)
Inventories 247,000 (489,000) 648,000
Prepaid expenses and other (26,000) 223,000 75,000
Current deferred income taxes (6,000) 390,000 (571,000)
Increase (decrease) in -
Accounts payable (138,000) (388,000) (250,000)
Accrued liabilities (235,000) (719,000) 483,000
Deferred software service income - 403,000 (674,000)
Product service reserve 65,000 38,000 102,000
Long-term deferred income tax liability - - 95,000
Income taxes payable 360,000 (603,000) 582,000
- ------------------------------------------------------------------------------------------------------------
Net cash from operating activities $1,447,000 $ 2,187,000 $ 4,281,000
============================================================================================================
NON CASH INVESTING AND FINANCING ACTIVITIES:
Additions to capitalized leases $ - $ - $ 89,000
Tax benefit from disqualifying stock dispositions 23,000 72,000 -
Repayment of LESOP* loan receivable 55,000 - 92,000
============================================================================================================
Cash flows from the divested segment (Note 3), which
are included in the Consolidated Statements of Cash Flows, are as follows:
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Net cash from operating activities $ - $ 1,070,000 $ 1,416,000
Net cash from investing activities - (1,743,000) (970,000)
Net cash from financing activities - 49,000 (1,091,000)
- ------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents - (624,000) (645,000)
Cash and cash equivalents at beginning of year - 624,000 1,269,000
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ - $ - $ 624,000
============================================================================================================
</TABLE>
*Leveraged Employee Stock Ownership Plan and Trust
The accompanying notes to consolidated financial statements are an integral part
of these statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL LOANS TREASURY STOCK
------------------ PAID-IN RECEIVABLE RETAINED --------------------------
SHARES AMOUNT CAPITAL (NOTES 5 & 11) EARNINGS SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1992 4,698,969 $100,000 $8,427,000 $(249,000) $3,528,000 345,696 $(1,331,000)
Exercise of stock options 86,615 - 183,000 - - - -
Sale of stock to employees through
stock purchase plan 111,286 - 225,000 - - - -
Reversal of exchange of common
stock for interest in subsidiary - - (176,000) - - (74,700) 182,000
Shares issued to purchase minority
interest in subsidiary (Note 2) 47,217 - 165,000 - - - -
Purchase of treasury stock - - - - - 1,092 (3,000)
Repayment of LESOP* loan receivable
(Note 5) - - - 92,000 - - -
Net income - - - - 981,000 - -
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1993 4,944,087 100,000 8,824,000 (157,000) 4,509,000 272,088 (1,152,000)
Exercise of stock options and
issuance of notes (Note 11) 345,556 - 750,000 (673,000) - - -
Repayment of notes for exercise of
stock options (Note 11) - - - 540,000 - - -
Long-term incentive plan bonus
(Note 10) - - 71,000 - - - -
Tax benefit from disqualifying
stock dispositions - - 72,000 - - - -
Purchase of treasury stock (Note
10) - - - - - 402,497 (1,301,000)
Dividend paid to stockholders
($.105 per share) - - - - (497,000) - -
Special dividend paid to
stockholders from gain on sale of
segment ($.10 per share) - - - - (495,000) - -
Net income - - - - 5,863,000 - -
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1994 5,289,643 100,000 9,717,000 (290,000) 9,380,000 674,585 (2,453,000)
Exercise of stock options 17,500 - 43,000 - - - -
Long-term incentive plan bonus
(Note 10) - - (16,000) - - - -
Repayment of LESOP* loan receivable
(Note 5) - - - 55,000 - - -
Tax benefit from disqualifying
stock dispositions - - 23,000 - - - -
Purchase of treasury stock (Note
10) - - - - - 366,975 (1,210,000)
Dividend paid to stockholders
($.12 per share) - - - - (536,000) - -
Net income - - - - 842,000 - -
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1995 5,307,143 $100,000 $9,767,000 $(235,000) $9,686,000 1,041,560 $(3,663,000)
==================================================================================================================================
</TABLE>
* Leveraged Employee Stock Ownership Plan and Trust
The accompanying notes to consolidated financial statements are an integral part
of these statements.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Hathaway Corporation (the Company) is engaged in the business of designing,
manufacturing and selling electronic instrumentation products to the worldwide
power and process industries, as well as motion control products to a broad
spectrum of customers throughout the world. The Company operates primarily in
the United States, Europe and Canada, and has three joint venture investments in
China.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Investments in joint ventures, in which the ownership is at least 20% but less
than 50%, are accounted for using the equity method (Note 2).
CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of certificates of deposit and high grade
commercial paper with original maturities of three months or less, and are
stated at amortized cost. Certificates of deposit totaling $398,000 and $411,000
at June 30, 1995 and 1994, respectively, serve as collateral for letters of
credit issued on behalf of the Company.
INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out basis) or market,
are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1994
========================================================
<S> <C> <C>
Parts and raw materials, net $2,898,000 $2,589,000
Finished goods and work-
in process, net (including
material costs, labor and
manufacturing overhead) 1,571,000 2,084,000
- --------------------------------------------------------
$4,469,000 $4,673,000
========================================================
</TABLE>
Reserves established for anticipated losses on excess or obsolete inventories
were approximately $1,059,000 and $919,000 at June 30, 1995 and 1994,
respectively.
MARKETABLE SECURITIES
Marketable securities consist of debt securities which have been categorized as
held-to-maturity, and as a result are stated at amortized cost. Marketable
securities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1994
===========================================================
<S> <C> <C> <C>
Corporate bond,
matures March, 1996 $ 1,029,000 $ 1,071,000
U.S. Treasury note,
matures August, 1996 200,000 200,000
- -----------------------------------------------------------
$ 1,229,000 $ 1,271,000
===========================================================
PROPERTY AND EQUIPMENT
Property and equipment, at cost, is classified as follows:
USEFUL JUNE 30, JUNE 30,
LIVES 1995 1994
===========================================================
Machinery, equipment,
tools and dies 2-8 years $ 5,970,000 $ 5,775,000
Furniture, fixtures
and other 3-10 years 1,866,000 1,527,000
- -----------------------------------------------------------
7,836,000 7,302,000
Less accumulated
depreciation
and amortization (6,038,000) (5,725,000)
- -----------------------------------------------------------
$ 1,798,000 $ 1,577,000
===========================================================
</TABLE>
Depreciation and amortization are provided using the straight-line method over
the estimated useful life of the assets. Maintenance and repair costs are
charged to operations as incurred. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of retired or sold
property are removed from the accounts and any resulting gain or loss is
reflected in earnings.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired represents the amount by which the
purchase price of acquired companies exceeds the fair market value of net assets
acquired, and is amortized using the straight-line method over five to ten
years. Cost in excess of net assets acquired as of June 30, 1995 and 1994
consists of $1,505,000 of original costs, and $728,000 and $546,000,
respectively, of accumulated amortization. The Company continually reviews the
cost in excess of net assets acquired for possible impairment by comparing the
unamortized balance of the cost in excess of net assets acquired to the related
subsidiaries' estimated undiscounted net income over the remaining life of the
asset.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109,
deferred tax assets (net of a valuation allowance, if deemed necessary) and
liabilities are recognized for the expected future income tax consequences,
based on enacted tax laws, of temporary differences between the financial
reporting and income tax bases of assets, liabilities and carryforwards. The
cumulative effect of the initial adoption of SFAS 109 was not material.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1994
- ------------------------------------------------
<S> <C> <C>
Compensation and
fringe benefits $ 858,000 $1,092,000
Commissions 567,000 626,000
Professional fees 311,000 268,000
Other accrued expenses 985,000 1,240,000
- ------------------------------------------------
$2,721,000 $3,226,000
================================================
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include amounts which are readily convertible into cash (original
maturities of three months or less) and which are not subject to significant
risk of changes in interest rates. Cash flows in foreign currencies are
translated using an average rate.
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
period, including the effects of options and warrants granted when such
adjustment has a dilutive effect on earnings per share. Shares used in the
computations for the periods reported are as follows:
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
- ------------------------------------------------
<S> <C> <C>
1995 4,422,000 4,422,000
1994 4,875,000 4,949,000
1993 4,642,000 4,642,000
================================================
</TABLE>
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, "Foreign Currency Translation", the assets and
liabilities of the Company's foreign subsidiaries (Note 2) are translated into
U.S. dollars using current exchange rates. Revenues and expenses are translated
at average rates prevailing during the period. The resulting translation
adjustments are recorded in the Cumulative Translation Adjustments component of
Stockholders' Investment in the accompanying Consolidated Balance Sheets.
Changes in Cumulative Translation Adjustments included in the Stockholders'
Investment section of the accompanying Consolidated Balance Sheets are as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1994
- -------------------------------------------------
<S> <C> <C>
Cumulative Translation
Adjustments, beginning
of period $156,000 $174,000
Translation adjustments 62,000 (18,000)
- -------------------------------------------------
Cumulative Translation
Adjustments, end of period $218,000 $156,000
=================================================
</TABLE>
Foreign currency transaction gains and losses and translation gains and losses
on intercompany balances are recognized in Other Income (Expenses) in the
accompanying Consolidated Statements of Operations as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Unrealized foreign exchange
gains (losses) $ 43,000 $ 38,000 $(411,000)
Realized foreign exchange
losses (56,000) (79,000) (535,000)
- ----------------------------------------------------------------
Foreign exchange losses $(13,000) $(41,000) $(946,000)
================================================================
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in order to
conform with the current year's presentation.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES
Effective September 2, 1992, the Company purchased the remaining 35% of CSD
Hathaway's (CSD) common stock for $205,000, of which $40,000 was paid in cash
and $165,000 in Company stock. In January 1995, CSD Hathaway, Ltd., changed its
name to Hathaway Systems, Limited.
Effective September 2, 1992, the Company formed two new wholly-owned
subsidiaries: Hathaway Advanced Power Limited (HAP), located in Belfast,
Northern Ireland and Hathaway Instruments Limited (HIL), located in Hoddesdon,
England. HIL has assumed responsibility for the design, manufacture and sale of
fault location instruments previously performed by Hathaway Systems, Ltd. As of
June 30, 1994, the net assets of HAP, which was engaged in developing new
product technology for the power industry, were sold to the management of HAP
for the net book value of the assets, which approximated market value.
In fiscal year 1994 the Company made investments in two joint ventures. In
December 1993, the Company acquired 25% of Zibo Kehui Electric Company Ltd.
(Kehui), located in Zibo, China, for approximately $100,000. Kehui designs,
manufactures and sells cable and overhead line fault location and other test
instruments within the China market and the Company sells these products outside
of China.
During the third quarter of fiscal 1994, the Company acquired 25% of Hathaway Si
Fang Protection and Control Company, Ltd. (Si Fang), located in Beijing, China,
for a capital contribution of approximately $175,000. Si Fang designs,
manufactures and sells a new generation of digital protective relays, control
equipment and instrumentation products for substations in power transmission and
distribution systems.
In June 1995, the Company committed to acquire a 40% interest in Hathaway Power
Monitoring Systems Company, Ltd. (HPMS), located in Wuhan, China for $140,000.
This acquisition is subject to the approval of the Chinese government. HPMS will
design, manufacture and sell, under a license from Hathaway, instrumentation
products designed by Hathaway, to electric power companies in China.
Due to the uncertainty of realization of these joint venture investments, they
have been fully reserved for by the Company.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SALE OF APPLICATION SOFTWARE SEGMENT
Effective January 31, 1994, the Company sold its Application Software Segment,
Global Software, Inc. (Global), to the senior management of Global. The sale
resulted in a net after tax gain of $4,023,000. The Company received a cash
payment of $6,803,000, of which a portion was used to repay $3,000,000 of the
Company's long-term debt and to pay a special $.10 per share dividend to
stockholders totaling $495,000. The remaining proceeds were used to pay the
expenses and income taxes which resulted from the sale and for other general
operating activities. The Company obtained stockholder approval of the sale and
a fairness opinion supporting the sale price.
Global's software products and services include perpetual licenses for the right
to use its software, maintenance and customer support services, training and
installation services, and professional consulting and customization services.
Global's net income for the seven months ended January 31, 1994 and for the
year ended June 30, 1993 has been reflected as Net Income from Operations of
Divested Segment in the accompanying Consolidated Statements of Operations. A
summary of significant financial data for Global follows:
<TABLE>
<CAPTION>
SEVEN MONTHS YEAR
ENDED ENDED
JANUARY 31, JUNE 30,
1994 1993
- -------------------------------------------------
<S> <C> <C>
Revenues $14,053,000 $24,588,000
Operating costs
and expenses 12,672,000 22,909,000
- -------------------------------------------------
Operating income 1,381,000 1,679,000
Other expenses (43,000) (477,000)
- -------------------------------------------------
Net income before
income taxes 1,338,000 1,202,000
Provision for
income taxes (453,000) (244,000)
- -------------------------------------------------
Net income from
operations of
divested segment $ 885,000 $ 958,000
=================================================
</TABLE>
As a result of the terms of the Company's long-term financing agreements,
$109,000 and $446,000 of interest expense was allocated to other expenses of the
divested operation in fiscal years 1994 and 1993, respectively.
Significant accounting policies which applied specifically to the Application
Software Segment are summarized below:
SOFTWARE REVENUE RECOGNITION
Revenues related to the perpetual license of the Company's software products
were recognized upon delivery of the software, pursuant to a noncancelable
agreement and substantial payment by the customer. The portion of the initial
license fee related to product support revenue was deferred and recognized over
the initial product support period. Subsequent customer support revenue was
deferred and recognized over the term of the support agreement. Software
training and installation revenues were recognized upon completion of the
services. Revenues for consulting and customization were recognized as the
services were provided.
SOFTWARE DEVELOPMENT
Certain costs to enhance Global's existing application software products and to
develop new software products were capitalized in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed". These costs were amortized using the straight-line method over their
estimated useful lives, generally five years. Total costs incurred (excluding
amortization) for application software development activities were approximately
$1,784,000 and $4,360,000 in 1994 and 1993, respectively. Total capitalized
development costs were $380,000 and $495,000 in 1994 and 1993, respectively.
Amortization of capitalized costs was $387,000 and $366,000 in 1994 and 1993,
respectively.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. DEBT
LONG-TERM DEBT
On August 2, 1993, the Company entered into a new long-term financing agreement
with Marine Midland Business Loans, Inc. (Midland). Under this agreement, the
Company borrowed approximately $7,000,000 and repaid the long-term financing
agreement with HCFS and FMC. The agreement is a Reducing Revolving Line of
Credit with an initial borrowing limit of $7,000,000, which is reduced monthly
over the seven year term of the loan. As a result of the sale of Global (Note
3), the borrowing limit was reduced by $2,000,000. Borrowings on the line are
restricted to the lesser of an amount based on certain asset levels or the
borrowing limit, which is subject to monthly reductions. As of June 30, 1995,
the Company could borrow an additional $1,848,000, up to the current borrowing
limit of $3,992,000. The line bears interest at Midland's prime borrowing rate
plus 1% (10% at June 30, 1995). During fiscal years 1995 and 1994, accrued
interest of $194,000 and $82,000, respectively, was added to principal. The debt
is secured by all assets of the Company. The agreement requires that the Company
maintain monthly compliance with certain covenants related to tangible net
worth, cash flow coverage and current ratios. The agreement allows for the
payment of cash dividends, subject to compliance with the financial covenants.
Long-term debt maturities as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ -
1997 -
1998 66,000
1999 937,000
2000 978,000
Thereafter 163,000
- -------------------------------
$2,144,000
===============================
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company has established a Leveraged Employee Stock Ownership Plan and Trust
(the Plan), which allows eligible Company employees to participate in ownership
of the Company. In June 1989, the Company loaned the Plan $500,000 which the
Plan used to acquire 114,285 newly issued shares of the Company's common stock
directly from the Company. The note bears interest at 9.23% per annum and
matures May 31, 2004.
The terms of the Plan require the Company to make a contribution equal to the
greater of i) the Board established percentage of pretax income before the
contribution (5% in 1995, 0% in 1994 and 7% in 1993) or ii) the annual interest
payable on the note. Contributions to the Plan were $70,000, $15,000 and
$114,000 for the years ended June 30, 1995, 1994 and 1993, respectively. The
contributions represented principal repayments on the loan of $55,000 and
$92,000 in 1995 and 1993, respectively, and interest on the loan of $15,000,
$15,000 and $22,000 in 1995, 1994 and 1993, respectively. The remaining loan
balance as of June 30, 1995 was $102,000.
- --------------------------------------------------------------------------------
6. STOCK OPTIONS AND WARRANTS
On June 15, 1987, the Company entered into a long-term financing agreement which
was fully repaid in fiscal year 1994. Warrants to purchase 300,000 shares of the
Company's common stock were issued to the lender in connection with the issuance
of this debt; the current exercise price is $6.39 per share (subject to
adjustments up to $6.46 per share). The warrants remain outstanding and are
exercisable through June 1997.
At June 30, 1995, 280,121 shares of common stock were available for grant under
the Company's stock option plans. Under the terms of the plans, options may not
be granted at less than 85% of fair market value. However, all options granted
to date have been granted at fair market value as of the date of grant. All
options become exercisable evenly over three years starting one year from the
date of grant and expire seven years from the date of grant. Option activity in
fiscal years 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES RANGE PER SHARE
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding June 30, 1993 738,144 $ 2.063-$4.50
Granted 19,500 $ 2.813
Exercised (345,556) $2.063-$2.625
Canceled/Forfeited (91,732) $ 2.125-$4.50
- -----------------------------------------------------------------
Outstanding June 30, 1994 320,356 $2.313-$3.813
Granted 88,500 $ 3.00-$3.75
Exercised (17,500) $ 2.313-$3.00
Canceled/Forfeited (28,500) $ 2.375-$3.75
- -----------------------------------------------------------------
Outstanding June 30, 1995 362,856 $ 2.313-$3.75
=================================================================
Total Exercisable at June 30, 1995 228,856
=================================================================
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Quarterly Financial Data for each of the four quarters in 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,418,000 $10,408,000 $ 9,405,000 $10,607,000
Operating income 68,000 240,000 297,000 664,000
Net income 90,000 188,000 245,000 319,000
==========================================================================================
Primary and fully diluted net
income per share $ 0.02 $ 0.04 $ 0.06 $ 0.07
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $10,148,000 $10,894,000 $10,930,000 $11,056,000
Operating income from
continuing operations 113,000 684,000 121,000 757,000
Net income from
continuing operations 85,000 242,000 127,000 501,000
Net income from operations
of divested segment - 548,000 337,000 -
Gain on sale of segment - - 4,023,000 -
- ------------------------------------------------------------------------------------------
Net income $ 85,000 $ 790,000 $ 4,487,000 $ 501,000
==========================================================================================
Per Share Amounts:
Primary:
Net income per share from
continuing operations $ 0.02 $ 0.05 $ 0.02 $ 0.11
Net income per share from
operations of divested segment - 0.11 0.07 -
Gain per share on sale of segment - - 0.82 -
- ------------------------------------------------------------------------------------------
Primary net income per share $ 0.02 $ 0.16 $ 0.91 $ 0.11
==========================================================================================
Fully diluted:
Net income per share from
continuing operations $ 0.02 $ 0.05 $ 0.02 $ 0.10
Net income per share from
operations of divested segment - 0.11 0.07 -
Gain per share on sale of segment - - 0.81 -
- ------------------------------------------------------------------------------------------
Fully diluted net income per share $ 0.02 $ 0.16 $ 0.90 $ 0.10
==========================================================================================
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which requires an
asset and liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax basis of assets,
liabilities and carryforwards is determined annually. Deferred income tax assets
and liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates in effect for the
year in which the differences are expected to reverse. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount that
will more likely than not be realized. Income tax expense is the current tax
payable or refundable for the period plus or minus the net change in deferred
tax assets and liabilities. Prior to July 1, 1993, the Company accounted for
income taxes in accordance with SFAS 96. The Company adopted the new standard on
a prospective basis, without restating prior years. The cumulative effect of the
initial adoption of SFAS 109 at July 1, 1993 was not material.
The provision for income taxes is based on income from continuing operations
before income taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 948,000 $1,169,000 $ 493,000
Foreign 373,000 106,000 (178,000)
- ---------------------------------------------------------------
Income from continuing
operations before
income taxes $1,321,000 $1,275,000 $ 315,000
===============================================================
</TABLE>
Components of the provision for income taxes attributable to continuing
operations are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Current Provision (Benefit):
Domestic $414,000 $ 183,000 $ 500,000
Foreign 74,000 (111,000) 363,000
Deferred Provision (Benefit):
Domestic (9,000) 235,000 (558,000)
Foreign - 13,000 (13,000)
- -------------------------------------------------------------------
Provision attributable to
continuing operations $479,000 $ 320,000 $ 292,000
===================================================================
</TABLE>
The provision for income taxes is attributable to continuing operations,
operations of divested segment and gain on sale of segment as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Provision attributable to
continuing operations $479,000 $ 320,000 $292,000
Provision allocated
to operations of
divested segment - 453,000 244,000
Provision allocated to
gain on sale of segment - 900,000 -
- -----------------------------------------------------------
Total provision for
income taxes $479,000 $1,673,000 $536,000
===========================================================
</TABLE>
The provision for income taxes attributable to continuing operations differs
from the amount determined by applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Tax provision computed
at statutory rate $449,000 $ 434,000 $ 107,000
State tax, net of federal
benefit 25,000 61,000 65,000
Nondeductible expenses 69,000 71,000 47,000
Net operating losses - (323,000)
Income tax credits (73,000) - (258,000)
Non-benefitted losses of
foreign subsidiaries 5,000 39,000 491,000
Unrecognized temporary
difference due to carry-
back limitations - - 176,000
Change in valuation
allowance 11,000 (270,000) -
Other (7,000) (15,000) (13,000)
- --------------------------------------------------------------
Provision for income taxes $479,000 $ 320,000 $ 292,000
==============================================================
</TABLE>
The tax effects of significant temporary differences and credit carryforwards
that give rise to the net deferred tax asset as of June 30, 1995 and 1994 under
SFAS 109 are as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------
<S> <C> <C>
Allowances and other
accrued liabilities $1,242,000 $1,195,000
Tax credit carryforwards 160,000 165,000
Net operating loss
carryforwards - 25,000
Valuation allowance (664,000) (653,000)
- -----------------------------------------------------
Net deferred tax asset $ 738,000 $ 732,000
=====================================================
</TABLE>
At June 30, 1995, the Company has foreign investment tax credit carryforwards of
$160,000 expiring in 2004 and 2005.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. GEOGRAPHIC SEGMENT DATA
The Company's foreign subsidiaries are based in Europe and Canada and are
included in the continuing operations in the accompanying consolidated financial
statements. Financial information for the four wholly-owned foreign
subsidiaries, since their formation or acquisition by the Company, is summarized
below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------
Revenues $8,879,000 $8,437,000 $11,829,000
Income (loss) before
income taxes 373,000 106,000 (178,000)
Identifiable assets 5,744,000 6,027,000 7,136,000
============================================================
</TABLE>
The Company's export sales from continuing domestic operations were
approximately $7,265,000 in 1995, $6,838,000 in 1994 and $5,598,000 in 1993,
each representing 23%, 20% and 17%, respectively, of total sales from continuing
domestic operations. The profitability of domestic sales is approximately the
same as that of export sales, and the Company foresees no unusual risks
associated with its export sales.
================================================================================
10. COMMITMENTS AND CONTINGENCIES
SEVERANCE BENEFIT AGREEMENTS
During 1989, the Company entered into annually-renewable employment and
severance benefit agreements with certain key employees which, among other
things, provide inducement to the employees to continue to work for the Company
during and after any period of threatened takeover. The agreements provide the
employees with specified benefits upon the subsequent severance of employment in
the event of change in control of the Company and are effective for 24 months
thereafter. The maximum amount that could be required to be paid under these
contracts, if such events occur, aggregated approximately $1,162,000 as of June
30, 1995. (Note 13).
LEASES
At June 30, 1995, the Company maintained leases for certain facilities and
equipment. Minimum future rental commitments under all noncancelable operating
leases, net of minimum rental receivables totaling $113,000 under related
subleases, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
=========================
1996 $ 917,000
1997 709,000
1998 472,000
1999 400,000
2000 150,000
Thereafter 393,000
- -------------------------
$3,041,000
=========================
</TABLE>
Rental expense related to continuing operations was $1,035,000, $951,000 and
$1,067,000 in 1995, 1994 and 1993, respectively.
LITIGATION
The Company has been named as a defendant in certain actions that have arisen
out of the ordinary course of business. Management, based upon the advice of the
Company's legal counsel, believes the actions are without merit and will not
significantly affect the Company's consolidated financial position.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS AND CONTINGENCIES (CONT.)
SHAREHOLDER RIGHTS PLAN
During fiscal year 1989, the Company adopted a shareholder rights plan under
which preferred stock purchase rights were distributed, one right for each share
of common stock outstanding. Each right entitles holders of the Company's common
stock to buy one one-hundredth of a newly issued share of Series A Junior
Participating Preferred Stock at an exercise price of $17.50, following certain
change of control events including a tender offer for, or acquisition by, any
entity of 20% or more of the Company's common stock.
At any time up to ten business days following the public announcement of certain
change of control events, the Company can redeem the rights at $.001 per right.
If certain subsequent triggering events occur, the rights will give shareholders
the ability to acquire, upon payment of the then-current exercise price, the
Company's common stock or the common stock of an acquiror having a value equal
to twice the right's exercise price. The rights will expire June 25, 1999.
EMPLOYMENT AGREEMENTS
Effective July 1, 1993, the Company entered into five year employment agreements
with two of its executive officers. The agreements provide for 1) an annual
incentive bonus to be paid based on the achievement of specified returns on
equity and growth in share price plus dividends paid for each fiscal year, 2) a
long-term incentive bonus to be paid based on the achievement of specified
returns on equity and share price growth plus dividends paid over a three year
performance period and 3) specified benefits upon termination of employment (for
reasons other than cause or change in control) which are effective for one year
thereafter. As of June 30, 1995, the maximum amount that could be required to be
paid under the termination clause of this agreement was approximately $791,000.
The annual bonus, which amounted to zero and $95,000 in 1995 and 1994,
respectively, is payable in cash following each fiscal year-end. The long-term
incentive plan is payable in Company common stock following the end of the three
year performance period. At the employee's election, such payout may be taken in
cash up to 40% of the fair market value of the total shares to be issued. The
total number of shares potentially issuable under the long-term incentive plan
ranges from zero to 210,000. The Company recognized $71,000 of compensation
expense in 1994 related to the long-term incentive plan, and reversed $16,000 of
the expense in 1995. The amounts are reflected as adjustments to Additional
paid-in capital in the accompanying balance sheet.
STOCK REPURCHASE PROGRAMS
During fiscal 1994, the Board of Directors approved a public stock repurchase
program whereby the Company may use up to $500,000 to repurchase its common
stock from stock available on the NASDAQ National Market System (Note 13). Such
repurchased stock is being retained by the Company in its treasury. As of June
30, 1995, 64,778 shares had been repurchased under this program for
approximately $196,000.
In addition to the public stock repurchase program, the Board of Directors
approved an employee stock repurchase program whereby the Company may use up to
$1,000,000 to repurchase its common stock from its employees at the current
market value. As of June 30, 1995, the Company had repurchased 239,620 shares
for approximately $797,000.
During the first quarter of fiscal 1995, the Board of Directors approved two
special stock repurchases. The Company purchased 141,000 shares of the Company's
common stock from a significant non-affiliated shareholder at a price equal to
the then fair market value, which totaled approximately $441,000. The Company
also repurchased 132,000 shares from a non-employee director of the Company at a
price equal to the then fair market value which totaled approximately $478,000.
All repurchased stock is being retained by the Company in its treasury.
Combined with previous purchases, the Company held treasury stock with a total
cost of $3,663,000 as of June 30, 1995.
Under Colorado law enacted in July, 1994, repurchased shares of capital stock
are considered authorized and unissued shares and have the same status as shares
which have never been issued.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
During fiscal year 1994 and in accordance with the Officer and Director Loan
Plan which was approved by stockholders on October 26, 1989, the Company made
loans of $504,000 to certain executive officers and members of the Board of
Directors. The proceeds of these loans were used to buy stock under stock
options which had been granted to the officers and directors in prior periods.
The loans, with remaining unpaid balances of $133,000 at June 30, 1995, are full
recourse, due on demand but no later than five years from the date of issue, and
accrue interest at the applicable federal rate.
Additional full recourse loans to key employees made for the same purpose
totalled approximately $169,000. These loans, plus accrued interest, were repaid
in April 1994.
During the second quarter of fiscal year 1995, the Board of Directors approved a
loan of up to $35,000 to be made by the Company after November 30, 1994 to a
non-employee director. The loan will be made for the purpose of purchasing
Hathaway common stock from stock available on the NASDAQ National Market System.
The loan had not been made as of June 30, 1995.
- --------------------------------------------------------------------------------
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, trade receivables, accounts payable and accrued liabilities
approximate fair value because of the immediate or short-term maturities of
these financial instruments. The carrying amount of long-term debt approximates
fair value because the underlying instrument is a variable rate note that
reprices frequently. The carrying value of marketable securities approximates
fair value obtained from quoted market prices.
- --------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS (UNAUDITED)
On August 10, 1995, the Company's Board of Directors declared a cash dividend of
$.10 per share payable on September 15, 1995 to shareholders of record on August
25, 1995.
On August 10, 1995 the Company entered into annually-renewable severance benefit
agreements (Note 10) with certain additional employees. As a result, the total
maximum amount that could be required to be paid out under all existing
severance benefit agreements currently aggregates $1,689,000.
Effective June 30, 1995, the Board of Directors approved the discontinuance of
the public stock repurchase program (Note 10).
In July, 1995 the Company consummated an agreement with Global and management of
Global. Under the terms of the agreement, the Company received $165,000 in
exchange for consenting to Global's proposed disposition of certain assets
acquired after the Company's sale of Global on January 31, 1994 (Note 3). In
addition, the Company agreed to acknowledge that the disposition would not
violate the terms of the original sale agreement. The gain realized on the
transaction will be recorded in fiscal 1996.
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To Hathaway Corporation:
We have audited the accompanying consolidated balance sheets of HATHAWAY
CORPORATION (a Colorado corporation) AND SUBSIDIARIES as of June 30, 1995 and
1994, and the related consolidated statements of operations, cash flows and
stockholders' investment for each of the three fiscal years in the period ended
June 30, 1995. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hathaway
Corporation and subsidiaries as of June 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended June 30, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 31, 1995.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
OPERATING RESULTS
The Company generated net income from continuing operations of $842,000 in
fiscal year 1995, compared with net income from continuing operations of
$955,000 and $23,000 for 1994 and 1993, respectively. Net income for the current
year was $842,000 compared with net income of $5,863,000 and $981,000 for fiscal
years 1994 and 1993, respectively. Fiscal year 1994 net income includes a
$4,023,000 net after tax gain on the January 31, 1994 sale of the Company's
Application Software Segment, Global Software, Inc. (Global). See further
discussion under Divested Segment.
Revenues from continuing operations decreased 7% in 1995 to $39,838,000 from
$43,028,000 in 1994. This decrease represents a 13% decrease in sales of the
Company's power instrumentation products, offset by 10% and 2% increases in
sales of the Company's motion control and process instrumentation products,
respectively. Revenues from continuing operations decreased 6% in 1994 from
$45,741,000 in 1993. This decrease represented a 17% decrease in sales of the
Company's power instrumentation products, offset by 30% and 36% increases in
sales of the Company's process instrumentation and motion control products,
respectively. The decreases in power instrumentation product sales are mainly
attributable to the changing market conditions in the U.S. and U.K. In October
of 1992, the Energy Policy Act of 1992 became law in the U.S. and has caused
increased competition among the domestic electric utility companies. The Act
requires power companies to transmit competitors' power across their own power
networks and to compete with each other for sales to major customers across the
U.S. In March of 1990, the government-owned U.K. utility company was privatized
in order to increase competition throughout the U.K. power industry (a major
foreign market of the Company). The Energy Policy Act in the U.S. and
privatization in the U.K. has led to cost reductions by most utility companies
and, accordingly, has reduced the demand for power instrumentation products. It
is uncertain how long this trend will continue, but the Company will continue to
introduce new products which will help power companies achieve lower costs and
improve the reliability of their power.
Sales to international customers increased to $14,646,000, or 37% of sales from
continuing operations, in fiscal 1995 compared to $13,863,000, or 32% of sales
from continuing operations, in fiscal 1994 and $15,930,000, or 35% of sales from
continuing operations, in fiscal 1993. Privatization in the U.K. market, which
has resulted in increased competition among utilities, contributed to the
decrease in 1994 combined sales revenue generated by the wholly-owned foreign
operations - Hathaway Systems, Limited, Hathaway, Inc., Hathaway Advanced Power
Limited (HAP) and Hathaway Instruments Limited (HIL). Export sales from
continuing domestic operations were $7,265,000, $6,838,000 and $5,598,000 in
1995, 1994 and 1993, respectively. Sales to domestic customers from continuing
operations totalled $25,192,000, $29,165,000 and $29,811,000, in fiscal 1995,
1994 and 1993, respectively. Sales backlog for continuing operations was
$8,878,000 at June 30, 1995, compared with $8,868,000 and $9,873,000 at June 30,
1994 and 1993, respectively.
Cost of products sold represented 57.3% of revenues in 1995 compared to 54.8% in
1994 and 55.5% in 1993. The increase in 1995 occurred primarily because of price
reductions implemented in response to competitive pressures.
Selling, general and administrative, and engineering and development expenses
decreased 12% in 1995 from $17,526,000 last year to $15,489,000 in the current
year, and decreased 4% in 1994 from $18,178,000 in fiscal 1993. The decreases
have been primarily due to overall cost reduction efforts and reduced
commissions.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
Amortization expense from continuing operations, consisting of amortization of
costs in excess of net assets acquired and other intangible assets, increased 1%
in 1995, but decreased 20% in 1994 because fiscal year 1993 amortization expense
reflected a $94,000 one time write-off of deferred loan costs related to the
previous long-term debt agreement, which was refinanced in August 1993
(discussed below).
Operating income from continuing operations as a percentage of revenues has
remained relatively consistent at 3% in 1995 and 4% in 1994 and 1993, which
reflects the Company's continued cost reductions in response to declining
revenues.
Interest and dividend income from investment programs increased 5% in fiscal
1995 and 35% in fiscal 1994. The increase in 1994 was due to a higher average
cash balance throughout the year and the purchase of higher yielding investments
consisting of a long-term corporate bond and a long-term U.S. treasury note.
Total interest expense incurred by the Company was $204,000, $386,000 and
$918,000 for fiscal years 1995, 1994 and 1993, respectively. Of these amounts,
$109,000 and $446,000 for fiscal years 1994 and 1993, respectively, were
allocated to divested operations as a result of the terms of the Company's long-
term financing agreements. Interest expense from continuing operations decreased
$73,000 and $195,000 in 1995 and 1994, respectively. The 26% and 41% decreases
in interest expense from continuing operations for 1995 and 1994, respectively,
reflect interest savings from lower debt outstanding and lower interest rates on
such balances.
Foreign currency translation gains and losses on intercompany balances with the
Company's foreign subsidiaries and foreign currency transaction gains and losses
resulting from fluctuations in foreign currency rates are recognized as foreign
exchange gains and losses. The Company recognized net foreign exchange losses of
$13,000, $41,000 and $946,000 in 1995, 1994 and 1993, respectively. The
significant losses in 1993 were primarily due to fluctuations in the exchange
rates between the British pound and the U.S. dollar. For various business
reasons, substantially all of the intercompany debt with the Company's foreign
subsidiaries was repaid to the parent company or converted to equity in fiscal
year 1993 and the first quarter of 1994. As a result of these transactions, the
impact of foreign currency fluctuations on the Company's operating results has
been significantly reduced.
Other expenses were $63,000 in 1995 compared to $397,000 in 1994 and $386,000 in
1993. The large decrease in 1995 is due primarily to expenses for non-recurring
items incurred in 1993 and 1994.
As more fully described in Note 8 of the Notes to Consolidated Financial
Statements, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", on a prospective basis during the first
quarter of fiscal year 1994. Such adoption did not have a material impact on the
Company's financial position or results of operations.
DIVESTED SEGMENT
Effective January 31, 1994, the Company sold Global Software, Inc. to the senior
management of Global. The sale resulted in a net after tax gain of $4,023,000.
The Company received a cash payment of $6,803,000, of which a portion was used
to repay $3,000,000 of the Company's long-term debt and to pay a special $.10
per share dividend to shareholders totaling $495,000. The remaining proceeds
were used to pay the expenses and income taxes which resulted from the sale and
for other general operating activities. The Company obtained a fairness opinion
supporting the sale price and stockholder approval of the sale.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
Global's net income for the seven months ended January 31, 1994 and for the
year ended June 30, 1993 have been reflected as Net Income from Operations of
Divested Segment in the accompanying Consolidated Statements of Operations. For
the seven months ended January 31, 1994, Global generated revenues of
$14,053,000 and net income after income taxes of $885,000. For the year ended
June 30, 1993, Global generated revenues of $24,588,000 and net income after
income taxes of $958,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position as measured by cash decreased $1,644,000 during
the year to a balance of $5,903,000 at June 30, 1995. Operating activities
generated $1,447,000 and $2,187,000 in cash for the years ended June 30, 1995
and 1994, respectively. Cash of $1,049,000 was used by investing activities
during the current year, as compared to $1,159,000 generated last year. The
change in cash from investing activities is due primarily to non-recurring
activities in 1994, including proceeds from the sale of Global of $6,803,000,
offset by cash outlays of $2,731,000 related to the sale and purchases of
marketable securities of $1,288,000. Cash of $2,081,000 was used in financing
activities during the current year, compared to $6,774,000 used for financing
activities last year. The decrease in cash used for financing activities is due
primarily to certain events which happened in 1994, primarily the $11,877,000
repayment of long-term debt, offset by new borrowings of $7,227,000 under the
Company's financing agreement with Marine Midland Business Loans, Inc.
(Midland) - discussed below. At June 30, 1995, the Company had $2,144,000 of
debt, compared with $2,298,000 at June 30, 1994, a reduction of $154,000.
On August 2, 1993, the Company refinanced its long-term debt and entered into a
Reducing Revolving Line of Credit with Midland. The Company borrowed
approximately $7,000,000 and repaid the remaining balance of the existing debt
with HCFS and FMC. The new agreement had an initial borrowing limit of
$7,000,000 which is being reduced monthly over the seven year term of the loan.
As a result of the sale of Global, the borrowing limit was reduced by
$2,000,000. Borrowings on the line are restricted to the lesser of an amount
based on certain assets or the borrowing limit, which is subject to monthly
reductions. As of June 30, 1995, the Company could borrow an additional
$1,848,000, up to the current borrowing limit of $3,992,000. The line bears
interest at Midland's prime borrowing rate plus 1% (10% at June 30, 1995)
compared with the 12% fixed interest rate under the HCFS/FMC loan. The agreement
allows for payment of cash dividends subject to compliance with specified
financial covenants.
On September 17, 1993, the Company paid a cash dividend equal to $.105 per
common share, or $497,000, to stockholders of record on August 27, 1993. This
was the first dividend paid to stockholders since 1988, as dividends were
previously prohibited by the Company's then existing debt restrictions. In
connection with the sale of Global, the Company paid a special cash dividend
of $495,000 ($.10 per common share) on March 14, 1994 to stockholders of record
on February 28, 1994. Then, on September 16, 1994 the Company paid a cash
dividend equal to $.12 per common share, or $536,000.
In August 1995, the Company's Board of Directors declared a $.10 per share cash
dividend payable on September 15, 1995 to stockholders of record on August
25, 1995.
In December 1993, the Company acquired 25% of Zibo Kehui Electric Company Ltd.
(Kehui), located in Zibo, China, for approximately $100,000. Kehui designs,
manufactures and sells cable and overhead fault location and other test
instruments within the China market and the Company will sell these products
outside of China.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
During the third quarter of fiscal 1994, the Company acquired 25% of Hathaway Si
Fang Protection and Control Company, Ltd. (Si Fang), located in Beijing, China,
for a capital contribution of approximately $175,000. Si Fang designs,
manufactures and sells a new generation of digital protective relays, control
equipment and instrumentation products for substations in power transmission and
distribution systems.
In June 1995, the Company committed to acquire a 40% interest in a third joint
venture in China for $140,000, subject to Chinese government approval. Hathaway
Power Monitoring Systems Company, Ltd. located in Wuhan, China will design,
manufacture and sell, under a license from Hathaway, instrumentation products
designed by Hathaway, to electric power companies in China.
Effective July 1, 1993, the Company entered into five year employment agreements
with two of its executive officers. The agreements provide for 1) an annual
incentive bonus to be paid based on the achievement of specified returns on
equity and growth in share price plus dividends paid for each fiscal year, 2) a
long-term incentive bonus to be paid based on the achievement of specified
returns on equity and share price growth plus dividends paid over a three year
performance period and 3) specified benefits upon termination of employment (for
reasons other than cause or change in control) which are effective for one year
thereafter. As of June 30, 1995, the maximum amount that could be required to be
paid under the termination clause of this agreement was approximately $791,000.
The annual bonus is payable in cash following each fiscal year-end and totaled
zero in 1995 and $95,000 in 1994. The long-term incentive plan is payable in
Company common stock following the end of the three year performance period. At
the employee's election, such payout may be taken in cash up to 40% of the fair
market value of the total shares to be issued. The total number of shares
potentially issuable under the long-term incentive plan ranges from zero to
210,000. The Company recognized $71,000 of compensation expense in 1994 relating
to the long-term incentive plan, and reversed $16,000 of the expense in 1995.
During the second quarter of fiscal year 1994 and in accordance with the Officer
and Director Loan Plan which was approved by stockholders on October 26, 1989,
the Company issued $504,000 of loans to certain executive officers and members
of the Board of Directors. The proceeds of these loans were used to buy stock
under stock options which had been granted to the officers and directors in
prior periods. The loans, with remaining unpaid balances of $133,000 at June
30, 1995, are full recourse, due on demand, but no later than five years from
the date of issue, and accrue interest at the applicable federal rate.
Additional full recourse loans to key employees made for the same purpose
totalled approximately $169,000. These loans, plus accrued interest, were repaid
in April, 1994.
During the second quarter of fiscal year 1995, the Board of Directors approved a
loan of up to $35,000 to be made by the Company after November 30, 1994 to a
non-employee director. The loan will be made for the purpose of purchasing
Hathaway common stock from stock available on the NASDAQ National Market System.
The loan had not been made as of June 30, 1995.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
During fiscal 1994, the Company's Board of Directors approved a public stock
repurchase program whereby the Company may use up to $500,000 to repurchase its
common stock from stock available on the NASDAQ National Market System. Such
repurchased stock is being retained by the Company in its treasury. As of June
30, 1995, 64,778 shares had been repurchased under this program for
approximately $196,000. Effective June 30, 1995, the Board of Directors
approved the discontinuance of the public stock repurchase program.
In addition to the public stock repurchase program, the Board of Directors
approved an employee stock repurchase program whereby the Company may use up to
$1,000,000 to repurchase its common stock from its employees at the current
market value. As of June 30, 1995, the Company had repurchased 239,620 shares
for approximately $797,000.
During the first quarter of fiscal 1995, the Board of Directors approved two
special stock repurchases. The Company purchased 141,000 shares of the
Company's common stock from a significant non-affiliated shareholder at a price
equal to the then fair market value, which totaled approximately $441,000. The
Company also repurchased 132,000 shares from a non-employee director of the
Company at a price equal to the then fair market value which totaled
approximately $478,000. All repurchased stock is being retained by the Company
in its treasury.
Combined with previous purchases, the Company held treasury stock with a total
cost of $3,663,000 as of June, 30, 1995.
Funds provided by operations in future years will be enhanced by utilization of
tax credits of approximately $160,000 available on a consolidated basis at June
30, 1995. No major commitments for capital expenditures existed at year end. The
Company's current capital needs can be supplied from its continuing operations
and from cash and cash equivalents of $5,903,000, marketable securities of
$1,229,000 and the $1,848,000 available under the line of credit with Midland.
PRICE LEVELS AND THE IMPACT OF INFLATION
Prices of the Company's products have not increased significantly as a result of
inflation during the past several years, primarily due to its competition. The
effect of inflation on the Company's costs of production has been minimized
through production efficiencies and lower costs of materials. The Company
anticipated that these factors will continue to minimize the effects of any
foreseeable inflation and other price pressures from the industries in which it
operates. As the Company's manufacturing activities mainly utilize semi-skilled
labor, which is relatively plentiful in the areas surrounding the Company's
production facilities, the Company does not anticipate substantial inflation-
related increases in the wages of the majority of its employees.
31
<PAGE>
OFFICERS AND DIRECTORS/INVESTOR INFORMATION
<TABLE>
<CAPTION>
<S> <C>
BOARD OF DIRECTORS CORPORATE OFFICERS
Eugene E. Prince Eugene E. Prince
Chairman of the Board, Chairman of the Board,
President and Chief Executive Officer President and Chief Executive Officer
Marvin J. Fein Richard D. Smith
Private investor Executive Vice President, Treasurer,
Secretary and Chief Financial Officer
Chester H. Clarridge
Consultant Herbert Franson
Assistant Treasurer, Corporate Controller
Graydon D. Hubbard and Assistant Secretary
Retired Partner, Arthur Andersen LLP
SUBSIDIARIES AND DIVISIONS
George J. Pilmanis Domestic Subsidiaries and Divisions
President of Balriga International Corporation Computer Optical Products, Inc.
Business Development in the Far East and Eastern Europe Chatsworth, California
INVESTOR INFORMATION Hathaway Motion Control
Annual Meeting Tulsa, Oklahoma
The Annual Meeting of Shareholders of Hathaway Corporation will be held
at 2:30 p.m., on Thursday, October 26, 1995 at 8228 Park Meadows Hathaway Motors and Instruments
Drive, Littleton, Colorado. Tulsa, Oklahoma
Form 10-K Hathaway Power Instrumentation
A copy of the Company's report to the Securities and Exchange Commission, Littleton, Colorado
excluding exhibits, on Form 10-K may be obtained from the Company without
charge. Direct your written request to: Hathaway Corporation, 8228 Park Meadows Hathaway Process Instrumentation
Drive, Littleton, Colorado 80124. Carrollton, Texas
Transfer Agent Hathaway Automation Technology
American Stock Transfer & Trust Company Kent, Washington
40 Wall Street
New York, NY 10005 International Subsidiaries
Hathaway, Inc.
Auditors Toronto, Canada
ARTHUR ANDERSEN LLP
Denver, Colorado Hathaway Systems Limited
Belfast, Northern Ireland
Hathaway Instruments Limited
Hoddesdon, England
</TABLE>
Stock Data High Low
- --------------------------------------------------------
First Quarter 4 1/8 3 1/8
Second Quarter 3 7/8 2 3/4
Third Quarter 3 1/8 2 1/4
Fourth Quarter 3 1/8 2 3/8
========================================================
32
<PAGE>
SUBSIDIARIES OF HATHAWAY CORPORATION
1) Hathaway Systems Corporation, a Colorado corporation.
2) Computer Optical Products, Inc., a Colorado corporation.
3) Hathaway, Inc., a Canadian corporation.
4) Hathaway Systems Limited, a Northern Ireland corporation.
5) Hathaway Instruments Limited, a United Kingdom corporation.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated July 31, 1995 incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statement on Form S-8
(No. 2-73235) of the Hathaway Corporation Amended 1980 Non-Incentive Stock
Option Plan dated August 3, 1981, into the Registration Statement on Form S-8
(No. 2-90687) of the 1983 Incentive and Non-Qualified Stock Option Plan of
Hathaway Corporation dated May 10, 1984, into the Registration Statement on Form
S-8 (No. 3344998) of the 1992 Employee Stock Purchase Plan of Hathaway
Corporation dated January 8, 1992, into the Registration Statement on Form S-8
(No. 33-37473) of the 1989 Incentive and Non-Qualified Stock Option Plan of
Hathaway Corporation dated October 25, 1990, and into the Registration Statement
on Form S-8 (No. 3344997) of the 1991 Incentive and Non-Statutory Stock Option
Plan of Hathaway Corporation dated January 8, 1992.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 26, 1995.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 5,903,000
<SECURITIES> 1,029,000
<RECEIVABLES> 7,791,000<F1>
<ALLOWANCES> 305,000
<INVENTORY> 4,469,000
<CURRENT-ASSETS> 20,200,000
<PP&E> 7,836,000<F1>
<DEPRECIATION> 6,038,000
<TOTAL-ASSETS> 23,312,000
<CURRENT-LIABILITIES> 5,295,000
<BONDS> 2,144,000
<COMMON> 100,000
0
0
<OTHER-SE> 15,773,000
<TOTAL-LIABILITY-AND-EQUITY> 23,312,000
<SALES> 39,838,000
<TOTAL-REVENUES> 39,838,000
<CGS> 22,834,000
<TOTAL-COSTS> 22,834,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (69,000)
<INTEREST-EXPENSE> 204,000
<INCOME-PRETAX> 1,321,000
<INCOME-TAX> 479,000
<INCOME-CONTINUING> 842,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 842,000
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
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<F1> Presented gross
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